These reasons concern the costs of these proceedings. Familiarity with my principal reasons for judgment published on 19 September 2024 is assumed: Hildebrandt v Papakonstantinou [2024] NSWSC 1181.
The outcome of the proceedings was that, after noting an undertaking given to the plaintiffs and to the Court by the second defendant not to revoke or amend her will or make a new will and not to take steps to enforce a Deed of Family Arrangement entered into in April 2009, and an undertaking by the third defendant not to take steps to enforce that Deed of Family Arrangement provided that the second defendant did not alter her will, the proceedings were dismissed.
The dismissal of the proceedings encompassed: (1) the plaintiffs' proprietary estoppel claim; (2) the plaintiffs' claim to set aside the Deed of Family Arrangement which, for reasons that were not apparent to me, was made by separate cross-claim filed by the plaintiffs in the proceedings and which had been abandoned at trial after the second and third defendants gave their undertakings to the Court; and (3) the first plaintiff's claim under Chapter 3 of the Succession Act 2006 (NSW) for provision out of the estate of her late father, who was the first defendant in these proceedings prior to his death. A representative order was subsequently made appointing the second defendant to represent his estate in these proceedings.
The general power to award costs in s 98(1) of the Civil Procedure Act 2005 (NSW) provides that costs are in the discretion of the Court.
The exercise of that general discretion is subject to r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), which provides that, subject to Part 42, if the court makes any order as to costs, the court is to order that costs 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.
Rule 42.20 of the UCPR relevantly provides that, if the court makes an order for the dismissal of proceedings then, unless the court orders otherwise, the plaintiff must pay the defendant's costs of the proceedings.
In determining whether to make some other order in the present case, it is relevant to have regard to s 99(1) of the Succession Act 2006 (NSW) insofar as the first plaintiff's family provision claim is concerned. That section confers a discretion on the Court to order that the costs of family provision proceedings be paid out of the estate or notional estate in question. In the present case, however, the estate of the first plaintiff's late father has no material assets, and no order has been made designating any property as notional estate. As explained by Nixon J in Morgan v Black (No 2) [2023] NSWSC 1158 at [10]-[15], with reference to appellate authority, it is nevertheless necessary to consider whether the overall justice of the case in respect of the family provision claim is served by some costs order other than an order that costs follow the event.
On 24 May 2024, the defendants made a Calderbank offer to the plaintiffs to resolve the proceedings on terms that: (1) the defendants offered undertakings in substantially the same terms that the defendants subsequently gave to the Court and the plaintiffs; (2) the proceedings were dismissed; and (3) the Court would make no order as to costs, with the intent that the plaintiffs and the second and third defendants pay their own costs of the proceedings. The offer was expressed to be open for acceptance for 28 days.
Senior counsel appearing for the plaintiffs on the costs application, who had not appeared at the substantive hearing, candidly submitted that the plaintiffs should have accepted the defendants' offer made on 24 May 2024.
The defendants now seek orders that:
1. the plaintiffs pay the defendants' costs of the proceedings up to and including 24 May 2024 on the ordinary basis as agreed or assessed, on the basis that costs should follow the event, and the "event" is the dismissal of the proceedings; and
2. the plaintiffs pay the defendants' costs of the proceedings after 24 May 2024 on an indemnity basis, on the grounds that the defendants' offer made on that date was a real and genuine compromise and the plaintiffs acted unreasonably in all the circumstances in rejecting that offer.
The plaintiffs submit that the "event" should not be characterised as the dismissal of the proceedings because they secured the benefit the defendants' undertakings, which are of value to the plaintiffs because they assure that the first plaintiff will receive her share of the family farm that was promised to her. The plaintiffs also submit that it was those undertakings that caused them to abandon their cross-claim to set aside the Deed of Family Arrangement. Acknowledging that the defendants' offer was not an offer of compromise made under Division 3 of Part 42 of the UCPR, the plaintiffs submit that the outcome is analogous to the scenario addressed in UCPR r 42.15, which provides:
"(1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the plaintiff obtains an order or judgment on the claim no more favourable to the plaintiff than the terms of the offer.
(2) Unless the court orders otherwise:
(a) the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and
(b) the defendant is entitled to an order against the plaintiff for the defendant's costs in respect of the claim, assessed on an indemnity basis:
(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and
(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made."
The plaintiffs submit that, by analogy, the appropriate exercise of the costs discretion in all the circumstances of this case is to order the defendants to pay the plaintiffs' costs on the ordinary basis up to and including 24 May 2024, and to order the plaintiffs to pay the defendants' costs on an indemnity basis thereafter.
The plaintiffs submit that orders in the terms sought by the defendants - requiring the plaintiffs to pay the whole of the defendants' costs of the proceedings, and on an indemnity basis after 24 May 2024 - would not represent a just position between the parties in circumstances where, it was submitted, the plaintiffs achieved "a very substantial gain" by obtaining the defendants' undertakings.
I reject the plaintiffs' submission that the defendants' undertakings represent a substantial gain for the plaintiffs in these proceedings.
The defendants' undertakings were made in circumstances where (1) the first and second defendants had not resiled from their promises to give the first plaintiff the southern half of the family farm by way of inheritance following the death of the survivor of both of her parents, in any of the various ways that the plaintiffs alleged that those promises had been resiled from; [1] and (2) the defendants had not made any claim in these proceedings, or taken any other steps outside these proceedings, to enforce the Deed of Family Arrangement, and the plaintiffs did not rely on the Deed of Family Arrangement as resiling from the promises made to them. [2] The defendants' undertakings merely clarified the manner in which the second defendant, with the agreement of the third defendant, intended to resolve a problem that the second defendant and her late husband had grappled with for some time - how to fulfill their promises to give one geographical half of the family farm to each of their children by way of inheritance in circumstances where the farm could not be subdivided into two geographical halves, and where their son (the third defendant) had made far more extensive improvements on the half of the property promised to him than their daughter (the first plaintiff) had made on the half that had been promised to her.
The plaintiffs' claims in these proceedings were not directed to securing any assurance or fulfillment of the promised inheritance of the southern half of the farm. Rather, the principal relief sought by the plaintiffs was a declaration that the second defendant holds the property on constructive trust for the plaintiffs and the third defendant, and an order that the second defendant transfer the property to the plaintiffs and the third defendant as tenants in common. The plaintiffs' position at all times during these proceedings was that they, or the first plaintiff, had a present entitlement to the southern half of the farm, as opposed to an interest that had been promised by way of inheritance after the death of the survivor of the first and second defendants. Counsel who appeared for the plaintiffs at trial maintained that submission at all times, notwithstanding the first plaintiff's clear evidence to the contrary during cross-examination.
For those reasons, the defendants' undertakings do not represent a gain for the plaintiffs that is referable to their claims in these proceedings. For the purpose of exercising the costs discretion, the event of the proceedings is properly characterised as the dismissal of the proceedings, as the defendants submitted.
In my opinion, there is no reason in the present case for departing from the usual position under r 42.1 that the costs follow the event, including in relation to the family provision claim. In my opinion, this is consistent with the overall justice of the family provision component of the case, which received scant attention at the hearing, and in respect of which the plaintiffs' evidence was deficient, as explained in the principal judgment. There will therefore be an order that the plaintiffs pay the defendants' costs of the proceedings, consistently with r 42.1 and r 42.20.
The remaining question is whether the defendants' costs should be paid on an indemnity basis after 24 May 2024 by reason of the plaintiffs' rejection of the defendant's offer.
As the defendant's submitted, that turns on whether or not the offer was a real and genuine compromise and, if so, whether the plaintiffs' rejection of the offer was unreasonable in all the circumstances. The reasonableness or otherwise of the plaintiffs' rejection of the offer is to be assessed at the time the offer was made, and not with the benefit of hindsight. Relevant considerations include the stage of the proceeding at which the offer was made, the time allowed for the plaintiffs to consider the offer, and the clarity in which the terms of the offer were expressed: Ziegler as trustee for the Doris Gayst Testamentary Trust v Cenric Group Pty Ltd [2020] NSWCA 85 at [68]-[70]; Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [12].
The offer was a real and genuine compromise, as senior counsel for the plaintiffs implicitly acknowledged in his submission that the plaintiffs should have accepted the offer. The defendants were offering to bear their own costs of these proceedings which the plaintiffs had commenced seeking relief to which they knew, or ought to have known, they were not entitled, having regard to the first plaintiff's unequivocal and unwavering evidence in cross-examination that the southern half of the farm was only ever promised to her by way of inheritance after the death of both of her parents, and that her understanding about that had never changed. That is not to apply a hindsight test. The first plaintiff must have known at the time of the offer the terms of the promises that she recalled having been made to her over the years, and must have known the evidence that she would give about those promises under oath in cross-examination. Much of that evidence emerged from the first plaintiff voluntarily in a long and only partially responsive answer to a question asked of her at a very early stage of the cross-examination. It appeared to me at the time as if the first plaintiff could not wait to get it off her chest.
The plaintiffs were therefore well positioned and informed at the time of the defendants' offer to assess their negligible prospects of success in the proceedings. That is all the more so in circumstances where the offer was made after the plaintiffs had been provided with a copy of the second defendant's will that was the subject of one of the undertakings included in the offer, after the close of pleadings, and after all of the evidence had been served but for a number of further affidavits that the plaintiffs subsequently served exceedingly late, all but one of which were rejected at the hearing. The deficiencies in the plaintiffs' evidence in support of the family provision claim should have been apparent to the plaintiffs, properly advised, at the time of the offer. As the defendants submitted, the terms of the offer made it clear that the second defendant, with the support of the third defendant, had no intention of resiling from the substance of the promises that had in fact been made concerning the family farm. For those reasons, the plaintiffs' rejection of the defendants' offer was unreasonable in all the circumstances. It is therefore appropriate, in my opinion, that the defendants should be compensated for their costs of these proceedings on an indemnity basis rather than on the ordinary basis in respect of the period after the making of their offer.
The order of the Court is as follows:
1. Order that the plaintiffs pay the defendants' costs of the proceedings:
1. on the ordinary basis up to and including 24 May 2024; and
2. on an indemnity basis from 25 May 2024,
3. as agreed or assessed.
[2]
Endnotes
Principal judgment at [180]-[218].
Principal judgment at [81].
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Decision last updated: 02 October 2024