McDonald v O'Connor

The respective position of the parties at the costs hearing

1. The Plaintiff's counsel, in oral submissions, suggested nine factors for the Court's consideration in the making of a costs order, which may be summarised as follows: 1. The Plaintiff was the only child of the deceased. She had very modest assets: Tcpt, 21 March 2019, p 3(14-15). 2. The Plaintiff's net asset position was found by the Court to be a little over $18,000, and that her principal asset had followed "a claim for compensation from an accident which has left the Plaintiff with severe disabilities": Tcpt, 21 March 2019, p 3(15-18). 3. When the Defendant's Offer of Compromise was made on 14 February 2018, there were a number of outstanding affidavits from the Defendant, and the witnesses upon whose evidence the Defendant intended to rely were not known to the Plaintiff. Though those affidavits were filed shortly after the making of the Offer of Compromise, when the Offer was made, the Defendant's evidence was incomplete. 4. The Plaintiff required more time to consider her position, in light of those affidavits, given the complexity of the issues raised, particularly in relation to the size of the estate: Tcpt, 21 March 2019, p 3(20-29). 5. There was only a small difference between the lump sum ($50,001) contained in the Defendant's Offer of Compromise and the provision for a lump sum made in the principal judgment ($45,000): Tcpt, 21 March 2019, p 3(35-37). 6. The Plaintiff suffers significant medical issues, and has no earning capacity. 7. "An adverse costs order would have a detrimental effect on the applicant's financial position and an adverse costs order would leave her impecunious": Tcpt, 21 March 2019, p 3(7-9). 8. The Defendant had not raised her own financial and material circumstances: Tcpt, 21 March 2019, p 4(35-37). 9. The Court's determination of the amount of the provision for the Plaintiff, was based upon a calculation that had included the deduction from the gross estate of the estimated costs of the proceedings. (In his submission, counsel referred to [127], [134], [138] and [148] of the principal judgment, which had dealt specifically with the costs incurred in the proceedings, and the issue of costs in relation to the estate of the deceased. He did not refer to [360]-[361].)
2. Whilst there can be little doubt about the matters of fact relied upon in (1), (2), (3), (6), (7) and (8) of the submissions, I am unable to accept the submissions in (4), (5) and (9). In respect of (4), there was no evidence that the Plaintiff had requested the Defendant to extend the time for acceptance of the offer made. In respect of (5), the difference was $5,001, which equated to more than 10 per cent of the amount of provision ordered by the Court. In respect of (9), I refer to the matters taken into consideration in determining the quantum of provision.
3. Counsel for the Plaintiff referred to my judgment in Meres v Meres (No 2) [2017] NSWSC 523, at [38], regarding principles relating to costs in family provision proceedings. Counsel noted the observations of Gaudron J in Singer v Berghouse (1993) 114 ALR 52; [1993] HCA 35, at 52, and referred to the eleven principles set out in my judgment.
4. Three of those principles were, specifically, referred to by counsel. They are as follows: "... (i) In exercising its discretion in relation to costs, the court will have regard to "the overall justice of the case": Jvancich v Kennedy (No 2). The "overall justice of the case" is "not remote from costs following the event". However, the court may be more willing to depart from the general principle in proceedings for a family provision order than in other types of case: Moussa v Moussa; Carey v Robson (No 2); Bartkus v Bartkus [2010] NSWSC 889 at [24]. (j) As proceedings for a family provision order are essentially for maintenance, a court may properly decide to make no order for costs, even though it were otherwise justified, against an unsuccessful applicant, if it would adversely affect the financial position which had been taken into account in dismissing the application: Morse v Morse (No 2) [2003] TASSC 145; McDougall v Rogers; Estate of James Rogers [2006] NSWSC 484; McCusker v Rutter [2010] NSWCA 318 at [34]. (k) There are also other circumstances that may lead the court to order payment out of the estate of the costs of an unsuccessful Plaintiff. The court may allow an unsuccessful plaintiff costs out of the estate, if in all the circumstances the case was meritorious, reasonable or "borderline": McDougall v Rogers; Estate of James Rogers; Re Bodman [1972] Qd R 281; Shearer v The Public Trustee (NSWSC, Young J, 21 April 1998, unreported)."
5. In his written submissions, counsel for the Defendant proposed the following orders: "Order subject to order in paragraph (3), that the estate pay the plaintiff's costs, calculated on an ordinary basis, incurred prior to 14 February 2018. Order the plaintiff pay the defendant's costs, calculated on the indemnity basis from 15 February 2018. Order that the defendant's costs, to the extent there is any difference, calculated on the indemnity basis, be paid or retained, out of the estate of the Deceased."
6. Counsel for the Defendant accepted that since there had been an order for provision made in favour of the Plaintiff, in the normal course of events, she would be entitled to her costs, calculated on the ordinary basis, out of the estate, subject to any capping of costs by the Court. (The Plaintiff's solicitors and counsel had stated that the Plaintiff's costs would be limited to the amount that she recovered. It followed that she would not have to pay any additional costs to her solicitors.)
7. He then submitted that the Defendant's Offer of Compromise of 14 February 2018, was open for 30 days, and was, expressly, made to be an offer in accordance with r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). There had been no response to the Offer of Compromise by the Plaintiff.
8. The Plaintiff's two Offers of Compromise, the first served on 8 June 2018 for $199,000, plus costs, on an ordinary basis, and the second served on 19 November 2018, for $149,000 plus costs, on the ordinary basis was, in each case, far greater than the amount that the Plaintiff had received by order of the Court. This had demonstrated an unrealistic approach to her case.
9. It was next submitted by the Defendant's counsel that, as the Plaintiff did not achieve a more favourable result than she would have obtained by accepting the Offer of Compromise served by the Defendant on 14 February 2018, the statutory presumption pursuant to UCPR r 42.15 applies.
10. UCPR r 42.15 states: "42.15 Where offer not accepted and judgment no more favourable to plaintiff … (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."
11. Counsel for the Defendant further submitted that the Defendant's Offer of Compromise was allowed to make, and had made, reference to costs being paid out of a specified fund pursuant to UCPR r 20.26(3), which states that an offer made under that 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.
12. It was submitted that this was an important consideration in the context of family provision claims, so a Plaintiff was not emboldened by having Offers of Compromise not enforced.
13. Counsel for the Defendant cited the recent judgment in Olsen v Olsen [2019] NSWSC 217, per Pembroke J, at [6]: "There have been numerous decisions of this court in recent years dismissing claims by adult sons and daughters. Many of these cases, like this one, are conducted on a speculative basis pursuant to a conditional costs agreement. Such cases sometimes unnecessarily fuel the expectations of claimants, ultimately causing more hardship and heartache. Too often they waste the resources of the court and the money of the litigants. The growing frequency of these cases, and the speculative basis on which many are conducted, is a cause for concern. White JA adverted to the issue in Sgro v Thompson [2017] NSWCA 326 at [88]: Applications are filed in the Supreme Court's Family Provision List at an average rate of about 80 per month. One commentator has criticised the apparent readiness of courts to vary the expressed will of the deceased by granting family provision claims (A Gray, 'Family Provision Applications: A Critique' (2017) 91 ALJ 750."
14. (That case was one, however, in which the Plaintiff's claim for provision was dismissed.)
15. Reference was also made to my decision in Rogers v Rogers [2018] NSWSC 1982, in relation to authorities for UCPR r 42.15. I shall refer to that case later in these reasons.
16. Finally, counsel for the Defendant referred to Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391, in which McColl JA (with whom Gleeson JA and Sackville AJA agreed), at [45]-[47], wrote: "Accordingly, the question is whether, as the appellant submits, the Court should 'order otherwise': UCPR 42.15A(2). The onus is on the appellant to demonstrate why the Court should depart from the consequence of his rejection of the Offer: Caine v Lumley General Insurance Ltd (No 2) [2008] NSWCA 109 (at [35]) per McColl JA (Mason P and McClellan CJ at CL agreeing); Miwa (at [16]). There is a conflict in decisions of this court as to whether exceptional circumstances are required before the court may exercise the discretion to 'order otherwise' in relation to an unaccepted offer of compromise or whether that discretion has to be exercised having regard to all the circumstances of the case: Commissioner of Taxation v Moodie [2014] NSWCA 59; (2014) 282 FLR 453 (at [64]) per McColl JA. An 'exceptional circumstances' test could be seen as a gloss on the language of the relevant rules their text does not admit. That suggestion was discounted by Hely J in relation to the like power to 'otherwise order[s]' in O 23, r 11(4) of the Federal Court Rules 1979 (Cth) (as then in force): Port Kembla Coal Terminal Ltd v Braverus Maritime Inc (No 2) [2004] FCA 1437; (2004) 212 ALR 281 (at [17]). Rather, his Honour was of the view that such language merely 'convey[s] that the prima facie position should only be departed from for proper reasons which, in general, only arise in an exceptional case'. In my view his Honour's observation sufficiently encapsulates the approach to be adopted in the present case."
17. Neither party asked the Court to make a lump sum costs order under s 98(4) of the Civil Procedure Act 2005 (NSW) ("the Civil Procedure Act"). Such an order would avoid the need for an assessment and would allow expedited distribution and finalisation of the estate if costs orders were made.

The legal principles

1. In Smith v Smith (No 2) [2011] NSWSC 1105, I wrote, at [55]: "I am of the view that the following general principles apply (in respect of costs applications made under the Succession Act[)]: (a) Section 99 of the Succession Act provides a wide discretion in relation to costs ("in such manner as the Court thinks fit"). (b) Where a Plaintiff is successful, subject to any special order as to costs, his, or her, costs, calculated on the ordinary basis, are usually paid out of the estate or notional estate of the deceased of the deceased; the Defendant's costs, calculated on the indemnity basis, are also usually ordered to be paid out of the estate or notional estate of the deceased. (c) Proceedings for a family provision order involve elements of judgment and discretion beyond those at work in most inter partes litigation: Jvancich v Kennedy (No 2) [2004] NSWCA 397; Re Sherborne Estate (No 2); Vanvalen v Neaves [2005] NSWSC 1003. (d) In exercising its discretion in relation to costs, the court will have regard to the overall justice of the case: Jvancich v Kennedy (No 2) . The "overall justice of the case" is "not remote from costs following the event". However, the court may be more willing to depart from the general principle than in other types of case: Moussa v Moussa [2006] NSWSC 509 ; Carey v Robson [2010] NSWCA 212 ; Bartkus v Bartkus [2010] NSWSC 889 at [24]."
2. There can be no dispute that the discretion regarding costs is unconfined, unfettered, to be exercised judicially, and not by reference to irrelevant or extraneous considerations, and must be based upon facts connected with the litigation.
3. In Meres v Meres (No 2) [2017] NSWSC 523, I summarised the legal principles relating to Offers of Compromise, at [35]-[44]. Of particular relevance to the question of whether, and when, the Court's discretion should be used when determining issues of costs, I noted at [38] (citing my previous determination in Hinderry v Hinderry (No 2) [2016] NSWSC 1577, though that was a case in which a family provision order was not made): "As was noted (albeit in another context), in Kazar (Liquidator) v Kargarian; In the Matter of Frontier Architects Pty Ltd (In Liq) [2011] FCAFC 136 at [9] (by Greenwood and Rares JJ): 'The exercise of the discretion takes account of all of the contextual circumstances of the litigation and the conduct of the parties. One aspect of the award of costs is a recognition that a party has been put to expense which, taking account of the merits as ultimately found on the trial of the action, might otherwise have been avoided. That consideration does not infuse the award of costs with any sense of penalty or punishment but simply recognizes the compensatory nature of an award of costs, in context and according to principle. That is why an award of costs, although involving the exercise of a discretion, generally favours the successful party. As to the importance the community attaches to legal costs incurred of and incidental to the resolution of controversies before courts, see Clark v Commissioner of Taxation [2010] FCA 415 at [90]; Uniline Australia Ltd v S Briggs Pty Ltd (No. 2) [2009] FCA 920; (2009) 82 IPR 56 at [38]; and, Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [130] to [132].' I accept, of course, that claims for a family provision order do, in some ways, raise issues with respect to costs that differ from those in other litigation and that there is more flexibility where there has been an unsuccessful claim. One example where an order for costs being made against an unsuccessful Plaintiff may be inappropriate is where, if such an order for costs were made, he or she would immediately become impecunious and so may be able to make a fresh application under the Act. In that example, it would be counter-productive to make an order as to costs against the unsuccessful plaintiff: McCusker v Rutter [2010] NSWCA 318 at [34] (Young JA). … The "more modern" approach appears to be that stated by the Court of Appeal in Chapple v Wilcox [2014] NSWCA 392. At [27], Basten JA stated: 'Whether or not an unsuccessful applicant should be allowed to litigate without expense to the estate will depend on a variety of circumstances. There is always a discretion in the Court when making an order pursuant to s 98 of the Civil Procedure Act 2005 (NSW). The discretion conferred on the Court by that provision is subject to the rules of court (s 98(1)) and thus to r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW), which provides that costs will follow the event unless it appears to the Court that some other order should be made. That rule is not disapplied in relation to family provision orders. Nor should applicants for such orders have any expectation that, as a general rule, the discretion will be applied so as to exempt them from liability for costs incurred by an estate in the case of an unsuccessful application. In some cases applicants will already be beneficiaries of the estate and may thus have some incentive to ensure that the costs of litigation are kept within tight bounds. However, that is not always the case. Where an applicant is entirely unsuccessful, an order that he or she should pay the costs of the estate may well be the appropriate order.'"
4. I added, at [43]-[44]: "From the authorities, it appears the question for determination regarding the effect of what is said to be an Offer of Compromise involves a two-stage process. The first stage is to enquire whether the offer made is an 'Offer of Compromise' at all, within the meaning of the UCPR. This will depend, in part, on whether it satisfies the formal requirements laid down by UCPR rule 20.26. It also depends, in part, on whether the offer made is one that can truly be called a 'compromise'. If the court concludes that the offer which is made is an 'Offer of Compromise' within the meaning of the Rules, and that the offer made is one that can truly be called a compromise, then UCPR rule 42.15A(2) operates to establish a 'default' position, relevantly that, if the defendant obtains a judgment no less favourable than that which the defendant had offered to accept, then indemnity costs would follow. It is then that the second stage of the process arises, in that the court can "otherwise order". The court will 'otherwise order' if it is persuaded that is appropriate, in the interests of justice, that the 'default' position ought not apply: Manly Council v Bryne (No 2) [2004] NSWCA 227, per Campbell JA, at [10]; Evans v Braddock (No 2) [2015] NSWSC 518, at [52]."
5. (I have not repeated the passages in Meres v Meres (No 2) referred to in the Plaintiff's submissions quoted above.)
6. In Automotive Holdings Group Ltd v Prime Constructions Australia Pty Ltd (No. 2) [2019] NSWSC 315, at [12], Slattery J opined, at [18], that the Court of Appeal's decision in Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344, at [9], remains authority for the proposition that an offer of compromise made pursuant to the UCPR must contain "a real and genuine element of compromise". In that judgment, Slattery J also made reference to The Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) [2006] 67 NSWLR 706; [2006] NSWCA 120, at [8].
7. Slattery J also wrote, at [25], that: "to assess the reasonableness of… non-acceptance of [an] Offer, the Court must evaluate what was disclosed in the material in the proceedings at the time of service of the Offer: Castro v Hillery [2003] 1 Qd R 651 ("Castro"), (at [72]); [2002] QCA 359. This assessment of reasonableness must be made without the benefit of hindsight: Miwa, (at [11])."
8. In Rogers v Rogers, I had written, in relation to Offers of Compromise, at [314]: "In circumstances where a proper offer of compromise has been made, but not accepted, and that party has obtained a judgment no less favourable than the terms of the offer, there is a clear onus on the other party to persuade the Court that indemnity costs should not be ordered."
9. At [316]-[317], I referred to what Kunc J had written in Bates v Cooke (No 2) [2014] NSWSC 1322 (which was cited, with approval, by White J (as his Honour then was) in AB v Curry (No 2) [2015] NSWSC 1209 at [4], and by the Supreme Court of Victoria in Briggs v Mantz (No 2) [2014] VSC 487 at [33]-[35], and Smith v Whittaker [2016] VSC 287 at [36], who had written, at [33]: "Taking into account the language of r 42.15A, a party seeking to persuade the Court to order otherwise must identify some feature or features of one or more of the proceedings, the claim, the offer (including, for example, when it was made) and the order or judgment obtained by the successful party which provide a rational basis for the Court to displace what the rule specifies is the costs order to which 'the defendant is entitled'. (An appeal from the substantive judgment of Kunc J was dismissed in Bates v Cooke (2015) 14 ASTLR 22; [2015] NSWCA 278. Nothing was written by the Court of Appeal about the costs judgment.)"
10. To the above authorities, I should add Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121], in which Hodgson JA (with whom Mason P agreed) observed that: "… underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs."
11. His Honour's observation was cited, with apparent approval, by the Court of Appeal, more recently, in Heath v Greenacre Business Park Pty Ltd [2016] NSWCA 34 at [98] and the principle was repeated, by McColl JA, in Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266, at [9].
12. I also remember that this Court is increasingly alert to the dangers of encouraging litigation, and discouraging settlement of such claims, at an early stage, if costs are allowed out of the estate. Where possible, all minds should concentrate upon the need, regularly, to address the strength, or otherwise, of the case, the benefits and detriments of advancing particular arguments, and the wisdom of searching for alternative forms of resolution of the dispute, whether by compromise or even abandonment: see, albeit in another context, Pearson & Ors (The Joint Administrators of Lean Brothers International (Europe)) v Lehman Brothers Finance SA & Ors [2010] EWHC 3044 (Ch), per Briggs J, at [12].

Determination

1. In the present case, it was not suggested that the Defendant's Offer of Compromise was not one to which the UCPR applied, or that it did not contain "a real and genuine element of compromise". It follows that the first stage of the two stage process to which I have referred above, is satisfied. The Defendant's Offer of Compromise is one within the meaning of the UCPR, having satisfied the formal requirements laid down by UCPR r 20.26.
2. It was also accepted that the offer made therein was one that can truly be called a "compromise" both as to the quantum of provision offered and the payment of the Plaintiff's costs.
3. However, as submitted by the Plaintiff, at the time the Offer of Compromise was made, the Defendant had not served all of her written evidence in opposition to the Plaintiff's claim. The Defendant had served some of the evidence going to the nature and value of the deceased's estate and notional estate, but, as I found in the principal judgment, her evidence on the topic was far from clear.
4. Furthermore, as I stated at [51]-[52] of the principal judgment: "It appeared, from discussions between the Bench and counsel, that no detailed attention had been given, by the parties, or their legal representatives, to the calculations, which would enable the Court to determine, with some degree of precision, the value of the property out of which an order for provision might be made. At the end of the case, because of the changes in figures provided by the parties' legal representatives, and the differing claims, particularly made on behalf of Margaret, as to the source from which some of the liabilities should be met, and the differing amounts the subject of the claims, the Court can be far from confident about the nature and value of the estate. However, as will be read, on any view, the deceased's estate is a relatively modest one."
5. On this basis, there is some support for the proposition that it would not have been possible for the Plaintiff to assess, properly, the offer made in the Defendant's Offer of Compromise at the time it was made.
6. I have referred to the other parts of the Plaintiff's factual submissions that may be accepted because they accord with my findings in the principal judgment. I shall not repeat those matters although they are relevant to my considerations.
7. There is another matter that I consider to be relevant to the determination of how the costs of the proceedings should be borne. That matter relates to the issue of what expenses were required to be paid out of the fund held in the joint bank account of the Defendant and her husband, instead of the estate, a matter upon which there was some dispute. I dealt with the topic at [118]-[125] of the principal judgment, ultimately concluding that certain of the expenses had been incurred in order to assist the deceased, and, therefore, should be paid out of the balance of the fund that was held in the joint bank account of the Defendant and her husband, rather than out of the estate of the deceased. This conclusion had the consequence "that the value of the actual estate is increased since those amounts will not be needed to be deducted from the estimates previously stated". Accordingly, the Defendant did not succeed on this aspect of her defence to the claim.
8. In my view, the Defendant should bear some of the responsibility for the manner in which the nature and value of the deceased's estate was disclosed. Furthermore, on one particular aspect, she did not succeed and this is a relevant consideration, although it is clear that any question of the precise apportionment of costs in this regard cannot be achieved.
9. The final matter to which I should refer is the manner in which the hearing was conducted. It was listed for two days and, ultimately, took three. It should not have taken that long. The length of the proceedings was compounded by the lack of precision in the case presented, by each side, at the hearing, the responsibility for which cannot be attributed to either party exclusively. Both parties had the benefit of legal advice throughout the proceedings, including the hearing.
10. The parties and the practitioners must have regard to the overriding obligations contained in s 56 of the Civil Procedure Act. The purpose is "to facilitate the just, quick and cheap resolution of the real issues in the proceedings". The court may take into account any failure to comply with the obligations in exercising a discretion with respect to costs.
11. The discretion that the Court must exercise, ultimately, is to be exercised by reference to the facts of this particular case and a careful consideration of those facts. Doing the best that I can, taking into account all of the facts, and remembering that some part of the Plaintiff's costs, calculated on the ordinary basis, would have to be borne by the estate of the deceased, I have come to the conclusion that I should "otherwise order", and not make any order for the costs of the Plaintiff to be paid out of the estate, and also make no order that the Plaintiff should bear the burden of any part of the Defendant's costs. This, in my view, is a fair, and just, result.
12. In all the circumstances, the Court: 1. Orders pursuant to s 59 of the Succession Act 2006 (NSW), the Plaintiff receive by way of provision out of the estate of Mavis Valerie McDonald, a lump sum of $45,000. 2. Orders that the burden of the provision made for the Plaintiff be borne by the share of the estate passing to the Defendant. 3. Makes no order for the Plaintiff's costs. 4. Orders that the Defendant's costs, calculated on the indemnity basis, of the proceedings, be paid, or retained, as the case may be, out of the estate of the deceased. 5. Orders that the exhibits be dealt with in accordance with the Uniform Civil Procedure Rules 2005 (NSW), rule 31.16A, and Practice Note SC Gen 18, Paragraph 26.

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