COSTS - Family provision - Unsuccessful appeal by executor/sole beneficiary - Whether appellant should pay costs of appeal personally - Whether appellant acted reasonably in bringing appeal - Distinction drawn between appeal against factual findings and appeal on legal issue - Supreme Court (General Civil Procedure) Rules 2005, rr 63.32(2), 64.24(1).

EVIDENCE - Admissibility of what was said at a mediation and without prejudice offers of settlement - Supreme Court Act 1986, s 24A; Evidence Act 2008, sub-ss 131(1) and (2)(h).

1 On 22 June 2010 the Court handed down its judgment[1] dismissing the appeal against the order by the learned trial judge that half of the estate of the deceased, Mr Malcolm Forsyth, be paid to Mrs Marlene Sinclair. The unsuccessful appellant, Campbell Forsyth, was the brother of the deceased and the sole remaining executor and beneficiary under the deceased's 1973 will.

2 Senior counsel for the respondent then sought an order that the appellant pay the respondent's costs personally on a solicitor and client basis and an order that the appellant/executor not be entitled to be reimbursed out of the assets of the estate for his own legal costs of the appeal or for the costs to be paid by him to the respondent for her costs of the appeal. He handed up the respondent's written submissions on costs. Counsel for the appellant opposed the orders sought by the respondent and submitted that both parties should have their costs out of the estate on a solicitor and client basis. After hearing preliminary argument, the Court ordered that the parties file and serve any further submissions in accordance with a specified timetable.

3 It now appears that on 24 June 2010, the day before the appellant's submissions were due to be filed and served, the solicitors for the respondent wrote to the appellant's solicitors requesting the appellant's consent to the respondent informing the Court of something that had been said by the respondent's counsel, at the mediation of the appeal conducted by Gardiner AsJ in February 2009 ('the 2009 mediation'), concerning the costs of the appeal. Enclosed with the letter was a draft letter which the respondent's solicitors proposed sending to the Court if the appellant consented. It contained a description of what had allegedly been said at the 2009 mediation about the question of costs of the appeal if the appeal was not successful. The propriety of disclosing what has been said at a mediation will be considered below.

4 Although the appellant's submissions on costs were filed on the due date, 25 June 2010, the letter from the respondent's solicitors caused the appellant's solicitors to write to the Court advising that:

... in correspondence from the solicitors for the Respondent received yesterday a critical issue with respect to costs has been raised for our client's consideration and seeks for a response. This newly raised issue necessitates going through the now very substantial files in order to locate relevant material in order to fully and properly address what the lawyers for the Respondent now wish to raise in their submissions to the Court.

In practical terms that means that a Supplementary Submission in relation to costs cannot be prepared and filed today. We are confident that we can do so by the close of business on Tuesday next, 29 June. Of course we would see the Respondent having an extension of time until 4.15 pm on 2 July in which to file and serve her Submissions in reply.

5 The appellant's supplementary submissions were filed, as anticipated, on 29 June 2010. In that document, counsel for the appellant set forth his version of what had relevantly occurred at the 2009 mediation. In addition, counsel went on in the supplementary submissions to set out a chronological list of demands by the respondent, offers of settlement by the respondent, Calderbank offers by the appellant and an account of some of the negotiations at a mediation held in November 2005 ('the 2005 mediation'). The propriety of such disclosures will also be considered below.

6 On 30 June 2010 the respondent's solicitors wrote to the Court enclosing a copy of their letter to the appellant's solicitors dated 24 June 2010 and a copy of a draft letter which the respondent's solicitors had proposed sending to the Court if the appellant had consented. It was this correspondence which had provoked the supplementary submissions from the appellant. The enclosed letters made it clear that the respondent was intending to apply to the Court to seek leave to adduce evidence of what had been said at the mediation if the appellant's consent was not forthcoming.

7 The letter to the Court dated 30 June 2010 also objected to the appellant's disclosure to the Court of the previous offers of settlement. This objection was repeated in the submissions in reply from the respondent's senior counsel.

8 We turn, first, to the question of the propriety of the legal representatives for both the appellant and the respondent disclosing some of what had occurred at the 2009 mediation.

9 Section 24A of the Supreme Court Act 1986 provides as follows:

24A Mediation

Where the Court refers a proceeding or any part of a proceeding to mediation, other than judicial resolution conference, unless all the parties who attend the mediation otherwise agree in writing, no evidence shall be admitted at the hearing of the proceeding of anything said or done by any person at the mediation.

10 The 2009 mediation was held pursuant to the order of Lansdowne AsJ made on 12 November 2008. Thus, s 24A clearly applied to it. It would appear, however, that neither party's legal representatives turned their minds to the prohibition contained in s 24A.

11 The argument advanced by the respondent's solicitors when making their initial request for the appellant's consent was as follows. During the course of the hearing of the costs argument Redlich JA had asked senior counsel for the respondent whether the respondent had given any notice to the appellant that the respondent would seek an order that the appellant personally be liable for the costs of the appeal, rather than those costs being borne by the estate, in the event the appeal was dismissed. The answer was that no such notice had been given by way of communication through solicitors for the parties. At that point, senior counsel considered that he should not inform the Court of the fact that this issue had been specifically raised by him with counsel for the appellant at the mediation. On reflection, senior counsel came to the view that the Court could, and should, be informed of this fact. Although s 131(1) of the Evidence Act 2008 stipulated that evidence was not to be adduced of a communication made between parties in dispute in connection with an attempt to negotiate a settlement of the dispute, under s 131(2)(h) that rule did not apply if 'the communication or document is relevant to determining liability for costs'. Accordingly, 'in order to ensure that both parties fulfil their obligations to give a full and accurate response to the question', the respondent's solicitors sought the appellant's consent to the respondent informing the Court that 'this issue of costs was raised at the mediation'.

12 Although the notice of appeal was filed on 22 October 2008 the provisions of the Evidence Act 2008 were applicable, because the hearing of the appeal took place 'on or after the commencement day', which was, relevantly, 1 January 2010.[2] Section 131(2)(h) of that Act clearly allows for 'without prejudice' communications between the parties which are relevant to the issue of costs to be admitted into evidence on that issue.[3] However, in our opinion, that general provision must give way to the specific provision concerning mediations.

13 In Pinot Nominees Pty Ltd v Federal Commissioner of Taxation,[4] Siopis J held that ss 53A and 53B of the Federal Court of Australia Act 1976 (Cth), which are similar to s 24A of the Supreme Court Act and s 30(4) of the Civil Procedure Act 2005 (NSW), could be 'reconciled' with s 131(2)(h) of the Evidence Act (Cth):

on the basis that s 131(2)(h) applies to 'without prejudice' communications other than those communications which are made during the course of a mediation conference to which s 53B applies.[5]

14 In our opinion, this is a sensible outcome in that it leaves the parties free at the mediation to explore all avenues of settlement without the fear that something said or done will be referred to later without their agreement. Positions eventually reached at the mediation can be relied on, if a party wishes to do so, by making an offer of compromise or an offer to compromise the appeal in accordance with O 26 of the Supreme Court (General Civil Procedure) Rules 2005 ('the Supreme Court Rules'), or by making a Calderbank offer, following the mediation. Thus, it would have been preferable, in our opinion, for the respondent to have made its position on the costs of the appeal clear by correspondence after the mediation rather than attempting to refer to what was said at the mediation.

15 This conclusion means that in the present case, the relevant provision was s 24A of the Supreme Court Act and not s 131(2)(h) of the Evidence Act. Thus, the evidence of something that had been said at the mediation was not admissible at the hearing relating to the costs of the appeal unless all the parties who attended the mediation agreed in writing. But instead of replying to the respondent's solicitors, saying whether or not the appellant agreed to the Court being informed of what had been said by senior counsel, the appellant's legal representatives prepared supplementary submissions in which it was admitted that the proposed letter from the respondent's solicitors to the Court did 'reasonably accurately set forth what was said' by the respondent's senior counsel on the question of the costs of the appeal 'save for two critical caveats'. These involved a debate about the timing and the manner in which senior counsel's statement had been made.

16 In the circumstances, the appellant's supplementary submissions must be taken to be the equivalent of his agreement in writing to the Court being informed of the statement by the appellant's senior counsel. It was implicit from the supplementary submissions that the appellant was agreeing to the evidence being admitted. However, it was an unsatisfactory way to proceed. It would have been preferable, in our opinion, for the question of consent to have been established first, with the parties' legal representatives then addressing the question of how and what the Court should be told, before further submissions were filed.

17 The problems that can result from this inappropriate procedure is illustrated when one turns to consider the propriety of the legal representatives for the appellant disclosing some of what had occurred at the 2005 mediation. This was held pursuant to the order of Master Evans, as he then was, made on 12 April 2005. Section 24A of the Supreme Court Act therefore applied to it. However, there has been no agreement in writing from the respondent to such a disclosure. Therefore, evidence as to what amount the respondent was seeking, and what offers were made, or what offers were sought to be made by the appellant but not put by the mediator, is totally inadmissible and should not have been mentioned. It seems that it was referred to almost on a tit for tat basis that if the respondent was going to rely on what was said in the 2009 mediation, then the appellant would mention what occurred at the 2005 mediation because that was thought to assist the appellant's argument. It certainly was not required to be disclosed, as suggested in the supplementary submissions, by the question asked by Habersberger AJA at the costs hearing as to whether there had been any settlement offers made which were relevant to the costs of the appeal and which could be referred to, that is, not made on a without prejudice basis. Accordingly, we will put any reference to what occurred at the 2005 mediation out of our mind.

18 Finally, there is the question of the propriety of the references in the supplementary submissions to settlement offers previously made by the parties. By their very nature there is no issue about the appellant's Calderbank offers being mentioned. Only one of those offers was made in the period between the judgment at first instance and the appeal and its terms were such that it had no role to play in the question of what order should be made in respect of the costs of the unsuccessful appeal.

19 The settlement offers made by the respondent, which it seems were made 'without prejudice', would normally not be admitted into evidence, unless s 131(2)(h) of the Evidence Act applied. All of the respondent's settlement offers were made before the trial. Therefore, they are not 'relevant to determining liability' for the costs of the appeal and are not excluded by s 131(2)(h) from the statutory prohibition on adducing evidence of settlement negotiations contained in s 131(1) of the Evidence Act. Accordingly, we will put any reference to the respondent's settlement offers out of our mind.

20 We turn, at last, to the question of what order should be made for the costs of the appeal. Costs are in the discretion of the Court, which discretion must be exercised judicially.[6] Rule 64.24(1) of the Supreme Court Rules provides that:

The Court of Appeal may make such order for the whole or any part of the costs of an appeal as it thinks fit.

... the Court may order that costs be taxed on a solicitor and client basis where the Court makes an order for -

(a) the payment to a party of costs out of a fund ...

Thus, the costs of a successful applicant for family provision and the unsuccessful defenders of the will (whether executors or beneficiaries) have often been ordered to be paid out of the estate on a solicitor and client basis.[7] This approach of allowing the costs of both parties to be paid out of the estate on a solicitor and client basis has also been followed in the case of a successful appeal by the family provision applicant.[8]

21 In support of the submission that the appellant should pay the respondent's costs personally on a solicitor and client basis and that he should not be entitled to be reimbursed out of the assets of the estate his own costs of the appeal or the costs paid to the respondent, senior counsel for the respondent submitted that the appellant/executor had not acted reasonably in bringing the appeal and therefore that he was not entitled to be indemnified out of the estate assets.[9] Counsel also submitted that it was artificial to regard the appellant as acting in the interests of the beneficiaries in bringing the appeal, as submitted by the appellant's counsel, when, as the sole beneficiary under the will, he was really acting in his own personal interest. Therefore, it was submitted, the appellant was in no different position to any other unsuccessful appellant and costs should follow the event. It was further submitted that since the 2009 mediation the appellant had been on notice that in the event that his appeal was unsuccessful, the respondent would be making this submission on costs, and he had chosen to run this risk in his own financial interest.

22 Counsel for the appellant maintained his position that both parties should have their costs out of the estate on a solicitor and client basis. He submitted that in accordance with general principle the appellant should be reimbursed his costs out of the estate unless he had acted unreasonably.[10] He submitted that, in the circumstances, the appellant did not act improperly or unreasonably in exercising his duty to uphold the will by appealing against a decision in respect of facts which ordinarily would not give rise to the moral duty required as the basis for jurisdiction under s 91 of the Administration and Probate Act 1958.

23 We agree with this submission to a limited extent, namely, that the appellant did not act unreasonably in bringing an appeal raising the issue of whether the facts found by the trial judge gave rise to the moral duty on the part of the testator to provide maintenance and support for the respondent. It was clearly arguable that the decision in this case had stretched the boundaries too far given the unusual aspects of the relationship between the testator and the respondent. As Redlich JA said in his judgment, it was a case 'at the margin'.[11]

24 On the other hand, the challenge to the factual findings made by his Honour was, in the words of Neave JA, 'hopeless'.[12] Without that challenge, the legitimate legal issue could have been tested at a significantly lesser cost to the parties. We consider that the six volume appeal book could have been reduced to one slim volume and all of the pre-appeal documents and preparation for the appeal substantially reduced if the factual findings had not been challenged.

25 Therefore, as we consider that the appellant did not act reasonably in appealing against the factual findings, we would not allow the appellant to be fully reimbursed out of the estate. One method of limiting the reimbursement to the appellant is to order that his costs be taxed only on a party and party basis instead of a solicitor and client basis. This was the approach adopted by Hodgson CJ in Eq in Wang v D'Ambrosio.[13] His Honour gave the following two reasons for declining to follow what was submitted to be the 'usual' order for costs in favour of the executor:

One reason is what appears to be the disproportion of the costs incurred to what was involved in the case, both in terms of the size of the estate and the issues being fought. The other is that it seems to me that the case has been conducted with some animus on the part of the executor as fairly extreme adversary proceedings.[14]

26 Another approach is to order that the appellant's costs to be paid out of the estate on a solicitor and client basis be reduced by the costs incurred by him and by the respondent in relation to the appeal against the factual findings. However, it seems to us that ascertaining what costs of each party actually related to the appeal against the factual findings would only result in more costs being incurred, and that it would be preferable to simply reduce the appellant's costs of the appeal by a proportion fixed by reference to an estimate of the extent of the costs unreasonably incurred.[15] We consider that the more appropriate course in the circumstances of this case is to follow this approach, and we would reduce the appellant's solicitor and client costs by one half.

27 One final matter. Senior counsel for the respondent emphasised that the litigation costs have had and will have a substantial adverse impact on the amount of her successful claim. Regrettably, this is undoubtedly so. We consider that it is a matter of concern that in many family provision cases the amount available for distribution amongst the competing beneficiaries is significantly reduced by legal costs. Parties should not assume that litigation can be pursued safe in the belief that costs will always be paid out of the estate. Every effort should be made to resolve the dispute before the costs get out of proportion.[16] However, it takes two to settle a dispute and unless sensible offers of settlement are made in a form which can be referred to subsequently, it is very difficult for the Court to allocate responsibility for the dispute not settling. All that can be done is to conclude that where costs have been incurred unreasonably, as here, they must be borne personally.

2. The appellant's costs of the appeal be taxed on a solicitor and client basis and that one half be paid out of the estate and one half be borne by the appellant personally.

3. The respondent's costs of the appeal be taxed on a solicitor and client basis and be paid out of the estate.

[1] [2010] VSCA 147.

[2] See the new Schedule 2 inserted into the principal Act by s 53 of the Statute Law Amendment (Evidence Consequential Provisions) Act 2009. See also R v Darmody [2010] VSCA 41, [14]-[21] (Nettle and Ashley JJA and Habersberger AJA).

[3] Marks v GIO Australia Holdings Ltd (No. 2) (1966) 66 FCR 128, 135 (Einfeld J).

[4] [2009] FCA 1508; (2009) 181 FCR 392.

[5] [2009] FCA 1508; (2009) 181 FCR 392, [30]. See also Tony Azzi (Automobiles) Pty Ltd v Volvo Car Australia Pty Ltd [2007] NSWSC 375; (2007) 71 NSWLR 140 (Brereton J).

[6] Major Engineering Pty Ltd v Helios Electrohead Pty Ltd (No 2) [2006] VSCA 114.

[7] In the Will of Mailes [1908] VicLawRp 40; [1908] VLR 269; Re Bennett [1909] VicLawRp 35; [1909] VLR 205; In the Will and Codicils of Read [1910] VicLawRp 16; [1910] VLR 68.

[8] Dehnert v The Perpetual Executors and Trustees Association of Australia Ltd [1954] HCA 47; (1954) 91 CLR 177, 191-2 (Kitto J).

[9] Re Earl of Radnor's Will Trusts (1890) 45 Ch D 402, 423; In re Beddoe; Downes v Coltam [1893] 1 Ch 547.

[10] Rosenthal v Rosenthal [1910] HCA 47; (1910) 11 CLR 87, 98 (Isaacs J); Dobb v Hacket (1993) 10 WAR 532, 535 (Murray J).

[11] [2010] VSCA 147, [106].

[13] [1999] NSWSC 227.

[15] For an analogous approach where neither party is wholly successful on appeal, see McFadzean v Construction Forestry Mining and Energy Union [2007] VSCA 289, [156] (Warren CJ, Nettle and Redlich JJA).

[16] Szlacko v Travini [2004] NSWSC 610, [11] (Young J).