Leary v NSW Trustee and Guardian [2017] NSWSC 1226 | Case summary

Supreme Court of NSW|2017-09-12|Before: Ward CJ

Judgment

HER HONOUR: On 23 August 2017, I dismissed an application by the plaintiff (John Leary) for provision out of the estate of his deceased mother (Leary v NSW Trustee and Guardian [2017] NSWSC 1113). I did so on the basis that I was not satisfied that Mr Leary had presented a full and frank account of his personal and financial circumstances and I therefore could not be satisfied as to the threshold question for determination on his application for provision (namely, that he had been left without adequate provision).
I called for brief submissions on the issue of costs, having regard to the fact that Mr Leary had presented an admittedly false case as to his personal and financial circumstances from the inception of the proceedings in 2015 through, at the earliest, to 12 April 2017 (when he disclosed to his solicitors the extent of the shareholdings, and cash, that he had held during that period) and, as far as the defendant was concerned, up until 15 May 2017 (when he swore an affidavit deposing to the falsity of his earlier affidavits filed in the proceedings). On Mr Leary's case, he dissipated almost the entirety of the proceeds of sale of his shares in a short period of time only a couple of months before the hearing was due to commence (by gambling them away).
During the course of the proceedings (and before Mr Leary had made disclosure to the defendant of his then not insubstantial assets) the matter had twice been listed for mediation and the defendant had made a series of offers of compromise, acceptance of any of which would have placed Mr Leary in a far better position than he now finds himself following the dismissal of his application for provision.

Submissions

Mr Leary submits that, in the circumstances of this case, the appropriate costs orders are, first, that there be no order as to his costs (to the intent that he bear his own costs) and, second, that the defendant's costs be paid out of the estate on the indemnity basis.
Mr Leary says that if he is now ordered to pay the costs of the defendant (which is what the defendant urges) it is unclear the quantum of what further provision, if any, he will receive from the estate. It is submitted that the impost of payment of the defendant's legal costs will be so detrimental to Mr Leary's financial circumstances that the Court should exercise its discretion to depart from the usual order that costs follow the event (r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (the UCPR)).
For its part, the defendant submits that, at a minimum, Mr Leary should be ordered to pay the defendant's costs of (and those incidental to) the proceedings on the ordinary basis pursuant to rr 42.1 and 42.2 of the UCPR. However, the defendant's principal submission is that Mr Leary should be ordered to pay its costs on the indemnity basis.
Emphasis is placed by the defendant on the fact that Mr Leary pursued his claim based on what he has admitted was false evidence until 15 May 2017, two days before the hearing was scheduled to commence, and that he swore false affidavits in support of his claim.
Further, the defendant points out that, due to Mr Leary having conducted his case based on admittedly false evidence, his three siblings (and other beneficiaries) have had to wait for more than three years since the death of the deceased to receive their entitlements under the deceased's will. The defendant notes that Mr Leary's three siblings, as residuary beneficiaries, will bear 3/4 of the burden of the statutory interest on the unpaid pecuniary legacies of the 12 grandchildren and that, if Mr Leary is not ordered to pay the defendant's costs on the indemnity basis, they will also have to bear 3/4 of the burden of the difference between the defendant's costs on the ordinary basis and those costs calculated on the indemnity basis.
The defendant further argues that, in any event, Mr Leary should be ordered to pay the defendant's costs on the indemnity basis from 6 April 2016 (pursuant to r 42.15) having regard to Mr Leary's failure to accept the offers of compromise served on 5 April 2016. As a further reason for an order for indemnity costs, the defendant relies on the Calderbank offer it made on the day the hearing was scheduled to commence.
The defendant's best estimate, just prior to the hearing, as to the amount to which Mr Leary was entitled under the deceased's will (excluding an amount of $10,000 already paid by way of an interim distribution) was $284,711. (The calculation by Mr Leary's Counsel put this figure at somewhat less - at around $245,000; see T 137-138). An amount of $75,000 was paid to Mr Leary's solicitors, on account of legal fees for the proceedings, out of his entitlement under the will. On the defendant's calculation, that left an entitlement of $209,711 plus any interest earned since then. (On the defendant's figures that amount would be correspondingly less.)
The defendant's costs and disbursements, on the indemnity basis, are estimated to be $102,922.29 (see affidavit of Anthea Mairin Kennedy sworn 7 April 2017 at [4]). In contrast, Mr Leary's costs of the proceedings were estimated to be $196,802.34 and, on the ordinary basis, $150,000 (see affidavit of Pamela Gabrielle Suttor sworn 12 April 2017 at [2]).

Determination

On the basis of the costs estimates provided, an order that Mr Leary pay the defendant's costs of the proceedings on an indemnity basis would not exhaust his entitlement under the deceased's will, though it would in effect halve the distribution he could expect to receive out of the estate (or perhaps more than halve the distribution if his figures are to be accepted). However, it is not clear what arrangements have been made between Mr Leary and his legal representatives as to the balance of their fees and thus what his net position would be.
Costs orders in civil litigation are well recognised as being compensatory, not punitive, in nature (Latoudis v Casey (1990) 170 CLR 534; [1990] HCA 59; Ohn v Walton (1995) 36 NSWLR 77). However, special costs orders are warranted in certain circumstances (such as where the offer of compromise procedure is validly invoked) and where the conduct of the case by the party against whom costs are sought is plainly unreasonable (see Fountain Selected Meats (Sales) Pty Ltd v Universal Produce Merchants Pty Ltd (1988) 81 ALR 397; [1988] FCA 202; Dunstan v Rickwood (No 2) [2007] NSWCA 266 at [44]).
In the present case, even leaving aside the consequence that would ordinarily follow rejection of a far more favourable offer of compromise than the outcome ultimately achieved in the litigation, what is significant is that Mr Leary chose to commence and to prosecute his application for provision on a false basis up until almost the eve of the hearing (by which time it must have been obvious to him that his lies were about to be exposed). It is safe to assume that had he been honest about his financial circumstances up-front, not only would offers of compromise in the amount that were made not have been made but also (and more relevantly) the costs incurred by the defendant in ascertaining and establishing the falsity of Mr Leary's claimed personal and financial circumstances would not have been incurred. (Indeed, it may well be debatable as to whether any responsible legal practitioner would have advised that Mr Leary had a claim for provision had he or she known at the outset the extent of his assets at that time.)
This Court should not be seen to condone conduct of the kind in which Mr Leary on his own evidence has engaged conduct which amounts to an abuse of the process of the Court. I am firmly of the view that Mr Leary's conduct of the proceedings is such that the case calls for an indemnity costs order to be made against Mr Leary (notwithstanding what he now professes, but which cannot be determined on the evidence, to be his indigent circumstances). That order should be made in respect of the defendant's costs for the period from commencement of the proceedings up to the time of service by Mr Leary of his 15 May 2017 affidavit.
While there is a strong argument to be made for Mr Leary also to bear the defendant's costs on an indemnity basis of the hearing itself (particularly having regard to the non-acceptance by him of the very favourable offers of compromise - and leaving aside the non-acceptance of the Calderbank offer on the day the hearing was scheduled to commence), I take into account that Mr Leary did have a not wholly unreasonable argument as to adequacy of provision (albeit one supported largely if not wholly on his own unreliable evidence) based on the likelihood that he would squander any inheritance that he did receive under the deceased's will. Moreover, I am conscious that any indemnity costs order I now make will consume much of the provision left for him under the will.
Balancing those matters, I order as follows: 1. Order that there be no order as to the plaintiff's costs of the proceedings, to the intent that the plaintiff should bear his own costs. 2. Order the plaintiff to pay the defendant's costs on an indemnity basis up to and including 15 May 2017, such costs to be paid or retained out of the plaintiff's' entitlement in the distribution of the will of the deceased. 3. Order that any shortfall in the defendant's costs be paid out of the estate on an indemnity basis.

Amendments 13 September 2017 - Par 2 - '12 August 2017' changed to '12 April 2017' DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 September 2017

Leary v NSW Trustee and Guardian

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