Megerditchian v Khatchadourian

Supreme Court of NSW|2020-02-20|Before: Parker J

Judgment - EX TEMPORE Revised and reissued 25 February 2020

In December last year I delivered my substantive judgment in these family provision proceedings under Ch 3 of the Succession Act 2006 (NSW): Megerditchian v Khatchadourian [2019] NSWSC 1870. The present judgment deals with the costs of the proceedings. It assumes familiarity with my earlier judgment.
In my December judgment I concluded (provisionally) that provision ought to be made in favour of the plaintiff in the form of a legacy of $100,000, and that a half share of the deceased's former family home at Willoughby, which had passed to the defendant by survivorship, should be designated as notional estate for the purpose of meeting that provision, together with any costs which it might be appropriate to award. My conclusion was provisional because I had to consider the effect of any costs order, and in particular whether the notional estate would be sufficient to meet it.
As it happened, a half share of the property is ample to meet the proposed legacy, together with any costs order which might be made. The parties agreed on the terms of an order carrying my provisional decision into effect. I made an order in accordance with those terms at the hearing on 11 February.
The remaining questions in the proceedings concern costs. These questions were debated before me on 11 February but I was not referred to all of the authority on one of the points raised. The determination of the application had to be postponed to allow for supplementary submissions on that question.
The plaintiff seeks an order for costs in her favour. The defendant contends that the plaintiff is not entitled to an order for costs because of the effect of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.34. The defendant further contends that he should receive a costs order in his favour on account of offers of compromise which were made in the course of the proceedings. I will deal with the questions in that order.

Application of rule 42.34

Rule 42.34 relevantly provides: (1) This rule applies if-- (a) in proceedings in the Supreme Court, other than defamation proceedings, a plaintiff has obtained a judgment against the defendant or, if more than one defendant, against all the defendants, in an amount of less than $500,000, and (b) the plaintiff would, apart from this rule, be entitled to an order for costs against the defendant or defendants. (2) An order for costs may be made, but will not ordinarily be made, unless the Supreme Court is satisfied that-- (a) for proceedings that could have been commenced in the District Court--the commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted, …
Under the District Court Act 1973 (NSW), s 134(1), the District Court is given the same jurisdiction as this Court, and is entitled to exercise all the powers and authority of this Court, in proceedings for a family provision order under Ch 3 of the Succession Act (subparagraph (1)(c)). Subsection (2), however, goes on to provide that the District Court has no power to make such an order if "that will or may result in the amount of provision so made exceeding $250,000". Thus the District Court would have had jurisdiction to entertain the plaintiff's claim, and power to make the provision which I ultimately decided should be made for her.
Counsel for the defendant submitted that in attaining an order for provision in the form of a legacy of $100,000 the plaintiff had "obtained a judgment against the defendant … in an amount of less than $500,000". This gave rise to a debate as to whether an order for family provision made under Chapter 3 of the Succession Act is a "judgment" for the purposes of r 42.34.
Neither party referred me to any authority bearing directly on the question. I must deal with it as a matter of principle.
There is no definition of the term "judgment" in the UCPR itself, but the definition of the term in the Civil Procedure Act 2005 (NSW), s 3(1), applies. That provides: Judgment includes any order for the payment of money, including any order for the payment of costs.
Counsel for the defendant contended that the order for provision in favour of the plaintiff was an "order for the payment of money" and a "judgment in the amount of less than $500,000" for the purposes of r 42.34. Counsel submitted that as a matter of substance the order was indistinguishable from a judgment for $100,000.
In Liprini v Liprini [2008] NSWSC 423, Brereton J (as his Honour then was) had to consider, for the purposes of contempt proceedings, how an order made under the Family Provision Act 1982 (NSW) (the predecessor to Ch 3 of the Succession Act) was to be enforced. His Honour referred to s 14 of the Family Provision Act which provided relevantly that a family provision order takes effect, unless the Court otherwise orders, as if the provision was made in a codicil to the will of the deceased person (this provision has been carried forward as s 72(1) of the Succession Act). His Honour referred to other authorities on enforcement and continued at [14]: The cases which I have referred to make clear, if anything remained to be made clear in light of the terms of s 14, that an order made under the Family Provision Act for provision out of an estate is a unique form of order which in effect is not really a judgment or order of the Court at all. It has effect not as a court order, but as a codicil to the Will; and is to be enforced not as a court order but as a codicil, by the remedies which a beneficiary has against a defaulting executor. Such an order does not bind the executor, who is a defendant to the Family Provision Act proceedings, as an order for payment of money or to do an act or thing, but only in an indirect manner insofar as it imposes a new obligation in the trusts of the Will, to be enforced as such.
Counsel for the defendant sought to distinguish what Brereton J said in Liprini. Counsel pointed out that the defendant was the sole beneficiary of the deceased's estate and the provision in effect will come out of his pocket. Counsel submitted that, in effect, the proceedings had been conducted as proceedings inter partes.
Counsel also stated that the defendant intends to "personally fund" the payment of the $100,000 to the plaintiff. I understood this to mean that the defendant would make payment of $100,000 out of his own resources, without the need for any formal process of administration of the property designated as notional estate.
Counsel for the plaintiff submitted that Liprini could not be so easily distinguished. I agree. Whether an order for provision is an order for the "payment of money" must depend upon the nature of the order, as understood by reference to the Succession Act. It cannot depend upon the fortuitous circumstance of how the economic burden of the order will be borne in the particular case.
It is true, however, that the question in Liprini (and each of the cases to which Brereton J referred) was about whether a family provision order is a "judgment" for the purpose of enforcement proceedings. The issue before me concerns the classification of such an order for the purpose of awarding costs.
In considering the proper scope of the language of r 42.34, it should be contrasted with the rules governing formal offers of compromise in Division 3 of Part 42. Such rules require a comparison between what was offered and what was obtained in the judgment. A prima facie entitlement to costs depends on whether the offer was more or less "favourable" than the ultimate judgment.
This type of rule allows for comparison in a wider range of cases than is allowed by comparing an offer with a judgment debt. A judgment may, depending on the nature of the claim, be more or less "favourable" than the offer, even if it does not involve the entry of judgment in a specific sum at all.
Counsel for the defendant contended that r 42.34 should be given an expansive reading. Counsel submitted that the purpose of the rule is to encourage smaller claims to be litigated in the District Court where, hopefully, they can be dealt with more quickly and at a lower level of cost. That is no doubt correct so far as it goes. But the way in which the rule operates, I think, is important.
The rule does not fasten on what is claimed by the plaintiff, but on the result the plaintiff actually achieves. If the plaintiff claims an amount which would exceed the statutory jurisdiction of the District Court, but ultimately recovers a lesser amount which falls below the jurisdictional limit, then r 42.34 is engaged. This follows from the language of subrule (1). Of course the plaintiff may then argue that bringing the claim in the Supreme Court was warranted. But the onus will lie on the plaintiff, and whether Supreme Court proceedings were warranted will depend upon all the relevant circumstances. The fact that the plaintiff claimed an amount which exceeds the District Court's jurisdictional limit will not, of itself, necessarily justify the bringing of the proceedings in this Court.
Furthermore, the rule is not limited (as it might have been, given its objective) to the additional marginal cost, if any, imposed on the unsuccessful defendant by proceedings in this Court. Where the rule applies, it entirely deprives the plaintiff of the entitlement to costs which the plaintiff would otherwise have had as the successful party. The result is an undeserved windfall to the defendant.
A family provision order is undoubtedly a judgment in the wide sense that it is an order determining a claim for relief. It may even be characterised for some purposes as a judgment "for the payment of money". But in my view, the language of r 42.34 requires that there be a judgment which creates a judgment debt in favour of the plaintiff, and against the defendant, in a specific amount which can be compared with the $500,000 figure in the rule.
As Brereton J pointed out in Liprini, an order for provision does not create a judgment debt at all. It creates an entitlement to be satisfied out of the deceased's estate, or out of notional estate designated by the Court. Furthermore, it may always happen that the estate will be insufficient to meet the provision in question. If that proves to be the case, then the amount of the provision abates accordingly. For that reason, the amount of the provision, even when specified as a specific legacy as in this case, is not a fixed entitlement in the way a judgment debt is.
Had the Rules Committee, in framing r 42.34, wished the rule to apply to family provision proceedings, that could readily have been done by using the wider language of Part 42 Division 3. In view of the somewhat punitive operation of the rule, I see no reason to stretch its language so as to cover this case.
For these reasons, I have concluded that the order for provision in favour of the plaintiff was not a judgment for the purposes of r 42.34(1). Given this conclusion, it is unnecessary to consider whether the bringing of the proceedings in this Court was warranted for the purpose of r 42.34(2)(a).

Offers of compromise

The defendant made two offers of compromise which are relied upon for the purposes of this application. The first was on 4 April 2019, when the defendant's solicitors sent an informal offer marked without prejudice except as to costs and invoking the principles in Calderbank v Calderbank [1975] 3 WLR 586.
The offer was to settle on the basis that the "defendant estate" pay the plaintiff the sum of $200,000 inclusive of costs, with the defendant to bear his own costs. The offer gave the defendant a period of twelve months from the date of acceptance of the offer to make the payment.
The letter contained a written rationale for the offer which canvassed features of the case which, so it was argued, would lead the Court to make little or no provision for the plaintiff. In particular, the letter stated: The community does not expect a parent, in ordinary circumstances, to provide an unencumbered house, or to set his, or her, child up in a position where she or he can acquire a house unencumbered. Furthermore, the community does not expect a parent to look after his or her children for the rest of the child's life and into retirement. In support of these propositions, the letter referred to the decision of Hallen J in Carusi-Lees v Carusi [2017] NSWSC 590.
The letter was expressed to be open for 21 days. It was not accepted.
On 30 September 2019, the defendant's solicitors wrote again enclosing a purported offer of compromise under the Rules. The offer provided for a consent order making a lump sum provision in the amount of $200,000 in favour of the plaintiff. The offer also provided for the defendant to pay the plaintiff's costs as agreed or assessed up to the time the offer was made, but capped at $40,000. Payment was to be made within three months of the date of acceptance.
The covering letter drew attention to the relevant provisions of the Rules but also stated that if the offer failed to meet the requirements of the Rules the offer was made in accordance with the principles in Calderbank v Calderbank. The offer was to remain open for 28 days. Again, it was not accepted.
Counsel agreed at the hearing before me that the purported offer of compromise of 30 September 2019 did not in fact comply with the Rules. This is because the Rules do not permit an offer to be made for a capped amount of costs.
An offer of compromise under the Rules contains various procedural advantages from the point of view of the offering party when compared with an informal offer. When the offer is informal, the basic test for its effectiveness is whether its rejection was unreasonable. The offering party bears the onus on this question. And refusal of an offer which turns out to have been more favourable than the ultimate result achieved by the offering party is not necessarily, and in every case, unreasonable. It may be necessary to have regard to other circumstances, in particular the perceived prospects of success at the time the offer was made.
An offer under the Rules merely requires a mechanical comparison between the terms of the offer and the eventual judgment; if the offer proves to have been more favourable then there is a prima facie entitlement to a costs order, which must be displaced by the offeree party.
Counsel for the plaintiff laid special emphasis, in his submissions, on the fact that neither offer was made in accordance with the Rules. But I do not think that prevents the Court from considering whether the offers would justify an order for costs against the plaintiff on the principles applicable to informal offers.
It is always better practice to make a formal offer than an informal one, if that is at all possible. And, as I have already alluded to, there is no reason why, taking advantage of the looser language of "favourability", a formal offer may not be made for the purposes of family provision proceedings. But if, as in this case, an informal offer is made instead, that should not prevent the defendant from succeeding if he or she can discharge the additional onus involved in demonstrating that refusal of the offer was unreasonable.
Counsel for the plaintiff argued that the fact that the offers in this case were inclusive of costs was a barrier to the Court concluding that refusal of the offers was unreasonable. Counsel submitted that the Court should not be in a position of having to make some sort of assessment of what the costs had been at an earlier stage of the litigation.
Making an offer inclusive of costs may sometimes have the result that it is difficult to demonstrate unreasonableness in rejecting it. This is particularly so where the offeror is the plaintiff. In such a case the defendant will have no direct knowledge of the costs which the plaintiff has actually incurred and will only be able to make the broadest estimate.
But that is not so where the offer is made on an inclusive basis from the defendant to the plaintiff. The plaintiff knows, or can readily find out, what his or her costs are. Where it is sufficiently clear afterwards that, taking into account the costs the plaintiff had incurred at the date of the offer, the offer was more favourable than the ultimate result, there is no objection in principle to concluding that refusal of the offer was unreasonable: see Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [136]-[145], per Basten JA.
In this case, when the defendant's first offer was made on 4 April 2019 the proceedings had been commenced less than six months before, in October 2018. The plaintiff's costs to that point (on a solicitor-client basis) were approximately $47,000. The amount offered, inclusive of costs, was $200,000. It is therefore clear that, had the plaintiff accepted the offer, she would have been left with an amount "in the hand" which significantly exceeded the $100,000 provision she ultimately obtained.
It must be accepted that had the plaintiff accepted the offer she would not have been entitled to payment until April 2020. Even so, I think it is clear that an entitlement to receive $200,000 postponed until April 2020 would, after deduction of the costs incurred up to April 2019 (as agreed or assessed), have been worth significantly more than the provision which the plaintiff has obtained through the litigation.
Counsel for the plaintiff submitted that this did not necessarily mean that refusal of the offer was unreasonable. Counsel submitted that the Court's decision in a family provision matter is discretionary. At the trial, counsel had submitted that the plaintiff should receive a provision which would afford her a place to live and a substantial lump sum to cover future expenses. Counsel acknowledged that in my judgment, I rejected this claim. But counsel submitted that the claim was not an unreasonable one and that it fell within the range of provisions that might have been made in the Court's discretion.
Counsel for the plaintiff also pointed out that if I were to award costs against the plaintiff the result would be to eat into, if not eliminate, the provision which I ordered in her favour. It is true that in some cases courts hearing family provision applications have relied on this consideration in declining award costs against a plaintiff. But I think that the nature of the provision which I ordered needs to be borne in mind.
In my December judgment, I rejected the contention that there was some sort of obligation on the deceased to provide the plaintiff with a house and a large sum of money to pay for her future maintenance. The amount I awarded was a lump sum which acknowledged the plaintiff's place in the deceased's family, and was intended to provide an amount on which the plaintiff might build, so as to be better able to provide for herself in the future. The provision was one for "advancement" rather than "maintenance" (I use these labels loosely). In such a case the fact that an adverse costs order may eat into the plaintiff's provision must be a consideration of lesser weight.
Strictly speaking, the decision of the Court as to whether a plaintiff has been left without adequate provision for maintenance, education and advancement may not be a discretionary decision. But it is undoubtedly a decision which involves judgment, and for practical purposes, on appeal, it is virtually indistinguishable from a true discretionary judgment. Furthermore, the consequential decision as to the amount of the provision which "ought to have been made" involves the exercise of a separate discretion, or at least a further separate judgment of an analogous type. However discretionary relief is a feature of many types of litigation in this Court and the policy behind the making of special costs orders based on offers of compromise is a general one.
The present case was one involving a relatively modest (notional) estate consisting of half of a suburban home. In my view the desirability of providing incentives for parties to settle is particularly applicable in such litigation.
Furthermore, I do not think that it is correct to characterise the result of the case as merely one in which the Court did not exercise its judgment or discretion in the way in which the plaintiff had hoped. There was an issue of principle involved. Unless the plaintiff had established that the proper level of provision was a lump sum to cover her accommodation and other expenses into the future, the figure she was claiming would not have been justified on any reasonable view.
I think it is clear that, as a matter of substance, the reason why the case went on after the offer was made in April 2019 was because the plaintiff was contending for the view that she was entitled to more than a lump sum by way of "advancement" in the sense in which I have used that term. The plaintiff's contention was that the deceased was required, in effect, to support her in her retirement. In that, the plaintiff has been unsuccessful. She has been unsuccessful in the face of an offer which specifically contended that that view of her entitlement was excessive, and referred to authority in support of that contention. In these circumstances, I think it is fair to say that the result of the case shows that the position taken by the plaintiff was an unreasonable one.
For these reasons, I have concluded that the rejection of the offer was unreasonable. I do not think that the plaintiff should be entitled to recover her costs of the proceedings thereafter.
However, in the circumstances of the case I am not prepared to make an award of costs against the plaintiff. Her counsel's arguments concerning the discretionary nature of the claim and her provision being eaten away by costs have not persuaded me to ignore the offer. But it is another thing to say that the plaintiff should, in the circumstances of the case, be visited with all of the defendant's costs thereafter.
It is not necessary to say anything more about the September 2019 offer. Given the costs that had been incurred in the meantime the reasonableness of the refusal of that offer is more difficult to assess. And even if I had been satisfied that that offer was clearly more favourable to the plaintiff than the ultimate result it would not have led me to take the affirmative step of awarding costs against her.
The orders of the Court are:
Pursuant to the Chapter 3.3 Success Act 2006 (Act) designate the deceased's joint interest in 121 Mowbray Road, Willoughby as notional estate of the deceased for the purposes of making orders under Chapter 3 of the Act.
Pursuant to s 91 of the Act, that administration in respect of the estate and notional estate of the deceased be granted to the defendant for the purposes only of permitting the plaintiff's application for a family provision order to be dealt with.
Order that compliance with the court rules in relation to order 2 above be dispensed with.
Order that further provision be made for the plaintiff from and out of the notional estate of the Deceased in the sum of $100,000 by 10 April 2020.
Interest to be payable on the said sum of $100,000 at the rate prescribed under section 101 of the Civil Procedure Act from 10 April 2020 until payment.
Defendant's costs to be paid from the estate on the indemnity basis, to be paid from the notional estate.
Order that the defendant pay the costs of the plaintiff up to and including 25 April 2019 and thereafter there be no order as to costs.

Amendments 10 March 2020 - minor typographical error 26 March 2020 - add orders 31 July 2020 - minor typographical amendment at [37] 16 November 2021 - amend catchwords 29 June 2022 - [30] delete "and were to be" and replace with "or" [47] delete "then" 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: 29 June 2022

Family Provision Act 1982(NSW)

Under the District Court Act 1973(NSW)

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