Gray v Hart; Estate of Harris

Judgment 1HIS HONOUR: Two questions concerning costs arise in these proceedings. 2The first is what order for costs should be made in relation to applications concerning the appointment of an administrator pending the determination of the proceedings. Those applications were heard and dealt with by Palmer J on 8 February 2010 (Estate of Harris; Gray v Hart [2010] NSWSC 55). His Honour declined to appoint either Mr Swindells, as sought by the first and second defendants, or a nominee of the plaintiff, as administrator. I will return to that question in due course. 3The second question is what order for costs should be made in relation to the balance of the proceedings. Rule 42.1 of the Uniform Civil Procedure Rules 2005 provides that costs are to follow the event, unless it appears to the Court that some other order should be made as to the whole or any part of the costs. 4It is well established that the principles applicable to the awarding of costs in probate litigation differ from those applicable to ordinary civil suits where the principle that costs follow the event usually means that the losing party pays the winning party's costs. 5The reason for the difference is that in a probate suit the court is concerned to give effect to the last will of a free and capable testator or testatrix. There is a public interest in keeping faith with the wishes of a capable will-maker that requires an investigation into the validity of the propounded wills. A grant of probate in solemn form operates in rem, that is, it binds the world, or at least those affected persons who have notice of the proceedings. Irrespective of what the parties might want, the court will not pronounce against a will unless there is material to satisfy it that the deceased did not have capacity, or that there is some other reason why the will is invalid. A grant is not made or withheld solely by the consent of the parties. There is, therefore, a public interest in the incurring of some level of costs in cases where there is genuine doubt about the validity of a will. 6In 1863, Sir J P Wilde established the principles that have been generally followed ever since and did so for the avowed purpose of assisting a suitor to foresee the penalties under which he or she launched litigation (Mitchell v Gard (1863) 3 Sw & Tr 275 at 277; 164 ER 1280 at 1281). His Lordship said that the basis of the principles: "... should rest upon the degree of blame to be imputed to the respective parties; and the question, who shall bear the costs? will be answered with this other question, whose fault was it that they were incurred? If the fault lies at the door of the testator, his testamentary papers being surrounded with confusion or uncertainty in law or fact, it is just that the costs of ascertaining his will should be defrayed by his estate." 7His Lordship then referred to its being: "... the function of this Court to investigate the execution of a will and the capacity of the maker, and having done so, to ascertain and declare what is the will of the testator", and that: "If fair circumstances of doubt or suspicion arise to obscure this question, a judicial inquiry is in a manner forced upon it." 8It was for this reason that it had become common to relieve the losing party from costs, if the losing party was chargeable with no other blame than that of having failed in a suit which there was reasonable grounds to bring. 9The so-called rules, or more accurately, principles, were enunciated as follows (at 278): "From these considerations, the Court deduces the two following rules for its future guidance: first, if the cause of litigation takes its origin in the fault of the testator or those interested in the residue, the costs may properly be paid out of the estate; secondly, if there be sufficient and reasonable ground, looking to the knowledge and means of knowledge of the opposing party, to question either the execution of the will or the capacity of the testator, or to put forward a charge of undue influence or fraud, the losing party may properly be relieved from the costs of his successful opponent." 10His Lordship acknowledged that there were two competing reasons of policy which affect the exercise of the discretion as to how costs should be ordered and said (at 279): "It is of high public importance that doubtful wills should not pass easily into proof by reason of the cost of opposing them. It is of equal importance that parties should not be tempted into a fruitless litigation by the knowledge that their costs will be defrayed by others. These opposite reasons appear to have alternately swayed the decisions to be found in the books. It is the desire of the Court to keep both in view, while yielding to neither, and it is in this spirit that the above rules have recommended themselves for adoption." 11In England the learned authors of Tristram and Coote's Probate Practice, Butterworths LexisNexis, 29th ed, have observed at [40.13] that, although these principles are not exact rules, nor exhaustive, nonetheless, since they were first enunciated in 1863, they have been almost universally acted on. They have been frequently restated and applied also in this jurisdiction (e.g. Re Hodges; Shorter v Hodges (1988) 14 NSWLR 698 at 709; Shorten v Shorten (No. 2) [2003] NSWCA 60 at [15]). 12Some cases have to a degree I think qualified those principles. In Redroff v Miegoch (Supreme Court of New South Wales, Santow J, 22 April 1996, unreported, BC9601491), Santow J said: "I refer to Davies v Gregory and Ors because that was a case where the next of kin's challenge to the will failed, but where it could be fairly said that the order for costs in favour of the next of kin out of the estate resulted from the conclusion, 'that the testator did by his conduct naturally lead those interested in his property to suppose there was ground for alleging that he was of unsound mind.' Here, of course, the result is the converse of that, namely a successful challenge to the later 1992 Will. But Davies v Gregory and Ors is an example of a case within the first exception whilst also containing elements of the second. If there is a distinction to be made between what are in truth frequently overlapping exceptions, I doubt whether that distinction should be carried to the point where there is automatically, under the second exception, never any order that costs be paid out of the estate but only an order that the unsuccessful party should be left to pay his or her own costs. That could be quite unfair in some cases." 13Later, in Moyle v Moyle (Supreme Court of New South Wales, Santow J, 18 June 1998, unreported), and Hubbard v Mason (Supreme Court of New South Wales, Santow J, 8 July 1998, unreported, BC9803106), Santow J made similar observations. In Moyle v Moyle his Honour said: "Thus if a testator is by his mental frailty and other circumstances in a position where the circumstances will reasonably call for an investigation to be made on the validity of the will, in one sense the testator, though usually with no sense of blameworthy fault, has by his or her conduct caused the litigation to occur. In those circumstances is it fair for a party who challenges a will, perhaps for reasons, as here, not wholly disinterested, should nonetheless bear the whole of his own costs if the challenge fails? This is rather than see the costs paid out of the estate, when such a challenge clearly serves the public purpose of providing the investigation reasonably called for." 14With respect, this seems to me to be a qualification or departure from the principle stated in Mitchell v Gard where the principles were enunciated by reference to the question of who was at fault. It was only if the testator was at fault, such that it could be said that the testator caused the litigation, that the costs of the unsuccessful party were to be paid out of the estate. In the sense to which Sir J P Wilde was referring in Mitchell v Gard, one would not think that the testator could be said to be the cause of the litigation merely because he made the will when suffering from some mental frailty. Nonetheless, what Santow J said was approved by Giles and Brownie JJA in Perpetual Trustee Co Ltd v Baker [1999] NSWCA 244 at [14], where their Honours said: "[14] The two exceptions tend to overlap. As was said by Santow J in In the estate of Moyle: Moyle v Moyle (18 June 1988, unreported), if a testator is by his mental frailty and other circumstances in a position where the circumstances reasonably call for investigation of the validity of the will 'in one sense the testator, though usually with no sense of blameworthy fault, has by his or her conduct caused the litigation to occur'. A party reasonably but unsuccessfully propounding or challenging the will, and so bringing about the necessary investigation, should no more have to bear his own costs than pay the costs of the other party. So it has been said that where the conduct and habits and mode of life of a testator have given ground for questioning his testamentary capacity the costs of the unsuccessful party should be paid out of the estate, as distinct from being left to be borne by that party (Davies v Gregory (1873) 3 P & D 28; Roe v Nix (1893) P 55; In the will of Millar (1908) VLR 682), and the costs of both sides in testamentary capacity cases have often been allowed out of the estate (In the will of Severs (1887) 13 VLR 572; Phillips v Dundas (Smith J, VSC 4 December 1995, unreported); Redroff v Miegoch (Santow J, NSWSC, 22 April 1996, unreported); re Ryan: Williams v Ryan (1998) VSC, 109; In the will of Ryan: Williams v Ryan (Byrne J, VSC, 23 October 1998, unreported); cf Middlebrook v Middlebrook (1963) 26 ALJR 216 where Dixon CJ and McTiernan, Taylor and Owen JJ ordered that the parties bear their own costs but Menzies J would have ordered that the costs be paid out of the estate)." 15Again, with the greatest respect, the proposition that a party who reasonably but unsuccessfully propounds or challenges the will and so brings about the necessary investigation should no more have to bear his own costs than pay the costs of the other party focuses on only one of the reasons for policy described in Mitchell v Gard rather than giving weight to the other important policy consideration that parties not be tempted into fruitless litigation by the knowledge that their costs will be defrayed out of the estate. 16Of course, what was said in Perpetual Trustee Co Ltd v Baker would be binding on me were it not qualified by later authority, also binding on me. In Shorten v Shorten (No. 2), the Court of Appeal rejected the submission that a case must fall within the first "exception" merely because the deceased's condition raised triable issues as to her testamentary capacity. The court upheld the primary judge's finding that if the case fell within the second exception, where investigation was reasonably called for, that there should be no order as to costs. That appears to restore the course of appellate authority to the principles that were previously well established. 17It is also said that the two exceptions tend to overlap. No doubt this is true, but the first exception would subsume the second in most cases if it were found that a testator who made a will when frail was for that reason the cause of the litigation. In Shorten v Shorten (No. 2), the Court of Appeal said: "[19] There are many statements to the effect that where the conduct, habits and mode of life of a testator have given ground for questioning testamentary capacity, the costs of the unsuccessful opponents of the will will be ordered to be paid out of the estate (see generally Williams, Mortimer and Sunnucks, Executors Administrators and Probate 18th ed, 2000 p448). Early cases involved testators who left their testamentary papers 'in confusion' but the 'conduct of the testator' could include irrational actions giving rise to reasonable doubts about testamentary capacity provided they were genuinely held by those opposing the grant (see Davies v Gregory (1873) LR 3 P & D 28 at 31; Clarke v Clarke (1901) 1 SR(NSW) B & P 25; Johnston v Public Trustee (1929) 24 Tas LR 71). [20] These and other cases provide support for the proposition in Moyle and Baker (adopting the remarks of Santow J in Moyle) that the two exceptional categories stated in Hodges tend to overlap. But the categories are not coterminous. They remain conceptually distinct, although the court's ultimate discretion as to costs may result in an opponent's costs being met by the estate in situations such as mentioned in the previous paragraph." 18Because the categories of the first and second exceptions can overlap, Campbell J observed in The Estate of Grounds; re Page v Sedawie [2005] NSWSC 1311: "[30] In the present case, I have been taken in some detail to the evidence which was filed. Both parties took me to the leading cases concerning costs in probate litigation, In the Estate of Hodges; Shorter v Hodges (1988) 14 NSWLR 698 at 709; Perpetual Trustee v Baker [1999] NSWCA 244 at [13]-[14] and Shorten v Shorten (No 2) [2003] NSWCA 60. The focus of the passages in those cases to which I was taken was the costs order that a court should make concerning a person who had unsuccessfully opposed the making of a grant of probate. Broadly, those cases recognised that, concerning such an unsuccessful party, there was an exception to the rule that costs follow the event in that where the testator had been the cause of the litigation the costs of unsuccessfully opposing probate may be ordered to be paid out of the estate, and if the circumstances led reasonably to an investigation concerning the testator's will, costs may be left to be borne by those who incurred them. The Court of Appeal has recognised that there is an overlap between those two exceptions. If a case for decision falls within that area of overlap, one of the exceptions suggests that the appropriate order concerning costs should be different to the order which is suggested by the other exception. In that area of overlap, the principles which are recognised by the two exceptions are insufficient to produce a result. It is a matter for the trial judge, in light of the circumstances of the particular case before him or her, to decide which costs order better achieves justice." 19However, it appears to me, consistently with the rationale of the principles in Mitchell v Gard, that where the categories do overlap, if the testator is properly seen as the cause of the litigation, the usual order is that costs be paid out of the estate. It is where the testator is not the cause of the litigation, but an investigation is reasonably called for, that there is usually no order as to the unsuccessful party's costs. Of course if there is no reasonable cause for investigation, that is, if the unsuccessful party has not acted reasonably, then he or she will pay the costs. 20Counsel for Mrs Gray submitted that the defendants should pay the costs of these proceedings. Counsel submitted that the first and second defendants should pay 85 per cent of the costs and the third to fifth defendants should pay 15 per cent. Counsel submitted that the question whether the deceased lacked testamentary capacity was not one on which minds could legitimately differ. To support that submission counsel referred to my reasons for rejecting parts of Dr Beveridge's evidence and for preferring Professor Watson's and Ms Roberts' evidence to that of Dr Beveridge. That argument involves an impermissible use of hindsight. Given that there were conflicting expert opinions of those who had attended on the deceased at or about the relevant times, the circumstances clearly called out for an investigation as to whether the deceased had capacity. 21The question, in my view, is whether the defendants' costs should be paid from the estate, or part of them should be paid from the estate, or whether there should be no order as to their costs. 22Counsel for Mrs Gray submitted that Mrs Harris was not the cause of the litigation. Counsel submitted that she had been at pains to ensure that the will was valid by engaging the services of a consultant neurologist and a clinical and consulting neuropsychologist and the services of solicitors who specialised in wills and deceased estates. Nor could it be said that the conduct of the solicitor engaged by the deceased was in any way the cause of the litigation. The solicitor no doubt acted as the deceased's agent in taking instructions and drawing the will, but her conduct could not be faulted. 23This argument is correct as far as it goes, but I do not think it goes far enough. The cases show that a wider approach is taken to deciding when a will-maker can be said to be the cause of the litigation. A will-maker has been found to be the cause of the litigation in cases including, "where the conduct and habits and mode of life of a testator have given ground for questioning his testamentary capacity" (see Perpetual Trust Co Ltd v Baker at [14] and cases there cited). 24In Davies v Gregory (1873) LR 3 P&D 28, the case relied on by Santow J for establishing the overlap of the two exceptions, costs were ordered out of the estate because the deceased had conducted his life in a way which naturally led those interested in his property to suppose that there was a ground for alleging that he was of unsound mind. The next of kin in that case had no means of personally forming an opinion as to the deceased's condition until the later years of his life. He had acted strangely by, amongst other things, imputing false allegations to his landlady, engaging in threatening or violent behaviour, and tearing his clothes on one occasion. 25Similarly, it has been said that a case falls within the first exception where the deceased engaged in "irrational actions giving rise to reasonable doubts about testamentary capacity, provided those doubts were genuinely held by those opposing the grant." (Shorten v Shorten at [19] and cases there cited, particularly Johnston v Public Trustee (1929) 24 Tas LR 71 at 74; and also In the Will of Millar [1908] VLR 682 at 684). 26I doubt that either of those grounds applies in this case. But a further ground on which it has been said that a testator has been the cause of the litigation, is where the deceased has not been open about his or her testamentary intentions towards those who would be the natural objects of his or her testamentary bounty. Thus, in Kenny v Wilson (1911) 11 SR(NSW) 460, Rich AJ said (at 472): "The case is certainly one in which there were reasonable grounds for inquiry, but more than this, the litigation has been in a large degree caused by the conduct of the testator himself. He made a prior will in favour of his relatives; he communicated this fact to them; his feelings towards them subsequently altered, but there appears to have been no open breach, nor does it appear that anything happened which would naturally have led them to suppose that his testamentary intentions had changed. That the testator appreciated this, and deliberately did nothing to disillusion them, appears from the fact that on several occasions he expressed the opinion that his relatives 'would get a surprise'. His expectation has been realised. But I think that in the circumstances, and having regard to the fact that the will was executed almost in articulo mortis, the defendant's action was not unjustified, and that she is entitled to her general costs of suit." 27In other words, a broad approach has been taken as to whether the deceased by his or her modes of life, or irrational actions, or other dealings with relatives, or failures towards relatives, has caused the litigation to occur. 28Looked at more broadly in this way, I think Mrs Harris was the cause of the litigation, because the way she went about making her wills and keeping their terms secret, was likely to lead to a later challenge. The services of Professor Watson and Ms Roberts were engaged without advice to Mrs Harris' guardians. The terms of the will were kept secret, (even from Mr and Mrs Gray until the conclusion of the second hearing at the Guardianship Tribunal). Mrs Harris told Mrs Nickolls, after she had given instructions to make a will in favour of the Grays, that she would not do just that. 29Looked at in this broad way, I think the deceased was the cause of the litigation. I say that notwithstanding that prior to Mrs Harris' death, the defendants had become aware of the will in favour of Mrs Gray. I do not think that that alters the conclusion as to whether the case falls within the first exception. 30Accordingly, I think that the prima facie position is that costs of all the defendants should come out of the estate. However, that is subject to the reasonableness of those defendants' conduct of the litigation. It is also subject to whether all of the issues were within the rationale for the principles stated in Mitchell v Gard. 31There is nothing to qualify the prima facie position in relation to the third, fourth and fifth defendants. Indeed, as their counsel submitted, were it not for their involvement, neither party would have contended for an intestacy, although that was a plausible outcome and those defendants were necessary contradictors. I will, in due course, order that those defendants' costs be paid from the estate. 32The position of the first and second defendants is different. Two issues were raised by them that do not fall within the rationale of the principle upon which costs should come out of the estate, and those matters also go to the reasonableness of their defences. 33The first such matter is the allegation of undue influence, which was not abandoned, but was not pressed. In Kenny v Wilson, Rich AJ observed that where undue influence is pleaded unsuccessfully, the costs of that issue must be borne by the party who raised it, unless substantial grounds are shown (at 472). In that case, his Honour ordered that the costs of the defendant, other than the costs occasioned by the issue of undue influence, be paid out of the estate, but that the costs of that issue be paid by the defendant. 34This matter was also considered earlier in Mitchell v Gard. There, Sir J P Wilde said (at 278), that there was a further class of case, namely: "I speak of those in which, beyond the execution of the will and the capacity of the testator, the opposing party takes upon himself to question the conduct or the good faith of others, and to place on the record pleas of undue influence or fraud. These are affirmative charges; they ought not to be made except upon some apparently very sufficient ground. But though they may and do differ largely in the degree of probability or suspicion to be demanded for their justification, it is not easy to say that they differ in nature from pleas denying execution or capacity. Both classes of defence are addressed to the same question, what was the will of the testator, and both are within the scope of the subject entrusted to the vigilance of the Court. Here, also, it seems just and meet, if the circumstances of the case have rendered the inquiry a proper one, that neither party should be condemned in costs." 35Pausing there, his Lordship, in contemplating that costs occasioned by an unsuccessful plea of undue influence or fraud should lie where they fall, was referring to a case where charges of undue influence or fraud were raised upon some "apparently very sufficient ground". Secondly, his Lordship was observing that costs of such issues would fall within the second exception rather than the first. 36In Williams, Mortimer and Sunnucks, Executors, Administrators and Probate, 18th ed, the learned authors observed (at [4004]) that in earlier cases, it was held that where the testator's own statements had induced litigants unsuccessfully to plead undue influence, costs must be paid out of the estate. It seems from Kenny v Wilson, citing Levy v Leo (1909) 25 TLR 717 and Oldcorn v Tenniswood (1909) 25 TLR 825, that the principle had moved to one that prima facie costs of the issue of undue influence should be borne by the party who unsuccessfully raised that issue. 37Such issues raise questions about the conduct of living persons who can justify their impugned conduct. They raise quite different issues as to the appropriateness of a costs order than are raised where the enquiry is merely about the habits and state of mind and capacity of the deceased. Nonetheless, it is clear that such questions can be intertwined with the question of the deceased's capacity. 38In my view the first and second defendants' allegations that the deceased suffered from delusions raised matters of a similar kind, relevantly for the purposes of the costs order, to the allegation of undue influence. The first and second defendants pleaded that Mrs Harris demonstrated paranoia and suffered from delusions in that she believed that persons with whom she had contact were attempting improperly to obtain her assets for themselves and that she believed that family members were not assisting her or were acting out of self-interest, when in fact those persons were acting in her best interests by providing domestic care and assistance. Another allegation was that the deceased suffered from paranoid delusions because she believed that family members were not assisting her in discharging the duties and obligations of a guardian and financial manager. 39Those allegations go to the deceased's mental capacity, but they do so in a way which squarely raised the question of the propriety of the conduct of the first defendant, Mrs Hart, and her son-in-law. A substantial amount of time in the case was focused on those questions, and I found that not only was the deceased's beliefs in these respects not delusional, but they were rational, and in the case of Mrs Hart and Mr Swindells, correct. 40Although those same issues related to the question of the deceased's capacity, because the issue concerned the conduct of Mrs Hart and her son-in-law, I consider that the rationale for the underlying principles relating to costs of the probate litigation do not apply in relation to that issue. 41I also do not consider that the first and second defendants were acting reasonably in the conduct of the litigation in raising those issues. 42That conclusion means that there should be a modification to the order I would otherwise have made that the first and second defendants' costs be paid out of the estate. Prima facie those defendants should pay the plaintiff's costs of those issues. However, it would complicate an assessment of costs extremely if I made an order for the first and second defendants to have their costs out of the estate except in relation to those issues, but that they pay the plaintiff's costs of those issues. A broader brush is called for. 43Having regard to my assessment of the extent to which those matters figured in the length of hearing and the affidavits that were prepared, I consider that, rather than the first and second defendants being entitled to all of their costs out of the estate, it should be ordered that they be entitled only to half of their costs out of the estate. 44The remaining question concerns the costs of the applications before Palmer J. His Honour said: "[19] The necessity for the appointment of an administrator arises, of course, from the fact that there are in contest two wills. It seems to me that the costs of these applications are, in terms of the merits at least, bound up in the merits of the ultimate issues for trial. It would be unfair to visit upon the Defendants the costs of an application to appoint an administrator if it turns out in the end that the second will is invalid and ought never to have been propounded. Similarly, it would be unfair to burden the Plaintiff with the costs if it turns out that the second will was valid. [20] For those reasons I do not think it is appropriate to make a separate costs order in relation to these two applications. I think that their costs should abide the result of the proceedings." 45Mr Swindells was the applicant for the orders sought by the defendants. He has not been given notice that an order for costs might be sought against him. The first and second defendants were active parties in the applications before Palmer J. Palmer J's order that the costs of the two applications should abide the result of the proceedings, when read with para [19], means that the first and second defendants should pay the costs of the applications then before him. His Honour's order was not that the costs of those applications would be costs in the proceedings. The result of the proceedings is that the second will has been upheld. 46Those costs were sought by the plaintiff on the indemnity basis. The reason why the costs were sought on the indemnity basis was because of the adverse findings I made against Mr Swindells. However, in Mead v Watson [2005] NSWCA 133; (2005) 23 ACLC 718, the Court of Appeal affirmed that the impugned conduct of a party against whom an award of indemnity costs is sought must be connected with the litigation itself, that is, it must be related to the way the litigation is conducted rather than comprising the subject matter of the litigation (at [9]). 47There was no inappropriate conduct on the part of the first or second defendants in the application before Palmer J. Accordingly, the order should be that the first and second defendants pay the plaintiff's costs of those applications on the ordinary basis. 48It is academic, but the plaintiff is entitled to her costs out of the estate on the indemnity basis. 49For these reasons I make the following orders: