Haertsch v Whiteway

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Judgment

THE COURT: On 3 July 2020, this Court allowed an appeal by Mr Haertsch as executor of the estates of Donald and Stephne Whiteway against orders designating property in the estate of Stephne as notional estate of her husband, Donald, and granting the plaintiff, Donald's daughter Elizabeth, provision of $250,000 out of that notional estate: Estate Whiteway [2019] NSWSC 266 (PJ). The Court held that Family Provision Act 1982 (NSW), s 24 did not permit the designation of Stephne's estate as notional estate of Donald, and that the primary judge erred in granting the plaintiff an extension of time in which to apply for provision: Haertsch v Whiteway [2020] NSWCA 133 (AJ). It followed that her cross appeal as to the quantum of provision was dismissed.
The primary judge ordered that 75% of the plaintiff's costs of the proceedings below be paid out of Donald's notional estate under Family Provision Act, s 33(1), with the intention that she otherwise bear her own costs. Section 33 permits the court to order that the costs of proceedings under the Family Provision Act be paid out of the estate or notional estate of the deceased person to which those proceedings relate. Donald's estate having been wholly distributed, the effect of the decision of this Court is that there is no estate or notional estate out of which the plaintiff's costs might be paid: see Family Provision Act, s 6(4). For that reason, the Court directed that the parties attempt to agree on the appropriate orders as to the costs of both the proceedings below and the appeal and cross appeal: AJ [76]-[77]. The parties have not reached agreement. Pursuant to the Court's direction, they have exchanged two sets of submissions in support of the orders sought, the first exchange on 17 July 2020 and the second on 25 September 2020. In addition, the plaintiff's written "update" dated 20 October 2020 advises that BT Insurance has declined her claim for ongoing income protection payments, which as earlier made were about $140,000 per annum after tax.
The plaintiff submits that she should bear her own costs of all the stages of the proceedings but not be responsible for Mr Haertsch's costs, which should instead be paid out of Stephne's estate. Mr Haertsch seeks an order that the plaintiff pay his costs of the proceedings below and of the appeal and cross appeal, in each case on the ordinary basis. He requests that the difference between the costs recovered from the plaintiff and his costs assessed on an indemnity be paid out of Stephne's estate. Both parties agree that no orders should be made as to the costs of Donald's other daughter, Jane French, who was named as the fourth defendant below and the second respondent in the appeal but who took no active role in any stage of the proceedings.
The general power to award costs in Civil Procedure Act 2005 (NSW), s 98 provides that costs are in the discretion of the court, though the exercise of that discretion is subject to the general rule that costs should follow the event: Uniform Civil Procedure Rules 2005, r 42.1. Family Provision Act, s 33 contains an additional power and permits certain unsuccessful applicants for provision to have their costs paid out of the estate whether or not there are special circumstances justifying such a course. It has been said to reflect a different starting point to the default rule in r 42.1 but, as has been explained, it can have no application to this case.
It is well established that family provision applications "raise different issues with respect to costs" to those raised by other proceedings: Salmon v Osmond [2015] NSWCA 42 at [172] (Beazley P, McColl and Gleeson JJA agreeing). The liberal approach to costs in such cases has a long provenance, though reference is now typically made to remarks of Gaudron J in Singer v Berghouse [1993] HCA 35; (1993) 67 ALJR 708 at 709, to the effect that "costs in family provision claims generally depend on the overall justice of the case" and that it is "not uncommon, in the case of unsuccessful applications, for no order to be made as to costs, particularly if it would have a detrimental effect on the applicant's financial position". Indeed, in some jurisdictions it would seem that no order as to costs is the usual or general consequence of an unsuccessful application: Bowyer v Wood (2007) 99 SASR 190 at 210, 211; [2007] SASC 327; Underwood v Underwood [2009] QSC 107 at [32]-[33].
However, as Giles JA observed in Jvancich v Kennedy (No 2) [2004] NSWCA 397 at [11] (Handley and McColl JJA agreeing), the "overall justice of the case" is "not remote from costs following the event". For one thing, the default rule encourages prospective applicants for provision to have regard to the significant costs consequences to themselves of making such an application. But while the default rule in r 42.1 applies to family provision proceedings, its application remains subject to the court exercising greater than usual "liberality and discrimination" in deciding whether to depart from it: Salmon v Osmond at [174] (Beazley P, McColl and Gleeson JJA); Chapple v Wilcox (2014) 87 NSWLR 646; [2014] NSWCA 392 at [26]-[27] (Basten JA, Gleeson JA agreeing); [138]-[139] (Barrett JA, Gleeson JA agreeing).
It is not uncommon, though atypical, for an unsuccessful applicant not to be ordered to pay the defendant's costs where the applicant is or would become impecunious and the claim for provision was reasonable or borderline: see eg, with no attempt to be exhaustive, Re Sherborne Estate (No 2) (2005) 65 NSWLR 268; [2005] NSWSC 1003; Moussa v Moussa [2006] NSWSC 509; Bevilacqua v Robinson (No 2) [2008] NSWSC 520; Ray v Greenwell [2009] NSWSC 1197; Dugac v Dugac [2012] NSWSC 192; Raiola v Raiola [2014] NSWSC 1172; Purnell v Tindale [2020] NSWSC 746.
Is there any reason for departing from the rule that costs follow the event in this case? In her submissions the plaintiff, now self-represented, emphasises that compliance with a costs order would require her to liquidate a substantial part of her superannuation balance (her only significant asset). She is presently unemployed, has been so for some time, and suffers from health conditions which will make it difficult for her to return to work (PJ [195(d)]). She does not currently have the ongoing benefit of income protection payments from BT Insurance. Whether that will continue to be the position is uncertain, because the plaintiff still has opportunities to review or challenge the insurer's decision. The plaintiff also submits that her claim for provision was reasonably made, and was successful at first instance.
The impecuniosity of an unsuccessful party, without more, is no reason to deprive a successful party of an order for costs to which they are otherwise entitled: Sassoon v Rose [2013] NSWCA 220 at [10] (Meagher JA, Gleeson JA agreeing); Northern Territory v Sangare (2019) 265 CLR 164; [2019] HCA 25 at [26]-[27]. However, the irrelevance of impecuniosity is said to be "subject to some relaxation in family provision cases": Chapple v Wilcox at [141]. One reason that the impecuniosity of an unsuccessful applicant for family provision is of greater than usual relevance is that adverse costs orders might alter the basis on which the claim for provision was rejected, and thereby cause or justify a further application: McCusker v Rutter [2010] NSWCA 318 at [34]. That consideration is of little or no relevance to this case: the plaintiff's claim failed for reasons unrelated to her financial position and no further application for provision could possibly succeed.
In argument, counsel for Mr Haertsch estimated his costs of the appeal and cross appeal to be roughly $85,000. The primary judge recorded that Mr Haertsch's costs below were estimated at $139,000 (PJ [208]). The plaintiff's estimates of her own costs were higher, $85,000 to 90,000 in this Court and $230,000 below (PJ [208]). On 23 November 2018, she had roughly $600,000 in net assets, including $48,456.26 in three bank accounts, a little under $400,000 in superannuation. She is "a renter, with indifferent health and a contingent income stream" (PJ [195(f)]). The plaintiff's submissions as to the likely effect of the costs orders proposed by the appellant are generally consistent with the evidence of her financial position.
Although family provision claims can only succeed or fail, those binary outcomes tend to conceal difficult and even "borderline" questions of judgment. That is one reason for the more liberal approach to costs: Re Sherborne Estate (No 2) at 279; Moussa v Moussa at [8]. Those observations are typically directed to the evaluative and discretionary judgments as to what would constitute adequate provision for the applicant's proper maintenance, education or advancement. The plaintiff's application did not fail for that reason; indeed, it succeeded before the primary judge and it is not obvious that the grounds of appeal directed to those exercises of judgment would have been upheld, had they been addressed.
Her claim failed for two reasons. The first concerned a technical question of construction which, while ultimately susceptible of a clear answer, was not straightforward. This Court's conclusion does not make the plaintiff's application for provision unreasonable. (Indeed, the Succession Act 2006 (NSW) makes express provision for the designation of notional estate in the circumstances of the plaintiff's claim.) The second and logically prior reason is that her claim was brought significantly out of time and, in light of the primary judge's unchallenged findings on the estoppel claim, without sufficient cause for not making that application within 18 months of Donald's death.
The plaintiff should not have been permitted, by the grant of an extension of time, to make a claim after and because of Stephne's death. Nonetheless, her health and finances had deteriorated in the years since her father's death (PJ [128], [195]), and it was not contested on appeal that a "modest" grant of further provision might well have been obtained had she made an application within time (PJ [132]). As is confirmed by her initial success before the primary judge, the plaintiff's application for provision, although ultimately unsuccessful and "unrealistic" as to quantum (PJ [202]), was not wholly without merit. Taking these matters into account, it is appropriate, subject to one further matter, that there be no order as to the costs of the proceedings below.
That qualification relates to the plaintiff's unsuccessful estoppel claim, described by the primary judge as "ill conceived" and without any "reasonable foundation". The primary judge's view, reflected in his Honour's orders, was that the estoppel claim was responsible for roughly 25% of the costs of the proceedings below. By ground 3 of her cross appeal, the plaintiff contended that his Honour's order as to costs was erroneous, in part because the same evidence was relied upon in support of the estoppel and family provision claims. She did not demonstrate that the primary judge was wrong to reject the latter contention, nor that his Honour erred in holding that "[i]n any event, there was a substantial amount of wastage" involved in pursuing it. For that reason, 25% of the first and second defendants' costs of the proceedings below should be paid by the plaintiff.
The plaintiff should pay the costs of the appeal and cross appeal on the ordinary basis in accordance with r 42.1. The appeal was necessary; the cross appeal brought by the plaintiff as to the quantum of provision was on any view optimistic. And it cannot be said that any fault on Stephne's part brought about the plaintiff's application (see AJ [59]-[66]) so as to make it appropriate that Mr Haertsch's costs be borne wholly by her estate.
Finally, the appellant is entitled recoup the remainder of his costs on an indemnity basis from Stephne's estate, those costs having been properly incurred defending the estate from the plaintiff's application for provision: Trustees Act 1925 (NSW), s 59(4); National Trustees Executors and Agency Company of Australasia Ltd v Barnes (1941) 64 CLR 268 at 274 (Starke J); [1941] HCA 3.
The following orders should be made: 1. First respondent pay the appellant's costs of the appeal and cross appeal, assessed on the ordinary basis. 2. First respondent (as plaintiff) pay 25% of the first and second defendants' costs of the proceedings below, assessed on the ordinary basis, with the intention that the parties otherwise bear their own costs. 3. The difference between the amount recovered from the first respondent under Orders 1 and 2 and the total of the appellant's costs of the appeal, assessed on the indemnity basis, and the costs at first instance, assessed on the indemnity basis, be paid out of the estate of Stephne Whiteway. 4. Note that no orders are made as to the costs of the second respondent, Jane French, to the intent that she bears her own costs of the proceedings below, and of the appeal and cross appeal.

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Cases Cited (25)

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