Knox v Peacock

The First Offer

1. The plaintiff's first offer was set out in a letter dated 17 March 2023 from the plaintiff's solicitors to the defendant's solicitors (the First Offer). The letter was marked "without prejudice save as to costs" and stated that it was made under the principles in Calderbank v Calderbank [1976] Fam 93. It was expressed to be open for acceptance for a period of 28 days.
2. The offer was to resolve the whole of the proceedings on the following terms: "The defendant estate pays to the plaintiff the sum of $200,000 inclusive of costs."
3. The defendant disputes that this First Offer constituted a proper offer under the principles in Calderbank v Calderbank. She contends that it was "ambiguous and unclear in every respect". In particular, she draws attention to the fact that the offer referred to the "defendant estate" paying the "plaintiff". She also points out that the letter stated that it may be relied upon on the question of costs, "including an application by the defendant for the plaintiff to pay the defendant's costs on an indemnity basis."
4. There is force in the defendant's submissions about the ambiguity inherent in the First Offer. The parties here were each propounding different wills with different executors. The reference to the "defendant estate" suggests that the plaintiff was prepared to concede that the defendant was entitled to a grant of probate, but the letter is ambiguous in this respect. It is also apparent that the letter was mistaken in referring to the circumstances in which the letter might be relied on. It should have referred to an application by the plaintiff for the defendant to pay the plaintiff's costs.
5. The plaintiff admits these errors were "obvious" and that the references to plaintiff and defendant were simply around the wrong way. He points out that the defendant "clearly understood" what it really meant. In support of this the plaintiff points to a letter from the defendant's solicitors dated 4 June 2024, over a year after the First Offer was made, which sets out a table of all of the offers that had been made up to that point in the proceedings. The table includes the First Offer as an offer by the plaintiff to the defendant with the term: "Defendant to receive $200,000 from the estate and bear her own costs." That, of course, would involve a grant of probate to the plaintiff, not the defendant, as the letter itself suggested.
6. Calderbank offers should be expressed in terms that are clear and unambiguous: see Coregas Pty Limited v Penford Australia Pty Limited (No 2) [2013] NSWCA 11 at [12] per Hoeben JA (with Meagher JA and Bergin CJ in Eq agreeing).
7. The First Offer referred to the parties incorrectly and was therefore both unclear and ambiguous. The letter of 4 June 2024 on which the plaintiff relies does tend to demonstrate that, at least as at 4 June 2024, the defendant had correctly understood what was meant. But that was a very long time after the First Offer and was at a point when the parties' understanding of the case had developed significantly. Accordingly, I am not prepared to find on the basis of that letter that the First Offer itself was sufficiently clear and unambiguous to attract the principles explained in Calderbank v Calderbank.

The Second Offer

1. The second offer was made under r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). It was in the form prescribed by the UCPR and was dated Friday, 21 June 2024 (the Second Offer). It was served on the defendant at 11:05AM that day. This was only very shortly before the final hearing, which commenced at 10:00AM on Monday, 24 June 2024 at Sydney.
2. The Second Offer was in the following terms: "The Plaintiff/First Cross-Defendant (Geoffrey Knox) offers to compromise the whole of the proceedings (commenced by Statement of Claim filed on 28 November 2022 and by Statement of Cross-claim filed on 9 December 2022) on the following terms: 1. This offer of compromise is made pursuant to r 20.26 of the Uniform Civil Procedure Rules 2005. 2. Verdict for the Plaintiff and First-Cross Defendant. 3. That Probate of the Will of Eva Marie Easton dated 19 November 2020 be granted in solemn form to Geoffrey Knox, the Plaintiff and First-Cross Defendant (referred to as Geoffrey Knox). 4. That the Statement of Cross-Claim filed on 9 December 2022 as amended by the Amended State of Cross-claim filed on 17 April 2023 be dismissed. 5. The costs of both the Plaintiff/First-Cross Defendant and the Defendant/Cross-Claimant be paid from the estate on the indemnity basis. 6. The Court notes the agreement of the parties that Geoffrey Knox is to pay 40% of the net value of the estate after payment of costs pursuant to Order 5, to the Defendant/CrossClaimant by way of a financial benefit. 7. The payment to be made pursuant to Order 6 is to occur within 7 days of the costs being paid pursuant to Order 5. 8. The Court notes the release by the Defendant/Cross-Claimant of the pleaded contract and estoppel claims. 9. This offer is open for acceptance until 5 pm on 23 June 2024. 10. In the event the offer is invalid for any reason the plaintiff reserves the right to rely upon this Offer in accordance with the Calderbank principles and seek to tender it pursuant to s 131(2)(h) of the Evidence Act."
3. The plaintiff relies on the Second Offer both as a Calderbank offer and an offer under r 20.26 of the UCPR.
4. The defendant disputes that the plaintiff is entitled to rely on the Second Offer on either basis. She makes the following points.
5. First, the defendant says that paragraph 5 offends the requirement in UCPR r 20.26(2)(c) that offers "must not include an amount for costs and must not be expressed to be inclusive of costs". I am unable to accept that submission. It overlooks r 20.26(3)(c) which states that "[a]n offer under this rule may propose… that the costs as agreed or assessed on the ordinary basis or on the indemnity basis will be met out of a specified estate, notional estate or fund identified in the offer."
6. Next, the defendant said that the amount proposed under the Second Offer was unclear because it was made in reference to the "net estate". These kinds of offers are often made in Estate proceedings. The defendant had herself made an offer in similar terms earlier in the proceedings.
7. However, as usually happens, the offeree promptly requested a breakdown of the estate's total costs and disbursements. That information was provided promptly. I would not be prepared to find that the reference to the "net estate" was reason enough to conclude that the offer did not comply with the UCPR, or that it was not able to be relied on as a Calderbank offer, but this is a circumstance that must be considered in the context of the defendant's final submission, to which I now turn.
8. Finally, and most significantly, the defendant points out that the offer was delivered at 11:05am Friday 21 June when the hearing was due to begin on Monday 24 June. The defendant's solicitor sent an email to the plaintiff's solicitors at 4:40pm on Friday 21 June requesting "a precise breakdown of costs including any disbursements" so that she was able to ascertain the value of the offer. The solicitor for the plaintiff replied the next day, Saturday 22 June, at 1:12pm, stating that the total amount of costs and disbursements were $200,000, but did not provide a precise breakdown as requested.
9. The defendant submits that this reply only left her and her lawyers less than four hours to properly consider the offer, as the offer was due to expire at 5pm that day (22 June 2024). This submission is mistaken because, as noted above, the offer was due to expire the following day, 23 June 2024, at 5pm.
10. In any event, the substance of the defendant's submission is that the time during which the offer was open for acceptance was not reasonable in all of the circumstances.
11. UCPR r 20.26(5) states: (5) The closing date for acceptance of an offer: (a) in the case of an offer made two months or more before the date set down for commencement of the trial - is to be no less than 28 days after the date on which the offer is made, and (b) in any other case - is to be such date as is reasonable in the circumstances.
12. Insofar as it is relied on as a Calderbank offer, the relevant question is whether it was reasonable in the circumstances for the offeree to have rejected the offer. This, of course, includes the temporal circumstances of the offer. In In the matters of Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liq) (No 2) [2021] NSWSC 1161, Ward CJ in Eq (as her Honour then was) summarised some relevant factors to consider at [98]: "The factors relevant to take into consideration when considering whether the rejection or non-acceptance of the offer was unreasonable (as summarised in Favotto at [20]-[30]) include: (i) the stage of the proceeding at which the offer was received; (ii) the time allowed to the offeree to consider the offer; (iii) the extent of the compromise offered; (iv) the offeree's prospects of success assessed as at the date of the offer; (v) the clarity with which the terms of the offer were expressed; and (vi) whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it (see Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 at [25] per Warren CJ, Maxwell P and Harper AJA; Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 398 at [8] per Buchanan and Tate JJA and Sifris AJA; Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [12] per Basten JA (with whom McColl and Campbell JJA agreed)."
13. The question of whether an offer is reasonable in the circumstances can be especially difficult when it is made very close to the trial. In Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd (No 2) [2008] NSWCA 85 ("Kooee"), Basten JA (with Giles and Tobias JJA agreeing) considered an offer of compromise made under the UCPR that was made 22 hours before the trial was due to commence. His Honour described the case as "truly borderline" but ultimately found that the offer was not reasonable having regard to all of the circumstances. His Honour identified three particular considerations relevant to assessing the reasonableness of offers made very close to a final hearing at [20]-[21]: "In considering whether the time allowed for acceptance is "reasonable in all the circumstances" once a trial commences, or indeed final preparation commences, three factors come into play. The first is that both parties may reasonably be expected to have a clear perception of the strengths and weaknesses of their positions, so that the reasonableness of a particular offer may be speedily assessed. Secondly, because significant costs will be accruing on a daily, even an hourly basis, there is a heightened incentive to respond within the time permitted. Thirdly, and counterbalancing the first factor, the need to address the terms of an offer, provide advice and obtain instructions will often be a significant distraction from final preparation. In relation to the first factor, it should be accepted that by the day before the hearing, in commercial litigation involving experienced counsel and solicitors, the legal representatives would have been able to give the client an immediate assessment of: (a) the approximate costs incurred to date; (b) the likely length of the trial; (c) the approximate amount of costs assessed on an indemnity basis if the matter proceeded to trial, and (d) the most likely outcome, which may involve a range as to quantum. It should also be accepted that someone with authority to bind the client would have been available to give instructions based on legal advice as to the preferable response."
14. I accept that, at the time the Second Offer was made, the parties should have been well aware of the details of the case and their respective positions, including the possible costs outcomes. It was also made in the context of other offers. The plaintiff had made the First Offer and the defendants had made offers on 11 January 2023, 12 July 2023, 24 July 2023 and 27 May 2024. The defendant also made an offer to the plaintiff on the second day of the trial. In addition, the solicitor for the plaintiff had separately written to the solicitor for the defendant pointing out the difficulties in her case, foreshadowing the ultimate result.
15. There are, however, a number of circumstances which tend against a finding that the Second Offer was reasonable in all of the circumstances.
16. The defendant is an elderly lady with limited resources who lives in regional NSW. Her solicitor lives and works in a small firm in the same region. It was necessary for them to travel to Sydney over the weekend to prepare themselves for the hearing on the Monday. The proceedings are in these respects quite unlike the kind of commercial litigation with which the Court was concerned in Kooee.
17. The defendant is not an experienced litigant. The days immediately prior to the hearing, at which she was to be cross-examined, are very likely to have been stressful and daunting for her. The Second Offer was made on the Friday afternoon before the hearing was to commence on a Monday. The plaintiff only provided the figure of his costs and disbursements on Saturday afternoon, leaving the plaintiff only Saturday night and Sunday to consider the offer in the light of that information.
18. Having considered all of the circumstances, I find that the Second Offer was not reasonable within the terms of UCPR r 20.26(5)(b). Nor was it unreasonable for the defendant to reject it as a Calderbank offer. I can envisage other situations where an offer made within the same time period before the beginning of a hearing would have been reasonable. However, given the nature of the litigation, the age and experience of the defendant and her solicitors and the fact that the offer was to be considered over a weekend which inevitably involved travel and stress, the time allowed to accept the Second Offer was not reasonable.

Applicable principles

1. It is first appropriate to identify the principles governing the exercise of my power to award costs.
2. Costs are in the discretion of the Court: s 98 of the Civil Procedure Act 2005 (NSW). The general rule is that costs follow the event: UCPR r 42.1.
3. The defendant has referred me to a line of authority that identifies two situations in probate proceedings where, in her submission, this general rule may not apply. These situations are sometimes called "exceptions" to the general rule. However, as Basten AJA explained in Etherton v Mitchelmore [2024] NSWSC 170 at [69] "the term 'exception' may be thought to imply that the rule does not operate in particular circumstances. That would clearly be wrong: it is not for the courts to craft exceptions to a statutory rule."
4. In this respect, it is also relevant to note Middlebrook v Middlebrook (1962) 36 ALJR 216 at 217 where Dixon CJ said: "No doubt in probate suits the prima facie rule is that, as in other litigation, costs follow the event. But in probate suits there are considerations which more readily affect the application of this rule than in most other forms of litigation."
5. The two circumstances in which it is often said that the general rule is so affected were identified by Powell J in an often cited passage in Re Estate of Hodges (decd); Shorter v Hodges (1988) 14 NSWLR 698 at 709: "1. where the testator has, or those interested in residue have, been the cause of the litigation, the costs of unsuccessfully opposing probate may be ordered to be paid of the estate; 2. if the circumstances led reasonably to an investigation in regard to the document propounded, the costs may be left to be borne by those who respectively incurred them…"
6. There is often some overlap between these two circumstances, especially in cases where testamentary capacity is in issue: see Perpetual Trustee v Baker [1999] NSWCA 244 at [14] per Giles JA and Brownie AJA; Etherton v Mitchelmore at [73].
7. The defendant relies on a number of authorities in aid of her contention. In Gray v Hart & Ors [2012] NSWSC 1435, White J said at [5]: "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."
8. In Perpetual Trustee v Baker, Giles JA and Brownie AJA said at [14]: "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…"
9. It is important, however, to remember that costs remain within the discretion of the court. In Alexakis v Masters (No 3) [2023] NSWSC 694, Henry J said at [12]: "The two probate exceptions tend to overlap although they remain conceptually distinct: Perpetual v Baker at [13]-[14]. Like the general rule on costs, the exceptions provide a starting point; they are not exhaustive nor prescriptive, they may not operate fairly in a particular case and the Court retains flexibility when awarding costs in probate actions. The exceptions provide guidance to the Court in the exercise of its discretion having regard to the overall circumstances, the justice between the parties and the "reality of the contest", which also takes account of the facts connected with the litigation, such as the role which a party has played in the proceedings, the facts about the knowledge available to parties and the reasonableness of their conduct in the litigation: Chant v Curcuruto [2021] NSWSC 882 at [32], citing Starr v Miller; Starr v Miller (No 2) [2021] NSWSC 685 (Starr v Miller) and Brown v Guss (No 2) [2015] VSC 57 at [36] and Perpetual v Baker at [14]."
10. I also note the recent observations of Basten AJA in Etherton v Mitchelmore at [75]: "As Mason P noted in Shorten, the general rule is designed to compensate the successful party for the costs of the litigation, and not to punish the unsuccessful party. It does not require proof of the unreasonableness of the losing party. One may add that a significant practical effect of the rule is to impose a discipline on both lawyers and clients in circumstances where litigation is pursued primarily for financial advantage: there will be costs resulting from failure, beyond the party's own costs of the litigation. In circumstances where the parties are litigating over a fund, the Court should not too readily adopt practices which subvert the valuable discipline of the general rule. Sometimes the interests of the legal profession may tend to subvert the need for such discipline. Further, little attention was paid in the probate cases relied on by the parties, most of which pre-dated the Civil Procedure Act, to the overriding purpose of the rules, including the costs rule, requiring litigants, lawyers and the courts to facilitate the just, quick and cheap resolution of the real issues in the proceedings: Civil Procedure Act, s 56. The issues are to be resolved in such a way that the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute: s 60. These considerations should inform an assessment of the reasonableness of Mr Etherton's conduct."

Application to the facts

1. The defendant submits that both circumstances identified by Powell J in Re Estate of Hodges (decd); Shorter v Hodges are present here. She submits that the testator's mental frailty was the cause of the litigation and that it was reasonable for the defendant to see this case to its conclusion in order to determine the validity of the final will.
2. However, these factors must be weighed in the context of the proceedings as a whole. It is therefore important to recall the procedural and forensic setting in which the question of the validity of the 2020 Will was ultimately determined.
3. The plaintiff is a solicitor. He commenced proceedings by statement of claim in which he sought orders that probate of the 2020 Will be granted to him as an executor named under the will. The defendant filed a defence and cross-claim seeking that probate be granted to her under the 2019 Will. She impugned the 2020 Will on the basis that the deceased did not have testamentary capacity at the relevant time. In doing so she relied heavily on the evidence of Dr Jane Lonie, a well-qualified clinical neuropsychologist who was jointly appointed to prepare an expert report as to Mrs Easton's capacity to make the 2020 Will. Dr Lonie concluded that the deceased did not have testamentary capacity to make that will.
4. In addition, the defendant sought relief on the basis of a contract and estoppel, relying on what she contended to have been a contract entered into with Mrs Easton, or alternatively her detrimental reliance on promises made by Mrs Easton, that she would leave her estate to the defendant.
5. These claims were eventually abandoned, but only during closing submissions on the last day of the hearing.
6. I ultimately found that the deceased did have testamentary capacity at the time of the execution of the 2020 Will. I reached my conclusions in the light of the persuasive contemporaneous evidence of the solicitor who witnessed the will, the deceased's regular GP and a staff member at the deceased's nursing home.
7. The defendant particularly relies on Dr Lonie's conclusions as justifying her decision to pursue the litigation to finality. She also relies on the fact, not in dispute, that Mrs Easton did suffer fairly significant cognitive decline and that there had been cause to appoint the NSW Trustee and Guardian even before she made the 2020 Will.
8. However, as the plaintiff has pointed out, the defendant seems to have become particularly steadfast in her belief that her case was sound upon receiving Dr Lonie's report, to the point where she failed to recognise the limited utility that such retrospective reports often have, even when they are prepared by the best qualified experts. As I explained in the principal judgment, contemporaneous observations from persons such as solicitors, doctors and nurses will frequently be given significant weight in resolving the legal question of whether a person had testamentary capacity: see the primary judgment at [183]. This is a matter that the defendant should have appreciated.
9. If this were the only matter, it may well have carried more weight. It is true that the evidence did raise a question as to Mrs Easton's capacity.
10. However, an important aspect of my findings, outlined at [291]-[303] of the primary judgment, was that the evidence relied on by the defendant to impugn the 2020 Will gave rise to a serious question as to Mrs Easton's capacity to make the 2019 Will. The evidence on which the defendant relied, had I accepted it to find that Mrs Easton lacked capacity to make the 2020 Will, would have led me to conclude that the 2019 Will was equally unsafe. It became apparent during the cross-examination of Dr Lonie that she had in fact never been asked to consider whether Mrs Easton had capacity to make the 2019 Will. Her evidence was that Mrs Easton's cognitive decline had started well prior to 2019.
11. In this respect, I also pointed out that the defendant had been in a position to lead evidence from her solicitor as to the circumstances in which the 2019 Will was made (because that same solicitor instructed her in these proceedings) and that that evidence would have been probative of the question of whether Mrs Easton had capacity to make the 2019 Will, just as Mr Knox's evidence had been probative of the question concerning her capacity in 2020. However, Mrs Peacock failed to lead such evidence. It was evident that this was a forensic decision made on the mistaken belief that, should the issue have arisen, it would have been dealt with in some separate proceeding.
12. In other words, even if the defendant had succeeded in her primary contention about Mrs Easton's lack of capacity to make the 2020 Will, she would not have succeeded in propounding the 2019 Will either.
13. Lastly, it is also relevant to note that the estate in question stands at around $1,000,000.00. The plaintiff's costs up to the commencement of the hearing were already $200,000.00. An order that the parties' costs come out of the estate on the indemnity basis, as the defendant seeks, would see a good proportion of the estate eaten up by the costs of this litigation which, as I have explained, was never going to result in a grant of probate in favour of the defendant in any event, given the way the case was run.
14. In all of these circumstances, I am unable to accept that the defendant's decision to pursue this litigation through to finality in the way she did was reasonable.
15. It follows that the general rule should apply and costs should follow the event. The plaintiff has asked for an order that any shortfall in his costs be paid by the estate on the indemnity basis. It is unclear that there is strictly any need for such an order. A consequence of the orders I have already made is that he is entitled as executor to be indemnified for his costs from the estate in any event. However, there was no specific opposition to making such an order and so for the avoidance of any doubt, I will make it.

ORDERS

1. I make the following orders: 1. The defendant/cross-claimant is to pay the plaintiff/cross-defendant's costs of the proceedings on the ordinary basis. 2. Any shortfall between the costs of the plaintiff and the costs recovered from the defendant/cross-claimant pursuant to order (1) be paid from the estate of the late Eva Marie Easton on the indemnity basis.

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