Mikan v Velcic

Supreme Court of NSW|2011-05-20|Before: Maxwell P, Kellam JA

Judgment 1HIS HONOUR: In this matter, I delivered judgment on 28 March 2011, the medium neutral citation of which is [2011] NSWSC 251. In that judgment, I dismissed the Plaintiff's proceedings. 2In view of the nature and value of the deceased's estate in New South Wales and overseas, I suggested that the parties should consider how the Defendant's costs of the proceedings should be borne. Since then, I have stood the proceedings over several times to enable discussions on the outstanding issues to commence and continue. I have been informed that the Plaintiff's tutor has not provided any instructions to her solicitor to enable meaningful, or any, discussions to take place. This appears to be characteristic of the manner in which she has conducted the case on behalf of the Plaintiff. 3The Defendant has sought costs of the proceedings. He filed written submissions, which I have placed with the court file. The substance of the Defendant's principal submission is that costs should follow the event. I shall return to the submissions later. 4The Plaintiff's solicitor was not in a position to argue the matter when the matter was before me on 20 May 2011, so I directed that he, too, should file written submissions. These were received and have also been placed with the court papers. 5In Luxmore Pty Ltd v Hydedale Pty Ltd [2008] VSCA 212; (2008) 20 VR 481, Maxwell P and Kellam JA said, at [12]: "In the ordinary case, it is both appropriate and desirable that a costs question be decided at the conclusion of argument. Rarely will it be necessary for a judge to give detailed reasons for decision adverting to every matter debated in argument. This court will assume, as should the parties, that every matter addressed in argument on costs has been considered. This court will set its face against any proposition which would require judges disposing of questions of costs to give elaborate reasons."

Background 6Because it has been raised in the submissions of each of the legal representatives, I note that the proceedings have had a long and complicated history, which related, not only to the proceedings for a family provision order, but also to obtaining administration, before the matter was determined by me. I do not propose to burden these reasons with the lengthy chronology of events dealt with in the submissions to justify the quantum of costs to which I referred in my earlier reasons. 7It is fair to say that much by way of costs might have been avoided if a grant had been made to the Public Trustee (as the NSW Trustee & Guardian then was) or to a trustee company. However, the costs with which I am dealing are the costs of the proceedings, not the costs of the administration of the estate.

Legislative Framework 8The Civil Procedure Act 2005, s 98(1), provides that subject to the rules of Court, and that, or any other, Act, costs are in the discretion of the Court. The discretion is broad but not unconfined. It is a judicial discretion to be exercised on a principled basis. 9Uniform Civil Procedure Rules ("UCPR"), r 42.1, provides that costs should 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. UCPR 42.20(1) 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 to the extent to which they have been dismissed. 10The effect of these two rules, in this case, is that the Plaintiff must pay the Defendant's costs unless the court otherwise orders, and the court can only order otherwise if there is a discretionary decision to depart from what the rules provide: Australiawide Airlines Limited t/as Regional Express v Aspirion Pty Limited [2006] NSWCA 365 at [10]. In other words, the rules reflect the general proposition that an award of costs is discretionary, but, generally, the discretion is exercised in favour of the successful party: Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at [25]. 11If costs are ordered to be paid, the usual order is that those costs are calculated on the ordinary basis (UCPR r 42.2). Indemnity costs may be ordered in certain circumstances, including when a costs order for assessment on the ordinary basis is insufficient in the circumstances to compensate for costs unreasonably incurred due to the misconduct of the other party, which misconduct, for example, causes the prolongation of the proceedings or the making of allegations which ought never to have been made. Although, as in the present case, the costs have been estimated, the actual monetary value of the costs order cannot be ascertained until those costs are assessed or agreed. 12Section 33 of the Family Provision Act 1982, deals with payment of costs, not by the opposing party, but out of the estate. Relevantly, the section provides: "(1) Except as provided in subsections (2) and (3), the Court may order that the costs, charges and expenses of or incidental to proceedings under this Act in relation to the estate or notional estate of a deceased person be paid out of the estate or notional estate, or both, in such manner as the Court thinks fit. (2) ... (3) The Court shall not order that the whole or any part of the costs, charges and expenses of or incidental to proceedings in respect of an application in relation to a deceased person made by an eligible person be paid out of the estate or notional estate of the deceased person by reason only of the fact that the eligible person is a person described in paragraph (a) or (b) of the definition of "eligible person" in section 6 (1) or the fact that the Court has made an order for provision in favour of the eligible person on the application." 13Subsection 33(3) relates to the Plaintiff's circumstances. She is an eligible person under s 6(1)(b) of the Act and s 33(3) shows that, that, of itself, is not a sufficient ground upon which to order her costs out of the estate. 14The legal power granted to the Court by s 33(1) is very wide, but it is discretionary, and should only be exercised where there is some sound positive ground or good reason, relevant to the purposes for which section 33(1) was enacted, for requiring payment of costs, charges and expenses of a party out of the estate, to the disadvantage of the person otherwise entitled to the residue (in this case, both the Plaintiff and the Defendant). (The Succession Act 2005 provides, in s 99 a completely different costs provision.) 15In proceedings under the Family Provision Act 1982, an executor, or administrator, is normally entitled to an order that his, or her, costs be paid out of the estate, irrespective of the outcome of the proceedings, since it is the duty of such an executor, or administrator to uphold the terms of the will, or the statutory scheme of distribution, on behalf of the beneficiaries. 16In Singer v Berghouse [1993] HCA 35; (1993) 114 ALR 521, Gaudron J, dealing with an application for security for costs in the High Court of Australia, said, at 522: "Family provision cases stand apart from cases in which costs follow the event. Leaving aside cases under the Act which, in s.33, makes special provision in that regard, costs in family provision cases generally depend on the overall justice of the case. It is not uncommon, in the case of unsuccessful applications, for no order to be made as to costs, particularly if it would have a detrimental effect on the applicant's financial position. And there may even be circumstances in which it is appropriate for an unsuccessful party to have his or her costs paid out of the estate." 17Despite the above statement, which, of course, was written in the context of a security for costs application, I am of the view that the following principles apply (in respect of costs applications made under the Family Provision Act or the Succession Act ): (a) The view of some practitioners advising a potential applicant contemplating a claim for a family provision order, that there is little risk, and probably much to be gained, in making a claim, however tenuous, because even if the claim fails the applicant will, very likely, get his, or her, costs out of the estate and that he, or she, will not be significantly out of pocket, and the legal practitioner will receive his, or her, costs and disbursements in any event, has been thoroughly discredited. (b) Parties should not assume that this type of litigation can be pursued, safe in the belief that costs will be paid out of the estate: Carey v Robson (No 2) [2009] NSWSC 1199; Forsyth v Sinclair (No 2) [2010] VSCA 195. It is now much more common than it previously was for an unsuccessful applicant to be ordered to pay the defendant's costs of the proceedings ( Lillis v Lillis [2010] NSWSC 359 at [23]) and be disallowed his, or her, own costs. (c) Where, as here, the issue is whether the unsuccessful applicant should bear the costs of the successful Defendant, s 98 of the Civil Procedure Act 2005, and the rules quoted above will apply, and, in the absence of some good reason to the contrary, there should be an order that the costs of the successful defendant be paid by the unsuccessful plaintiff: Moussa v Moussa [2006] NSWSC 509. (d) An unsuccessful plaintiff will, usually, be ordered to pay costs where the claim was frivolous, vexatious, made with no reasonable prospects of success, or where she, or he, has been guilty of some improper conduct in the course of the proceedings: Re Sitch [2005] VSC 383. (e) In small estates particularly, the court should be careful not to foster the proposition that obstinacy and unreasonableness will not result in an order for costs: Dobb v Hacket (1993) 10 WAR 532, at 540. (f) 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. (g) In exercising its discretion in relation to costs, the court will have regard to the overall justice of the case. 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 ; Carey v Robson ; Bartkus v Bartkus [2010] NSWSC 889 at [24]. (h) 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 a financial position which had been taken into account in dismissing the application: McDougall v Rogers; Estate of James Rogers [2006] NSWSC 484 ; McCusker v Rutter [2010] NSWCA 318 at [34] . (i) 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 (Supreme Court of NSW, Young J, 21 April 1998, unreported).

Submissions 18The Plaintiff submits: "12. This was not a complex matter and the estate was not of substantial value however the plaintiff raised for consideration the comparable cost of living between Australia and Croatia as a relevant factor. This is an appropriate matter where UCPR 42.4 should be considered. 13. Delay has been encountered due to the defendant and partially the plaintiff. The defendant was required to obtain a statement from the beneficiary in Croatia together with other supporting material which took longer than anticipated. Further the necessity to have senior counsel engaged early in the proceedings and during the course of mediation does not justify the costs considering this was not a complex matter. It would be fair and reasonable in the circumstances of this case that the estate bear the costs. 14. It is submitted that the following costs Order should be considered by the Court: (a) The estate bear the costs of the proceedings." 19The Defendant submits: "3.19 Notwithstanding the modest amount of the Estate, this is a complex matter. Mr Justice Palmer case managed the matter. The Plaintiff had substantial issues which were resolved at the Hearing of the matter after the Consent to Act as Tutor was filed. 3.20 It is submitted that costs should follow the cause in this matter. It is fair and proper that the Plaintiff should bear the cost of the proceedings. Miroslav Mikan maintained his position that he should be entitled to a one half interest in his deceased's father's Estate. There is nothing that he could have done to avoid the litigation commenced by the Plaintiff and taken to Hearing by the Plaintiff. ... 3.23 Had the matter not been case managed by Mr Justice Palmer and proceeded to final Hearing, the potential costs in the matter would possibly have outweighed the modest value of the Estate. 3.24 We submit that it is proper and just to have costs follow the cause in this case. The Plaintiff chose to bring proceedings against the Defendant at a time that there was no grant of Letters of Administration. Katica Mikan then refused to consent to Letters of Administration being granted to the Defendant. It was only after the involvement of Senior Counsel at mediation that the Plaintiff's representatives were able to convince the Plaintiff to consent to Letters of Administration being granted to the Defendant to allow the Defendant standing in the proceedings. Up until that time the Defendant had no standing in the proceedings and would have been entitled to costs on an indemnity basis given the actions of the Plaintiff. ... 3.26 In the circumstances it is submitted that the following Costs Order should be considered by the Court:- (a) Costs on an indemnity basis against the Plaintiff from the commencement of proceedings up and until the date of the filing of the consent to have the Defendant act as Executor; (b) Costs against the Plaintiff on a party/party basis in respect of the balance of the proceedings;" 20Each of the parties' legal representatives has made submissions on what should be done regarding the land in Croatia. I do not propose to make any orders about that land. If the parties cannot come to a sensible solution, for example, for the other residuary beneficiary to purchase the Plaintiff's interest in that land, in the circumstances of the dismissal of the Plaintiff's proceedings, it is not a matter with which this court should be involved. 21The submissions did not deal with the provisions of Practice Note SC Eq. 7 to which I refer below. I do not propose to have further costs incurred to enable each to provide further submissions as it was made clear, previously, that the quantum of costs generated in the matter was troubling to the Court. The submissions, in any event, seek to justify the amount of each party's costs. 22Neither party asked the Court to make a lump sum costs order under s 98 (4) of the Civil Procedure Act . Such an order would avoid the need for an assessment and would allow expedited distribution and finalisation of the estate.

Consideration 23In this case, in determining the burden of costs, I take into account: (i) The deceased died intestate. (ii) The Plaintiff, who was an eligible person, required a tutor and was, therefore, a person under a legal incapacity. I referred to the disabilities that the Plaintiff suffered, which demonstrated that it was appropriate that she proceed with a tutor. (iii) When fully examined, the Plaintiff's case did not establish that she had been left without adequate provision, and she failed for that reason; according to my decision, it was unnecessary for her to bring the proceedings. (iv) An order that the Defendant's costs being paid out of the estate means, in effect, that the burden of one half of those costs is being borne by the Plaintiff. To order her to pay the balance of those costs would affect, even more, the modest provision to which the Plaintiff is entitled on intestacy. 24There is no basis, whatsoever, for making an order that the Plaintiff's costs should be paid out of the estate. I appreciate that the effect of such an order would be that the Plaintiff would pay half of those costs in any event. However, I cannot see why such an order should be inflicted on the other residuary beneficiary. 25I make no order as to the Plaintiff's costs of the proceedings. 26I order the Defendant's costs of the proceedings to be paid out of the deceased's estate. As I have written, the effect of this order will result in the Plaintiff bearing one half of the Defendant's costs, in any event, since there are only two beneficiaries of the estate. Those costs should be calculated on the indemnity basis but any assessor considering the quantum of those costs should be aware of the nature of these proceedings and differentiate between such costs and the costs of administration which do not form part of this order. 27I am conscious of s 60 of the Civil Procedure Act 2005, which refers to "the object of resolving the issues between the parties in such a way that the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute". 28I consider that the totality of $135,000 for the costs of both parties in these proceedings is entirely out of proportion to the nature of the proceedings and the net value of the estate (about $350,000). 29I express that view because the case was in no way out of the ordinary or particularly complex. There was no hearing in the traditional sense as the matter was decided on the papers, although written submissions were provided. The only aspect of the matter that might justify such costs for the Defendant was that it was necessary for an attorney for the other beneficiary on intestacy to be appointed and it was the attorney, who is a solicitor, to effectively represent the estate and that there was an argument about the administration of the estate. 30I also bear in mind in considering the quantum of costs Paragraph 24 of SC Eq 7 - Family Provision, which provides: "Orders may be made capping the costs that may be recovered by a party in circumstances including, but not limited to, cases in which the value of the estate is less than $500,000." 31In the circumstances and with some hesitation, I shall not cap the Defendant's costs of the proceedings. However, I do not say anything about the costs of the Defendant in obtaining administration of the estate. It seems to me those are not costs of the proceedings although they may be a testamentary expense. In considering the assessment of the Defendant's costs of the proceedings, there should be differentiation between those costs and the costs of obtaining administration. 32The Defendant may take such steps as are necessary to recover those costs. 33Therefore the orders I make are: (a) No order as to the Plaintiff's costs, to the intent that she will pay her own costs of the proceedings; (b) The costs of the Defendant of the proceedings, calculated on the indemnity basis, are to be paid out of the estate of the deceased. (c) The Exhibits and Court Books to be returned.

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: 07 June 2011

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