Frisoli & Anor v Kourea & Ors; Frisoli & Anor v Kourea & Ors

Other Issues Consequential on the Second Judgment 7Apart from the outstanding question of the costs of the family provision proceedings and the 2011 trust proceedings, other minor consequential issues have arisen from the orders in the Court's second judgment (at [91]). There are three such issues: (1) the source of monies to prepare the Rozelle property for sale; (2) the timing of Earthloop paying the superannuation monies to Natasha; and (3) the incidence of capital gains tax on the Rozelle property. 8Natasha first seeks that Earthloop pay the superannuation monies which are the subject of order 12 within fourteen days. In the absence of agreement an order must be made for payment of the Earthloop superannuation monies within a particular time. There is no reason to delay the payment of these monies any longer. They should be paid within fourteen days as Natasha has requested. This will speed up the provision of funds to prepare the Rozelle property for sale. This additional order is provided for in the orders below. 9Natasha seeks an additional order, to allow her to draw $30,000 from the monies quarantined by order 13 of the second judgment. Monies will be needed to prepare Goodsir Street for sale. The funds from the superannuation monies can be used for this purpose, a result consistent with the reasons the Court expressed in the second judgment (at [65]) for quarantining the fund of $150,000: to preserve the estate's liquidity in the short term. The $30,000 will only be able to be applied to prepare the Rozelle property for sale, as the orders below provide. 10The parties anticipate that capital gains tax of a not insignificant amount will have to be paid on the sale of the Rozelle property. Natasha seeks an acknowledgement that she is entitled to deduct the assessed capital gains tax from the sale proceeds. Counsel for Holden and Atlanta acknowledge that the sale proceeds of the Rozelle property can only be dealt with net of capital gains tax. They have acknowledged that Natasha can set aside the funds to meet the capital gains tax liability that will arise on the sale. But there is a difficulty in ascertaining how much needs to be set aside for that purpose. 11There are many ways this can be done. If the parties cannot agree upon a mechanism, the Court is prepared to nominate from a panel of experts the parties put forward a Court expert to determine an appropriate fund to be reserved for this purpose. The Court's preparedness to do this as a default position should allow the parties to solve this issue between themselves. A note to this effect appears in the Court's orders below. 12Left over from the second judgment are the questions of the making of a lump sum costs order, and who should bear the burden of costs arising from the Court's finding that Natasha was the deceased's de facto spouse for in excess of two years. 13But the first issue is to identify the parties' respective costs of the 2011 trust proceedings and the family provision proceedings. Then the Court assesses a gross sum costs orders in respect of both these proceedings. Following that the Court makes special orders in relation to the family provision and 2011 trust proceedings to take account of the contest concerning whether Natasha was the deceased's de facto wife for more than two years before his death.

The Parties' Costs 14Both parties supplied their original memoranda of fees to the Court. These memoranda of fees will be respectively marked as exhibits: for the plaintiffs' material, as "Exhibit A - Costs"; and for the defendants' material, "Exhibit 1 - Costs". 15Holden and Atlanta served supplementary submissions in chief on costs issues on 4 March; Natasha served supplementary submissions in reply on costs issues on 10 March; and Holden and Atlanta served submissions in further reply on 11 March. Holden and Atlanta's submissions on costs partly dealt with their costs of proceedings other than the 2011 trust proceedings and the family provision proceedings. But as the second judgment makes clear (at [66] to [84]), these submissions are outside the scope of this judgment. Those order costs have already been dealt with. 16Holden and Atlanta's legal fees for the family provision proceedings totalled $273,460 and, broken down, are as follows: (a) Holden's claim and defence of Natasha's cross-claim - solicitor's fees $137,920 and disbursements $21,442.34 (inclusive of GST); (b) Atlanta's claim - solicitor's fees $33,952 (inclusive of GST) and no disbursements. (c) Counsel's fees on Holden and Atlanta's claims, and the cross-claim were $101,588.85, inclusive of GST (being $92,869 up to the first judgment, and an additional $8,719.15 post the first judgment). 17Holden and Atlanta submit that in settling upon an appropriate specified gross sum instead of assessed costs the Court should adopt a calculation allowing 100 per cent of disbursements, 100 per cent of counsel's fees and 75 per cent to 80 per cent of solicitor's fees. In my view that is a reasonable approach to the calculation, for all legal fees on both sides, and in respect of both the family provision and the 2011 trust proceedings. 18Holden's and Atlanta's costs for the 2011 trust proceedings were a total of $21,713 inclusive of GST, being solicitor's fees of $9,586 and counsel's fees of $12,127.50. This figure is considerably lower than the estimate given before and recorded in the second judgment (at [72]) of $31,586. 19Natasha's fees for both proceedings are lower. The total of their fees for both proceedings are $235,520.20, made up as follows: (a) counsel - $133,759.70; (b) solicitors - $76,328.29; (c) disbursements - $3,483.70; (d) interest - $6,948.81 (charged on unpaid fees after transfer of the file between (e) an allowance of $15,000 for legal fees and disbursements for work complete and not yet invoiced and anticipated future costs up to final judgment. 20With their 3 March letter setting out their memoranda of fees, the defendants have provided evidence of the costs and disbursements of $72,979 they have already paid. Some $55,000 of this was paid after March 2012. Thus less than $20,000 of Natasha and Tashnat's fees were paid more than two years ago. I do not have similar information in respect of the timing of the payment of Holden and Atlanta's legal fees. But it can be assumed that a similar or larger portion of their fees were paid at least as early as Natasha's fees were paid. The approach the Court has taken is to ignore interest on legal fees paid on both sides. This is a fair approach: it has an approximately similar impact on both sides; and in litigation such as this each party should bear the financing costs of their own decisions from time to time to change lawyers and to borrow to pay their lawyers. 21But Natasha and Tashnet have not provided a breakdown of her and Tashnat's costs as between the family provision proceedings and the 2011 trust proceedings. This was one of the reasons that the Court decided in the second judgment to consider the costs orders for both proceedings together. As the Court's second judgment recorded (at [72]) they had estimated their costs of the 2011 trust proceedings at $11,613.04 by an apportionment of their total costs, although Holden and Atlanta dispute this apportionment. 22As was decided in the second judgment (at [75] and [76]) for the reasons there given, both parties should recover their costs of the 2011 proceedings out of the estate and the notional estate. This simplifies the Court's task. When it comes to making specified gross sum costs orders under Civil Procedure Act, s 98(4)(c), a single figure will be determined on each side for both sets of proceedings. And any costs adjustments to be made on account of Natasha's success on the de facto spouse issue in the family provision proceedings can still be made in relation to the total costs, because all parties understand that the costs of the 2011 trust proceedings are of minor relative magnitude.

A Specified Gross Sum Costs Order 23The Court will make a specified gross sum costs order. Having reviewed the memoranda of fees the solicitors and counsel on both sides, the fees charged appear to be reasonable and appropriate on a solicitor and client basis and are sufficient for the Court to make a specified gross sum determination, without the need for other expert evidence on issues of cost assessment. The Court's broad discretion to make specified gross sum costs orders under Civil Procedure Act, s 98(4)(c) is well established: Harrison v Schipp (2002) NSWLR 738; [2002] NSWCA 213. 24Leaving aside interest charges on both sides, which are dealt with below, I will allow counsel's fees and disbursements in full on both sides and will allow solicitor's costs on both sides of 75 per cent. This is a reasonable discount of part of the fees concerned and takes into account that on ordinary principles Holden would be entitled to recover some of his fees from the estate on the indemnity basis. That means that Holden and Atlanta's total solicitor's costs for the claims in and the defence of the family provision proceedings of $171,872 (being $137,920 plus $33,952), will be allowed as to 75 per cent, namely $128,904. 25The same result will follow in the 2011 trust proceedings, where Holden and Atlanta's solicitor's fees of $9,586 will be allowed as to 75 per cent, namely $7,189.50. 26Thus, in Holden and Atlanta's case, putting together all solicitor's and counsel's fees and disbursements, but excluding any interest charges, the Court will allow by way of a specified gross sum, instead of assessed costs, the sum of $271,252.19 (being $128,904 plus $7,189.50 plus $21,442.34, $101,588.85 plus $12,127.50, all inclusive of GST). 27Natasha's total fees of the family provision and 2011 trust proceedings, allowed as a specified gross sum, are therefore $209,489.61 (being $133,759.70 plus $57,246.28 (being 75 per cent of $76,328.29) plus $3,483.70 plus $15,000). 28Natasha's solicitor's costs should be allowed to the same level of 75 per cent that was allowed for Holden and Atlanta's solicitor's costs. Thus her claim for $76,328.29 will be allowed at $57,246.28. 29Thus in Natasha's case, adding all allowed solicitor's and counsel's fees and disbursements but excluding any interest or financial charges, the Court will allow $209,489.61 (being $133,759.70, plus $57,246.26 plus $3,483.70, plus $15,000). 30The specified gross sum for costs allowed to Holden and Atlanta is $271,252.19 and to Natasha is $209,489.61. But the next question is whether there should be any reduction of this sum on account of Holden and Atlanta's failure on the de facto spouse issue.

The Costs Consequences of Finding Natasha was a De Facto Spouse 31Holden and Atlanta will not be permitted full costs recovery from the estate and notional estate because they failed in their contention that Natasha was not the deceased's de facto spouse - an issue that incurred significant costs on both sides of these proceedings. 32The second judgment set out (at [77] to [82]) the parties' respective arguments in relation to the burden of costs in the family provision proceedings. It is not necessary to set them out any further. 33The breadth of the Court's cost discretion in this context is undoubted. The general rule that costs follow the event unless some other order should be made (UCPR, r 42.1 and Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11) is displaced somewhat with respect to family provision act proceedings by the special power conferred under Succession Act, s 99: see Diver v Neal (2009) 2 ASTLR 89; [2009] NSWCA 54 at [78]. 34But Succession Act, s 99 does not vary the general position with respect to executor's defending the position of an estate and who, absent some form of misconduct, will be entitled to recover costs from the estate on an indemnity basis: Diver v Neal at [80]. 35There are balancing factors on both sides of this argument. I accept the thrust of Mr Ellison SC's submission that whilst there was no dispute about the eligibility of Holden and Atlanta under Succession Act, s 57 to bring their family provision claims, much of the oral evidence in the proceedings was directed to whether or not Natasha was the deceased's de facto spouse prior to his death. On that contest Natasha was successful. In those circumstances there would be unfairness in allowing all of Atlanta and Holden's costs out of the estate before it is distributed in the proportions fixed by the Court. But I do not accept Mr Ellison SC's argument that Holden and Atlanta's solicitor's costs were excessive. This conclusion is not appropriate, given Holden's additional responsibility in the role of executor in the proceedings, given that on his and Atlanta's side there were two claims, being pursued, and given the additional impact of the 2011 trust proceedings (the costs of which it has already been determined, will come out of the estate). 36And as Mr McGrath submits Holden has a right to his costs out of the estate to the extent that he has incurred costs in his role as executor: his right to an indemnity out of the estate in those circumstances is undoubted. 37But some factors which weigh in favour of reducing Holden and Natasha's full cost recovery from the estate must be given weight. First, the contest about whether Natasha was the deceased's de facto spouse was the main contest in the proceedings; and it occupied much of the Court's time and the parties' preparation. Secondly, Natasha was successful and Holden and Atlanta were unsuccessful on that issue. Quite apart from Holden's role as an executor defending Natasha's family provision cross-claim, in their family provision act cases Holden and Natasha were contending that Natasha was not a de facto spouse and were thereby seeking to displace any competing claim from Natasha. The proper result in the circumstances is to reduce what Holden and Atlanta would otherwise recover from the estate, on account of their lack of success on this issue. 38The appropriate reduction in Holden and Atlanta's costs should not be insignificant, given the importance of this issue in the proceedings. But given the factors Holden has advanced about his role as executor and the complexity of these proceedings on his side, the reduction should not result in Holden and Atlanta's costs being held to quite the same level as Natasha's. Considering all the circumstances the appropriate exercise of discretion is to reduce Holden and Atlanta's cost recovery by $45,000 on account of this issue. Thus Natasha will be entitled to recover $209,489.61 in costs from the estate. And Holden and Atlanta will be entitled to recover $226,252.19 from the estate (being $271,252.19 minus $45,000).

Orders 39Accordingly, and with the parties being referred to in the same way as they have in previous orders, the Court makes the following further orders and directions:

1. That the monies ordered to be paid to Natasha by order 12 of the orders made on 24 February 2014 shall be paid within 14 days of today, 25 March 2014.
2. Vary order 13 of the orders made on 24 February 2014 to add after the words "...of the Court" the following: "provided that this order will not prevent Natasha from applying $30,000 of the said $150,000 upon the reasonable expenses of preparing the Rozelle property for sale pursuant to order 4 of the orders made on 24 February 2014".
3. Vary order 7, to add after the words "from the sale proceeds" the following: "and (c) any capital gains tax applicable on the sale".
4. Direct the parties to attempt to agree upon a mutually satisfactory mechanisms: (a) to expedite the Australian Taxation Office's assessment of any applicable capital gains tax on the sale of the Rozelle property, and (b) to estimate what sum should be set aside from the sale proceeds of the Rozelle property so as to be reasonably sufficient to meet all capital gains tax likely to be assessed on the sale of the Rozelle property.
5. An order that subject to orders 7 and 8 that (a) Natasha's costs of bringing her family provision proceedings and (b), Holden and Atlanta's costs of bringing their family provision proceedings and the 2011 Trust proceedings, be paid out of the estate on the ordinary basis.
6. Holden's costs in defending Natasha's family provision proceedings and Natasha's costs in defending the 2011 Trust proceedings be paid out of the estate and the notional estate on the indemnity basis.
7. Order pursuant to Civil Procedure Act 2005, s 98(4)(c) and subject to order 8 that a specified gross sum of: (a) $271,252.19 be awarded to Holden and Atlanta, instead of their assessed costs, (b) $209,489 be awarded to Natasha, instead of assessed costs.
8. Order that of the sum awarded in order 7(a), that the amount that Holden and Atlanta may recover from the estate and notional estate of the deceased on account of their costs is only the sum of $221,252.19.
9. 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: 25 March 2014