Galstian v Galstaun

Supreme Court of NSW|2010-09-13|Before: Palmer J

CITATION : Galstian v Galstaun (bht M. Chater) [2010] NSWSC 1214

JURISDICTION : Equity Division Probate List

CATCHWORDS : SUCCESSION - COSTS - INTERIM COSTS ORDER - Contested probate suit - plaintiff seeks interim costs order upon terms as to repayment - consideration as to whether such costs order may be made.

Civil Procedure Act 2005 (NSW) - s 86, s 98(3) LEGISLATION CITED : Family Provision Act 1982 (NSW) Succession Act 2006 (NSW) - s 8

Breen v Breen (1990) 65 ALJR 195 - Dae Boong International Co Pty Ltd v Gray [2009] NSWCA 11 - Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 CASES CITED : - Parker v Parker (1992) 16 Fam LR 458 - Pioneer Park Pty Ltd (in liq) v Australia and New Zealand Banking Group Ltd (2007) 65 ACSR 383 - Williams v Williams [1929] P 114 - Wilson v Wilson (1966) 9 FLR 1

PARTIES : Galoost Galstian (Plaintiff) Sophie Galstaun (Defendant, by her tutor Michael Chater)

COUNSEL : G.K. Burton SC (Plaintiff) M. Gorrick (Defendant)

SOLICITORS : Kanjian & Co (Plaintiff) P.T. Fowler & Sons (Defendant)

2009/320009 Galoost Galstian v Sophie Galstaun (bht Michael Chater)

1 Arshak Galstaun died on 9 August 2008, aged ninety-six years, leaving a large estate. His widow is still living. 2 The Plaintiff, Mr Galstian, has commenced proceedings for a declaration pursuant to s 8 Succession Act 2006 (NSW) that a document executed by the deceased dated 2 August 2008 is the last will of the deceased. Mr Galstian is named in the document as sole executor and he seeks a grant of probate of that will to him. The declaration under s 8 is sought because the will was informally executed - the deceased's execution of it was not attested by the requisite two witnesses. 3 The application for probate is contested by the deceased's widow, Mrs Galstaun. If probate of the will is not granted, the deceased will have died intestate and Mrs Galstaun will take the whole of his estate. There are contested proceedings on foot as to whether a statutory will should now be made for Mrs Galstaun pursuant to s 18 Succession Act, and a tutor has been appointed for her to conduct the defence of these proceedings. The present proceedings, in short, are but part of a complex set of proceedings in which various relatives of the deceased and of Mrs Galstaun are seeking to benefit from their estates. 4 On 7 June 2010 Mr Galstian filed a Notice of Motion which sought the following order: "Legal costs and disbursements of the Plaintiff of and incidental to the proceedings be paid out of the estate of the late Arshak Galstaun … on a solicitor/client or indemnity basis." 5 Mr Burton SC, who appears for Mr Galstian, says that the Notice of Motion is an "interim application" and that any orders made would be "subject to any final orders". He says that the Court has power to make an order of the kind he seeks under s 98(3) Civil Procedure Act 2005 (NSW), which provides: "An order as to costs may be made by the court at any stage of the proceedings or after the conclusion of the proceedings."

Mr Burton submits that an interim costs order is justified because Mr Galstian cannot afford to continue the proceedings unless he is funded out of the deceased's estate. 6 Mr Gorrick of Counsel, who appears for Mrs Galstaun by her tutor, opposes the application. He submits that this litigation is no different in nature from any other kind of adversarial litigation in which a plaintiff has to fund the costs of the case until judgment. The facts

7 The facts relevant to the determination of this application may be stated quite briefly. 8 The Plaintiff, Mr Galstian, is the nephew of the deceased who was a wealthy businessman, married but without children. In mid-2008 the deceased, then ninety-six years old, was in failing health. A week before he died he signed, in the presence of Mr Galstian alone, a will appointing Mr Galstian as executor, giving $700,000 on trust for the care and maintenance of his wife, with the unused remainder of that gift to fall into residue, a gift to charity, and the residuary estate to be divided amongst nine relatives, including Mr Galstian. 9 Mrs Galstaun, by her tutor, opposes an order under s 8 Succession Act and requires the will to be strictly proved. She points to circumstances which are said to indicate that the deceased lacked testamentary capacity. Further, she suggests that the deceased's signature on the will is not genuine. 10 It is clear that there are substantial issues of fact to be tried in the proceedings. 11 Mr Galstian says that he is not able to continue the prosecution of these proceedings unless his future legal costs and expenses, amounting to some $73,000, are paid out of the estate by means of an interim costs order. 12 Mr Galstian's circumstances, which are not challenged by cross examination, are as follows. 13 He is seventy years of age and in poor health. He is married with four children, two of whom are living at home. His nett assets are valued at $373,500, the most significant being his home, having a nett value of $300,000. He earns $880 nett per week as a manager of a small business but his employment is not secure. His wife no longer works. His household expenses come to some $700 per week. 14 It is of significance that Mr Galstian has paid his solicitor some $80,000 in legal expenses in the case so far. Of this amount, $65,000 came from the estate of the deceased. Mr Galstian had obtained an authority from the deceased to operate his bank account during his lifetime. After the deceased's death, Mr Galstian used that authority to withdraw $65,000 from the deceased's bank account. He had, of course, no right to do so. However, Mr Galstian has disclosed this withdrawal to Mr Salier, the Administrator of the deceased's estate, and Mr Galstian acknowledges his liability to repay this amount to the estate. 15 I am satisfied that Mr Galstian's means are very modest. It is theoretically possible that he could pay the ongoing costs of this litigation without an interim costs order: he could use all of his remaining savings - some $56,000 - and he could mortgage his home to raise the balance. However, that may not be a pragmatic and prudent course for a man of his age in his financial position: he could be left with no savings at all and with modest and uncertain means of repaying the borrowings secured against his home. 16 There is no evidence to the effect that Mr Galstian has sought, without success, contribution to the costs of these proceedings from any other person who would benefit under the will he seeks to prove. Interim costs orders - the matrimonial cases

17 Mr Burton SC urges that the factual circumstances of this case justify the order which he seeks because Mr Galstian will otherwise be denied access to justice. He acknowledges that he can find no direct precedent for interim costs order out of a deceased's estate under s 98(3) CPA of the kind which he now seeks but he says that this is no reason in principle why such an order cannot be made. 18 By way of illustration of circumstances in which an interim costs order may be made, Mr Burton refers to Parker v Parker (1992) 16 Fam LR 458; Williams v Williams [1929] P 114; Wilson v Wilson (1966) 9 FLR 1; Breen v Breen (1990) 65 ALJR 195. Those cases concern proceedings between parties to a marriage or de facto relationship in which the division of property between the parties was in dispute. The particular rules of Court relating to the conduct of matrimonial proceedings expressly permitted interim costs orders to be made. By analogy, an interim costs order was made by Bryson J in a de facto relationship in Parker. 19 The matrimonial and de facto relationship cases highlight a particular instance where, but for an interim costs order, injustice in the conduct of litigation might occur. In proceedings for division of property upon termination of a matrimonial or de facto relationship one party, usually the man, often has control of most, if not all, of the property in dispute so that, without recourse to at least some of that property on an interim basis, the other party, usually the woman, would be unable to afford legal representation to prepare and present her case properly. In such a case, an interim costs order requiring the financially stronger party to subsidise the costs of the financially weaker party is seen as a means of simply promoting a fair trial. 20 As the matrimonial cases show, an interim costs order is not revocable ab initio by the trial judge if the party who has obtained it ultimately fails at the final hearing and is ordered to pay the other side's costs. An interim costs order is really a final costs order made, in special circumstances, much earlier in the proceedings than in the ordinary case. However, before the final hearing, such an order can be revoked if fresh circumstances so require, but only with respect to its continued operation in the future: see e.g. Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66, at [92]-[96]. 21 In matrimonial and de facto relationship cases, where it is fairly clearly at the outset that each party will get some portion of the disputed property in the final division, the unfairness of making an interim costs order in favour of a party who is ultimately ordered to pay the other side's costs can be redressed by making a final order as to the division of property which takes into account that the unsuccessful party has already received, as interim costs, part of the property to which he or she is entitled. That kind of remedy is not available in a case such the present because if Mr Galstian's claim fails, he will get no share of the estate which is in dispute so that no repayment of an interim costs order can be achieved by deduction from a legacy or bequest. An interim costs order on terms?

22 As submissions proceeded in the present case, it was suggested that the Court could, in its discretion, make an interim costs order in favour of Mr Galstian out of the deceased's estate on condition that Mr Galstian proffered to the Court an undertaking that, if his claim failed and he was ordered to pay the Defendant's costs, he would repay to the estate what he had received under the interim costs order and would secure such repayment by a mortgage or charge over his home in favour of the administrator of the estate. 23 The Court has power to make orders, interlocutory or final, on such terms and conditions as the Court thinks fit: s 86 Civil Procedure Act. Mr Gorrick accepts that the Court could, in its discretion, make an interim costs order on such terms as Mr Galstian proposes but he submits strongly that no basis has been demonstrated for making such an order in the present case. Further, he says that it would set a dangerous precedent in litigation over contested wills if plaintiffs seeking to propound a will or seeking revocation of a grant of probate could fund their litigation as they go at the expense of the estate rather than having to face directly the financial consequences of commencing proceedings, as plaintiffs in all other kinds of adversarial litigation must do. Consideration

24 The law has long been concerned to ensure that impecuniosity should not, in itself, deny a plaintiff access to justice. So, for example, in a case otherwise justifying an order that a plaintiff provide security for the costs of another party, the Court may in its discretion decline to require security if the order would stultify the plaintiff's ability to prosecute the proceedings or if the plaintiff's impecuniosity has been caused or contributed to by the conduct of the defendant: see e.g. Pioneer Park Pty Ltd (in liq) v Australia and New Zealand Banking Group Ltd (2007) 65 ACSR 383; Dae Boong International Co Pty Ltd v Gray [2009] NSWCA 11. 25 However, in this case, the inability of Mr Galstian to fund the litigation prudently and comfortably out of his own means is but one consideration of justice. The other is the effect of such an order as Mr Galstian seeks on the estate itself and on its proper administration. 26 What Mr Galstian seeks is, in effect, that the deceased's estate - in which he may or may not have an interest as beneficiary - act as a litigation funder for the establishment of his claim. It is therefore relevant to ask:

why should the estate be put at risk if, for some reason, Mr Galstian, having failed in his claim, is unable to repay what he has received under the interim costs order and his security proves inadequate;

why should the estate, in effect, make a secured loan to Mr Galstian without interest;

if a commercial rate of interest is to be paid and all proper and prudent investigations for a secured loan are to be made by the administrator on behalf of the estate, of what benefit is it to Mr Galstian to borrow from the estate rather than from any financier in the marketplace. 27 It seems to me that, if an interim costs order out of the estate were to be made upon terms and conditions as to repayment, those terms and conditions would be no different from those which would be imposed on Mr Galstian by a third party commercial lender. 28 I bear in mind that this is adversarial litigation. As I have observed, the means of redressing the unfairness of an interim costs order which exist in a matrimonial or de facto relationship case do not exist in this case. As Mr Gorrick submits, Mr Galstian and those persons who would take under the will which he propounds are really no different from parties in other adversarial litigation who hope to benefit by bringing a claim, provided that they can fund the conduct of the proceedings. The result in this case might have been different if Mr Galstian were unquestionably entitled to a share of the deceased's estate even if his claim in these proceedings failed. His case would then have been analogous to the matrimonial and de facto relationship cases. 29 However, in the circumstances of this case, I do not see the justification for the exercise of discretion in favour of the order sought. Accordingly, Mr Galstian's Notice of Motion is dismissed.
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Family Provision Act 1982(NSW)

(1992) 16 Fam LR 458

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