This is the Court's third judgment in these two related proceedings. It deals with the successful party's claim for indemnity costs. The Court's second judgment contains the Court's principal findings and conclusions disposing of both proceedings: Grant v Grant; Grant v Grant (No 2) [2020] NSWSC 1288. This judgment should be read with the Court's second judgment. Events, matters, persons and the proceedings are referred to in both judgments in the same way.
In the Court's second judgment, Dr Seth Grant, as representative of the estate of the late Dr Alan Grant, was a successful plaintiff in the estate recovery proceedings against the defendants, Ms Nerez Grant and Ms Kashaya Williams. And on behalf of his mother's estate, he successfully defended the family provision proceedings.
He now applies for indemnity costs on behalf of the estates in both proceedings based on Nerez Grant's and Kashaya Williams' misconduct in both proceedings.
Nerez Grant and Kashaya Williams have lost their respective proceedings for the reasons set out in the Court's second judgment. For this reason, the Court will make an order for costs of the proceedings against Nerez in respect of the family provision proceedings, and against Nerez and Kashaya in respect of the estate recovery proceedings.
The next question for determination is whether that order for costs should be made on the indemnity basis.
In the second judgment, the Court made serious findings against Nerez, and strongly adverse findings against Kashaya. But as authority stands in New South Wales, not all findings of misconduct will automatically attract an indemnity costs order. In Harrison v Schipp [2001] NSWCA 13, the Court of Appeal overturned an order made by a trial judge for indemnity costs on the following basis (at [132] - [139]):
"[132] The trial judge correctly observed that his discretion as to costs extended to ordering costs on an indemnity basis "in appropriate circumstances". He cited from a number of cases, to which I will return, and then said -
"This is a case in which the particular circumstances involve relevant delinquency on the part of the Cameron Harrison interests. On my findings, Mr Cameron and Mr Harrison manipulated Mrs Schipp and took unconscientious advantage of her vulnerability. Paragraphs 646 through to 652 of the judgment detail the extent to which Mr Cameron and Mr Harrison took unfair and unconscionable advantage of Mrs Schipp's weakness. Paragraph 634 includes a finding that at least from early 1988 Cameron and Mr Harrison did not seriously intend to develop Mary Street. Generally, paragraphs 635 through to 645 set out the events which occurred and paragraphs 659 through to 676 examine those events from a number of perspectives.
Of course not every case in which unconscionable conduct and/or breaches of fiduciary obligation is found will ground a plaintiff's entitlement to indemnity costs from a defendant. The discretion which the court has as to costs is to be exercised judicially, that is to say upon proper grounds and the Court will not lightly depart from standard practice in the awarding of costs.
In Warman International Ltd v Dwyer (1995) 182 CLR 544 at 560, Mason CJ, Brennan, Deane, Dawson and Gaudron JJ made it clear that the making of a discretionary order against a fiduciary will depend upon the circumstances of the case including the powers and obligations of the fiduciary and the relationship between those powers and obligations and the subject matter of the claim [cf Jones v Mortgage Acceptance Nominees (1996) 142 ALR 461] The same approach is required to be taken in dealing with unconscionable conduct where found. The circumstances of the case are all important. The present is however a case in which on an over-view of all of the findings at paragraphs 241-253, 383, 423 and 424, 431-456 (particularly 433 and 434), 596-601, 604-606, 607, 638 and 641, 648, 649, 652 and 670, the plaintiff's claim to indemnity costs against the Cameron Harrison interests is in my view made out.
In this case the special or unusual circumstances constituted by the defendants' unconscionable conduct and breaches of fiduciary obligation justify the making of an order that the Cameron Harrison interests pay Mrs Schipp's costs on an indemnity basis."
133 Some of the passages from the cases which his Honour cited referred to delinquency, using that word or otherwise, in the conduct of the proceedings (Degmam Pty Ltd (in liquidation) v Wright (No 2 ) (1983) 2 NSWLR 354 and re Smith, ex parte Rundle (No 2) (1991) 6 WAR 299, both referred to as involving "relevant delinquency" in a citation from Oshlack v Richmond River Council (1998) 193 CLR 72 at 89). Other cases spoke of the width of the discretion, without referring to delinquency, one referring to the need for "some special or unusual feature in the case". In Degmam Pty Ltd (in liquidation) v Wright (No 2) the defendant suffered a special order as to costs because she had made deliberately false allegations in her defence and had by prolixity and prevarication grossly prolonged the litigation. Immediately before the passage from his reasons last set out the trial judge set out from re Smith, ex parte Rundle (No 2) , with underlining for emphasis, that orders for costs on a solicitor and client or indemnity basis are -
" … normally made in circumstances where the conduct of a party against whom such an order has been [made] in connection with the litigation has been deserving of criticism." (at 301)
134 Mr Harrison contrasted with this the "relevant delinquency" by regard to which the trial judge apparently exercised his discretion, delinquency in that Mr Cameron and Mr Harrison had acted unconscionably and in breach of fiduciary duty. He submitted, in my view correctly, that the delinquency on which his Honour acted was not the delinquency in the conduct of the proceedings which the cases cited by him, and a number of other cases to which Mr Harrison referred, regarded as warranting a special order as to costs. And he said, again correctly, that Warman International Ltd v Dwyer (1995) 182 CLR 544 at 560 was not concerned with costs, but with an order for accounts against a defaulting fiduciary. Indeed, the costs order in Warman International Ltd v Dwyer was not a special order, see (1992) 46 IR 250 at 262 (Derrington J); 23 February 1992, unreported (CA); (1995) 182 CLR 544 at 570 (HC).
135 Mrs Schipp's response emphasised the width of the discretion as to costs. She said that there was "relevant delinquency" within the cases, even if the trial judge had not acted by regard to it, in that "much of the time during the trial was taken up by Harrison in propounding the authenticity of documents which they [sic] must have known to be false". And she said that it was open to his Honour to act by regard to unconscionable conduct or breach of fiduciary obligation, delinquency not in the conduct of the proceedings, in order to ensure "that the restitution to the defrauded beneficiary is complete: see Hagan v Waterhouse (No 2) (1992) 34 NSWLR 400".
136 The trial judge did not exercise his discretion by regard to the time taken by Mr Harrison in propounding false documents, or otherwise by regard to delinquency in the conduct of the proceedings. Hagan v Waterhouse (No 2) provides no support for indemnity costs as a means of providing complete restitution, or otherwise for regard to the substantive unconscionable conduct or breach of fiduciary duty when exercising the discretion as to costs, and such regard would in my view not be correct. The unconscionable conduct or breach of fiduciary duty leads to compensatory or other relief and costs on the normal basis, and more must be established for a special order as to costs. In my opinion his Honour's exercise of his discretion was on a wrong principle.
137 The discretion must be re-exercised. It is true that evidence of Messrs Cameron and Harrison was not accepted, indeed they were found to have given false evidence and propounded false documents. But I do not think there was delinquency approaching that considered to justify a special order as to costs in Degmam Pty Ltd Pty Ltd (in liquidation) v Wright (No 2 ), or that departure from the ordinary basis on which costs should be assessed between litigants was otherwise warranted.
138 It was necessary that the circumstances in which Mrs Schipp came to put her money into the two properties and leave it with Messrs Cameron and Harrison be gone into, in particular with exploration of her understanding of what she was doing and the influences working upon her. I am not satisfied that this was a case in which the appellants, properly advised, should have known that they would be found liable (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401), or that the Court's time and Mrs Schipp's money were wasted on "totally frivolous and thoroughly unjustified defences" (Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 at 362), to use some of the expressions relevant in this area.
139 Departure from the settled practice of costs on a party and party basis is discretionary, and beyond the need for a sufficient special or unusual feature in the case no fixed rule can be laid down. Some of the matters thought to justify it are collected by Sheppard J in Colgate-Palmolive Pty Ltd v Cussons (1993) 46 FCR 225 at 233-4. In the present case no other sufficient special or unusual feature is present. The trial judge's order as to costs should be set aside so far as it provided for costs on an indemnity basis.
140 The trial judge did not exercise his discretion by regard to the time taken by Mr Harrison in propounding false documents, or otherwise by regard to delinquency in the conduct of the proceedings. Hagan v Waterhouse (No 2) provides no support for indemnity costs as a means of providing complete restitution, or otherwise for regard to the substantive unconscionable conduct or breach of fiduciary duty when exercising the discretion as to costs, and such regard would in my view not be correct. The unconscionable conduct or breach of fiduciary duty leads to compensatory or other relief and costs on the normal basis, and more must be established for a special order as to costs. In my opinion his Honour's exercise of his discretion was on a wrong principle."
Harrison v Schipp has been applied to deny litigants indemnity costs even where they have proved unconscionable conduct or breaches of fiduciary duty. In Medsara Pty Ltd v Sande [2005] NSWCA 40, (at [121] and [122]) the Court of Appeal denied indemnity costs to a party found guilty of unconscionable conduct and said that the relevant principle was that expressed by Giles JA in Harrison v Schipp (at [136]). It was stated once more that unconscionable conduct or breach of fiduciary duty ordinarily leads to compensatory or other relief and costs on the ordinary basis, and more must be established for a special costs order.
Even where fraud or other deplorable conduct is established in litigation it will ordinarily lead to an order for costs on the ordinary basis, unless something more is established. Fraud will often involve the fraudulent party falsely denying the fraud in court and lengthening the proceedings, which may attract an order for indemnity costs. The presence of fraud or dishonesty can attract the application of other principles. For example, as Harrison v Schipp states (at [138]), an order for indemnity costs may be justified where a party, properly advised, should have known that they would be found liable (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; [1988] FCA 202), or where the Court's time and the innocent party's money were wasted on "totally frivolous and thoroughly unjustified defences": Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 at 362; (1992) 10 ACSR 537. Where a party is propounding a defence which they must have known to be false, an indemnity costs order may be made against them: Westpac Banking Corporation v Ollis [2007] NSWSC 1008 at [7] and [11].
Seth Grant resists the conclusion that making a costs order on the ordinary basis is appropriate here. He seeks to distinguish Harrison v Schipp, submitting that this case is like Degmam Pty Ltd (in liq) v Wright (No. 2) [1983] 2 NSWLR 354 ("Degmam"). He submits that the relevant delinquency in this case was equivalent to that adjudged by Holland J in Degmam as warranting an indemnity costs order.
It is worthwhile to examine what it was in Degmam that Holland J regarded as warranting condemnation by an indemnity costs order. Holland J set this out (at 358) in the following passage:
"The next question therefore is whether there is a case made out for a special order. I think that there is. I do not wish to repeat what I had to say, in my reasons for judgment, about the merits of the defences and causes of action put forward by the defendant or the manner in which she conducted herself in the course of the litigation and in the witness box. It is sufficient to say that the allegations of fact she made as the basis of her defences and causes of action were in my opinion false and deliberately concocted by her in an attempt to deny the plaintiff its rights and to shift all blame and legal liability to the plaintiff from herself to the second cross-defendant. As well as that, she so conducted herself in the proceedings, by multiplying allegation upon allegation, and by prevaricating in the witness box, as grossly to prolong the litigation, thereby to cause the other parties to incur liability for solicitor and client costs far beyond what they could reasonably have expected to incur in litigation of genuine issues. The discretion which the court has as to costs is, as has been said many times, to be exercised judicially, that is to say upon proper grounds and the court will not lightly depart from standard practice in the awarding of costs. It is suggested that the absence of precedents for orders of the present is a reason for hesitating to make such orders."
In my view, a proper application of principle justifies an order for indemnity costs against Nerez Grant in both proceedings, and Kashaya Williams in the estate recovery proceedings, the only proceedings to which she was a party.
The estate recovery proceedings were principally concerned with setting aside the transfer of the Killcare property. Nerez Grant had implemented the transfer by the purported use of her power of attorney from Dr Grant to give effect to what were being claimed were Dr Grant's wishes, as expressed in a letter of 10 April 2016 purportedly signed by him. Both these aspects of the estate recovery proceedings involve the defendants propounding at costly length what they must have known were false documents and a transaction that they must have well known could never be justified.
Nerez purported to use her power of attorney from Dr Grant to transfer the Killcare property. As the Court found in the principal judgment (at [328] and [329]), there was never any proper basis for the use of the power of attorney in this way and she did not conduct herself as an honest person would in the circumstances:
"[328] Nothing in this power of attorney authorised Nerez to make what was in substance a gift to Kashaya when she signed the $900,000 transfer. There is no evidence that Nerez or Kashaya ever discussed this consideration being paid to Dr Grant and the Court infers there was no intention for it to be paid for his benefit. No mortgage was taken for his benefit. No enquiry was made as to ascertain whether Kashaya had the means to pay the money. The $900,000 transfer was in substance a gift.
[329] Nerez did not take the trouble to read the power of attorney at the time or to seek advice about it before going ahead with the transfer of the Killcare property to Kashaya. Because of the substantial nature of this transaction relative to Dr Grant's assets at the time and because she was gaining a substantial benefit as a result, an honest person in her position would have checked the powers conferred on her under the power of attorney and obtained advice as to whether she was authorised to use the power of attorney in these circumstances. Her failure to do so is a further badge of her dishonesty in the transaction."
The centrepiece of Nerez Grant's and Kashaya Williams' defence case was the fabricated letter of 10 April 2016. They continuously said that this letter was direct evidence supporting their contention that Dr Grant wanted to transfer the property to Kashaya Williams, so Nerez Grant would have somewhere to live. When Nerez Grant's and Kashaya Williams' defence first advanced this letter, Dr Grant's estate was put to the expense of seeking to adjourn the proceedings specifically to obtain expert handwriting evidence to show this document was a forgery. That evidence was obtained and the Court found it justified the conclusion that the letter was a forgery.
One or other of Nerez Grant or Kashaya Williams must have been responsible for the 10 April 2016 forgery. There is no evidence that anyone other than them had control of this fabricated copy document. But the Court has not found which of them was its fabricator. They both joined in propounding to the Court what they must have known was a forgery. When confronted with expert evidence, neither of them sought to defend the 10 April 2016 document with any expert evidence of their own. Nor, despite many demands, could they ever produce the original 10 April 2016 document, nor could they satisfactorily explain the absence of the original or the provenance of the copy. They adhered to a convenient fantasy as to the integrity of this document. Yet reason pointed to it being a primitively wrought artefact of fraud.
But the Court's findings in the principal judgment go even further. They justify the conclusion that the whole timing of, and the secrecy surrounding, the transfer of the Killcare property show they were well aware the transaction could never be justified, if subjected to open scrutiny. The Court said (at [323] and [324]):
"[323] There remains no satisfactory explanation for why it was suddenly necessary for Nerez and Kashaya to orchestrate the transfer of the Killcare property on 29 September, 2017 other than Seth's visit to his father in September to the Peninsular Village coming to Nerez's attention. Nerez had a power of attorney and enduring guardianship in respect of her father for years prior to September 2017 but she did not act until she feared that her father would be taken out of her control. This inference is strongly reinforced by the electronic funds transfers that Nerez executed on 4 October 2017 when she found Seth had picked up her father from Wyong Aged Care.
[324] The Court infers from this timing that Nerez and Kashaya suspected that they would be unlikely to be able to legitimately justify to Seth or to a court their claim that Dr Grant was gifting the Killcare property to them, so they decided to take the asset while they had the power to do and whilst others were unaware of what they were doing. They were both involved in instructing the solicitor effecting the transaction, Ms Healy. The very secrecy with which they executed the transaction is a reason to infer that they knew that it was improvident from Dr Grant's point of view and that it would not survive scrutiny. Their imperative of secrecy was compounded when they perfected the transaction for days on and from 5 October 2017 well after Dr Grant was out of their care and when they had notice that Nerez's power of attorney had been revoked. Their decision to proceed secretly in those circumstances with the transaction that benefited both of them is a badge of their joint dishonesty in the transaction."
This transaction dominated the Court's consideration and consumed the bulk of its time and resources in the estate recovery proceedings. Properly advised, the defendants in the estate recovery proceedings must have known that they had no chance of success. They were propounding a defence which they must have known to be false. An indemnity costs order should be made against them.
Nerez Grant's essential contention in the family provision proceedings was that she had a good relationship with her mother and that as a result she was worthy of inclusion within her mother's testamentary bounty. But the outcome here is not just a case of a plaintiff losing a claim for provision out of an estate. The whole premise of the claim - a good mother-daughter relationship - was false and must have been known to Nerez Grant to be false.
As the Court found in its principal judgment (at [299]), so profound was the aggression by this daughter to her mother that "this case is in a category of its own". Properly advised, Nerez Grant must have known that she had no chance of success. This is evident from the Court's findings in the principal judgment (at [297] to [299]) about the claimed mother-daughter relationship:
"[297] Mrs Grant was afraid of her daughter Nerez with good reason. Nerez behaved with callous brutality towards both of her parents over decades. She had seen Nerez's physical violence towards Dr Grant. She had personally been the object of Nerez's constant hectoring and harassment for money. She had seen Nerez sequester Dr Grant, dominate Dr Grant, and use his willingness to give her money as her treasury. Mrs Grant was so fearful of Nerez that she had taken up Seth and Marguerite Grant's offer of seeking respite at Cambridge in the first few months of 2011, during one of the worst periods of Nerez's harassment.
[298] Nerez's conduct over decades was calculated to make Mrs Grant fearful and compliant with her demands and it had that effect. Nerez treated her mother as a creature to be frightened and then coerced into doing what she wanted. Any vestiges of mother-daughter affection had long disappeared between Nerez and Mrs Grant. Stung by the constant pain of Nerez's drug taking, thefts, aggression, unpredictability and the shame she brought upon the family, Mrs Grant's decision to keep her daughter at arm's length was entirely understandable.
[299] For Nerez to be omitted from Mrs Grant's will does not offend community standards of what would be expected of a testator in her position. Children with difficult relationships with or estrangement from parents not uncommonly obtain family provision relief. But this case is in a category of its own and involves decades of actual aggression by Nerez towards her mother, who was afraid of her daughter."
Nerez Grant's false allegations about the quality of her relationship with her mother did not just represent debatable propositions. They bore no resemblance to the true relationship of fear and domination by this daughter of her mother. Nerez Grant's false allegations about her relationship with her mother permeated many aspects of the family provision proceedings and lengthened them considerably. For example, it markedly expanded the cross-examination of Seth and Tansin Grant, Warwick Miller and Marguerite Grant. And it required Mrs Grant's estate to call evidence from witnesses such as Caroline Nolan, Sally Saxby, Jill Shaw and Theresa Sienkiewicz. Properly advised, Nerez Grant's conduct towards her mother was so gross that she must have known that she had no chance of success in this action.
Nerez Grant's prosecution of her family provision proceedings are a good example of Holland J's words in Degmam: "[She] so conducted [herself] in the proceedings, multiplying allegation upon allegation, and by prevaricating in the witness box, as grossly to prolong the litigation, thereby to cause the other parties to incur liability for solicitor and client costs far beyond what they could reasonably have expected to incur in litigation of genuine issues". There should be an order for indemnity costs against Nerez Grant, the unsuccessful plaintiff in the family provision proceedings.
This deals with the principal outstanding issue between these parties in these proceedings. But at the directions hearing on 11 November 2020 Mr Avery Williams foreshadowed that there may be other residual issues to be dealt with by the Court. Principal among these are issues of financial compensation consequent upon the transfer of the Killcare property to Dr Grant's estate, such as the payment of stamp duty. But the transfer of the Killcare property has been stayed pending the outcome of the present appeal. Subject to any orders of the Court of Appeal, all these residual issues can be dealt with after the appeal proceedings are concluded. Liberty to apply will be granted for the parties to raise these issues later. If the appeal is successful, they may never arise.
For these reasons the Court makes the following orders and directions:
1. For the purposes of these orders, proceedings number 2017/316190 are referred to as "the estate recovery proceedings", proceedings number 2018/139174 are referred to as "the family provision proceedings";
2. In the estate recovery proceedings, order the defendants to pay the costs of the plaintiff, Seth Grant, as the representative of the estate of the late Alan Grant on the indemnity basis;
3. In the family provision proceedings, order the plaintiff to pay the costs of the estate of the late Gwynneth Grant on the indemnity basis; and
4. Grant liberty to apply after the conclusion of any appeal to implement the transfer of the Killcare property and to deal with any remaining issues of financial compensation associated with its transfer and other consequential relief claimed in the estate recovery proceedings.
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Decision last updated: 05 January 2021