LEEMING JA: On 13 February 2019, I directed the parties to bring in final orders for which they contended, and short submissions in support, in accordance with my judgment of that day: Nadilo v Souris [2019] NSWSC 108. On 5 March 2019, I was provided with the plaintiffs' and defendant's submissions on costs and proposed short minutes of order, an offer of compromise which had been made on behalf of the plaintiffs and a short affidavit from the defendant's solicitor attaching correspondence going to the sale of the property.
There is almost no agreement. Six distinct issues arise. They are:
1. the amount of the judgments to which the plaintiffs are entitled;
2. whether there should be pre-judgment interest;
3. whether, by reason of the offer of compromise, the plaintiffs are entitled to a special costs order;
4. whether, aside from the offer of compromise, the plaintiffs should obtain all, or only a proportion, of their costs;
5. whether the defendant should obtain an order that her costs be borne by the estate, and
6. whether the defendant should have an indemnity in respect of the plaintiffs' costs which she is ordered to pay.
I will deal with each issue in turn. I will use the same abbreviations as in the principal judgment.
[2]
The amount of the judgment
In the principal judgment, I found that 13/66ths of the net receipts from the sale of Bilgola is taken to have contributed to the purchase price of Kariong, and I noted that the parties had agreed that the net proceeds of the sale of Kariong were $673,193: at [97] and [100].
The plaintiffs seek judgments in their favour, excluding interest, of $162,576 (in favour of Matthew Paul and Deborah) and $101,652 (in favour of Gloria and Ike). The defendant submits a slightly higher amount ($162,593) for the judgment in favour of Matthew Paul and Deborah, and a slightly lower amount ($101,621) for the judgment in favour of Gloria and Ike.
The defendant's solicitor explains the calculations leading to those amounts, which I have independently verified. The plaintiffs provide no explanation for their slightly different figures. I suspect (because in both cases the plaintiffs' errors are in the order of 1 part in 10,000) that the error is caused by rounding. The judgments will be as proposed by the defendant.
[3]
Pre-judgment interest
The plaintiffs seek pre-judgment interest upon the amounts to which they are entitled, calculated from 7 days after completion of the sale of Kariong to date. On their calculations, the amounts are $7,449 (in the case of Matthew Paul and Deborah) and $4,657 (in the case of Gloria and Ike). They submit that pre-judgment interest should be paid because it is just and equitable, and claim that "we have calculated interest pursuant to s 101 [sic] of the Civil Procedure Act up to and including [sic] 6 July 2018". I understand the plaintiffs to be saying that they have calculated pre-judgment interest, pursuant to s 100 of the Civil Procedure Act 2005 (NSW), from 6 July 2018 to date. No calculations are provided. Presumably the calculations proceeded on the incorrect judgment amounts to which reference has already been made.
The defendant notes that she has not seen a breakdown of the precise calculation of pre-judgment interest, but submits that there should be no order for pre-judgment interest.
The defendant correctly points out that interest was not sought in the statement of claim. (So far as I can see, a claim for interest appears first to have been made in paragraph 5.34 of the plaintiffs' written opening submissions dated 1 February 2019.) She also submits that her solicitor advised of the sale of Kariong on 17 September 2018, shortly after which the plaintiffs' solicitors demanded that the proceeds be placed in an interest-bearing bank account. However, three days later, on 21 September 2018, the plaintiffs' solicitor did not disagree with the money being kept in the defendant's solicitor's trust account, which is where it has subsequently been.
The defendant also states that the trial had originally been set down for hearing in early December, but that date became unavailable, as a result of which the Court offered a date in October 2018, for which the defendant was available but the plaintiffs were not. The defendant submits that that was the reason for the matter being listed for hearing on 11-13 February 2019, rather than earlier. (The transcript for 11 September 2018 records that the hearing was vacated because a judge became unavailable, but that dates later in September and in the week commencing 5 November were offered, neither of which was suitable for the defendant. It will not be necessary to resolve whether the transcript on the defendant's submission is inaccurate.)
Finally, the defendant notes that any award of pre-judgment interest would be far in excess of the interest which could have been earned from a joint bank account.
The first question is power. I need to be satisfied there is power to order pre-judgment interest, even if no point is taken by either party. Section 100 of the Civil Procedure Act confers a discretion to award interest in the amount for which judgment is given in proceedings "for the recovery of money (including any debt or damages or the value of any goods)". These proceedings were not proceedings for the recovery of money in the ordinary sense of that term, but only insofar as, in the alternative, the plaintiffs sought damages. That aspect of the claim turned on the existence of a contract, which was misconceived. The primary relief that was sought were declarations that the defendant held Kariong on resulting or constructive trust in favour of the plaintiffs, and orders that in that capacity she sell Kariong and pay amounts representing some 26.3% and 16.44% of the net proceeds of sale to them.
However, in Bloch v Bloch (1981) 180 CLR 390; [1981] HCA 56, Wilson J, with whom all other members of the Court agreed in this respect, addressed whether proceedings seeking the recovery of a proportion of the proceeds of sale of real property fell within the description of proceedings "for the recovery of money" within s 72 of the Common Law Practice Act 1867 (Q). His Honour held that they were. Section 100 is a more modern form of, but based on essentially the same wording as, the 1867 Queensland Act. In any event, it is established that s 100 applies to claims in equity such as that brought by the plaintiffs, so long as the judgment includes an order for the payment of money: Dome Resources NL v Silver (2008) 72 NSWLR 693; [2008] NSWCA 322 at [78]. Accordingly, even putting to one side the prayer in the alternative for damages, there is power to order interest.
Cases in which statutory pre-judgment interest should be refused are rare, as was stated in Falkner v Bourke (1990) 19 NSWLR 574 at 576. The purpose of pre-judgment interest is to compensate plaintiffs who are kept out of their money. In order to fulfil that purpose, interest should be included unless good cause is shown: Kalls Enterprises Pty Ltd (in liq) v Baloglow (No 3) [2007] NSWCA 298 at [10]. However, I think this is such a case. There are two reasons for this.
First, the interest involved is small, and would have been smaller but for the fact that the trial occurred in February 2019, rather than December (when it was originally set down) or earlier in 2018 (the dates made available when the December date became unavailable). I would infer that the sale of the property occurred in a context where the litigation had been listed for hearing shortly thereafter. And it occurred in a context where, ultimately - and after some complaint about the plaintiffs not being given notice and requiring an undertaking as to how the proceeds should be kept - the plaintiffs maintained no objection to the proceeds remaining in the solicitor's trust account.
Secondly, there is force in the defendant's submission that an order of pre-judgment interest would be unduly prejudicial to her, and unduly favourable to the plaintiffs. The plaintiffs' claim was for a proportionate equitable interest in land, which became a claim for a proportionate interest in a fund. The plaintiffs' claim did not include a claim for pre-judgment interest for the good reason that the plaintiffs have enjoyed the benefit, for many decades, of the increase in property values in Sydney, and the rule of attribution whereby all of their 13/66ths contribution to Bilgola was treated as contributing to the purchase of Kariong. Thus, in the case of Matthew Paul and Deborah, the original contribution of $8,000 in 1978 has yielded a judgment sum 40 years later in excess of $160,000 (a 20-fold improvement).
Test the matter this way. The defendant as executrix could have declined to sell Kariong until after the trial. In that case, there would be no question of the plaintiffs being entitled to pre-judgment interest. Why when the plaintiffs acquiesced in a course where for a short period of time the proceeds of sale were kept in a solicitor's trust account should the plaintiffs now obtain the benefit of pre-judgment interest which (so far as the evidence discloses) was not even sought until shortly before the trial?
[4]
Plaintiffs' costs - offer of compromise
On 26 February 2018, the plaintiffs served an offer of compromise, open for acceptance until 27 March 2018, in the amount of $250,000. That amount was expressed to be in full and settlement of the plaintiffs' claims, and did not seek to distinguish the (larger) claims of Matthew Paul and Deborah from the (smaller) claims of Gloria and Ike. But nothing turns on that; the plaintiffs had made common cause and were represented by the same solicitor, and no point is taken by the defendant based on the separate claims of the plaintiffs.
The defendant submits that the offer was not "valid", because at the time it was made, she had not sold Kariong. That property was not sold until 26 June 2018. Accordingly, she submits that in February and March 2018, she was not in a position to judge the true value of the offer. She did not know the value of the property at that time, the price for which it would ultimately be sold, or the costs which would be incurred in selling it. She submits that those difficulties would have been avoided had the plaintiffs offered to accept a fixed percentage of any net proceeds of sale, but they did not do this.
The defendant also submits that the Court is not today in a position to judge whether the plaintiffs have obtained a judgment more favourable than that contained in the offer of compromise. That is because, so it is said, the Court does not know what the Kariong property was worth at the time the offer of compromise was made.
The defendant adds that substantial further affidavits in reply by Deborah and Ike were not filed until April 2018 with further affidavits from Matthew Paul and Gloria in early 2019.
Finally, the defendant submits that the plaintiffs' claim in contract was "entirely deficient and had no prospects of success" with the result that the offer of compromise contained no real element of genuine compromise and was merely an invitation to surrender on the plaintiffs' only valid claim, that based on a resulting trust.
The plaintiffs submit that they had no say if or when the defendant sold the real property, and that in making an offer in monetary terms, they were taking a gamble in the same way as was the defendant in not accepting the offer. Had the property been sold at a much higher price, then they would have received much more than the amount in the offer of compromise. They deny that the affidavits served after the making of the offer of compromise was material to the decision whether or not to accept it.
The offer was more generous than the judgments obtained by the plaintiffs, and thus the plaintiffs are entitled to a special costs order, in accordance with UCPR r 42.14. Although it is asserted that the offer is not "valid", it is not suggested that the offer of compromise is one that does not comply with the rules. Whether or not the defendant was poorly placed to evaluate it does not go to validity, but to the discretion conferred under the rules to displace the plaintiffs' putative entitlement to an indemnity costs order.
I do not accept the defendant's submissions based upon the fact that the sale of Kariong had not then occurred. Although that introduced uncertainty, I do not consider that it is a sound reason to displace the operation of the rule. The purpose of the rule is to encourage the making of offers of compromise and to oblige the offeree to give serious thought to the risk involved in non-acceptance: see Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724. It is not enough to show that the defendant acted reasonably in not accepting an offer: see, for example, Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [48].
Nor do I accept the submission that the Court is not now in a position to judge whether a judgment more favourable than that contained in the offer of compromise has been obtained. The judgments to which the plaintiffs are entitled exceed the $250,000 contained in the offer of compromise.
Nor do I accept the submission that the further affidavits materially altered the position. The nature of the plaintiffs' case was clear from the pleading and the substantial affidavits of Matthew Paul and Gloria which had already been served.
Finally, I do not accept that this is a case where the offer amounted to an offer to capitulate. The $250,000 was in full and final settlement of the plaintiffs' claims. By February 2018, the plaintiffs would have incurred substantial costs. Once those costs have been taken into account, the offer represented a real compromise.
Accordingly, I accept the plaintiffs' submission that r 42.14 applies, such that they are entitled to costs on an indemnity basis from 27 February 2018.
[5]
Plaintiffs' costs - a partial costs order?
The defendant submits that the plaintiffs should only receive 50% of their costs, because they were wholly unsuccessful in relation to their contract claim, because large proportions of their affidavit evidence contained historical family information of no relevance to the proceedings, and because much of their evidence about conversations with the deceased was of little or no relevance to the proceedings. The plaintiffs say that the onus is on the defendant to displace the prima facie position under UCPR r 42.1, and they denied that there were unnecessary witnesses or that they had conducted an inappropriately wide case. They submit that the history was relevant, including to demonstrate a long history of the deceased asking for money and the plaintiffs providing it. They submit that the contract claim required only a modest devoting of the time for the case and the judgment.
The claim based in contract should never have been brought. It remained (and remains) a matter of some surprise to me that neither side, seemingly, was aware of Horton v Jones (1935) 53 CLR 475; [1935] HCA 7, given that the plaintiffs' claim was based in part on an oral contract to make a will concerning particular real property, to which a defence of s 54A of the Conveyancing Act 1919 (NSW) had been pleaded. Further, a deal of the pleading, and a deal of the evidence and submissions, was squarely directed to the claim based in contract. It is one thing to establish a contribution to a purchase price; it is another to establish an intention to enter into contractual relations in an informal domestic context, and a deal of the evidence of submissions was directed to that. That said, it was necessary for the plaintiffs on their resulting trust case not merely to establish the cash contribution to the purchase price of Bilgola, but also the context in which those payments were made. That task not inappropriately involved affidavit evidence from all four plaintiffs, although I have no doubt that a deal of the costs involved in preparing those affidavits was directed to the contract case which was always foredoomed to fail.
Hence the costs incurred by the plaintiffs include some costs solely attributable to their cause of action on which they succeeded, some costs solely attributable to a cause of action which should never have been commenced or maintained, and some which are attributable to both. Further, the defendant incurred some costs successfully defending the contract claim which she should not have had to incur. I think that those matters warrant a departure from the ordinary rule that costs follow the event.
It is difficult to assess the proportions in which the parties' costs are attributable to the various categories. It is tempting to remit any dispute to an assessor, and exercise the discretion as to costs on an issues basis. However, these parties have a proven capacity to litigate all issues, including those which are very small (as the applications presently being resolved well illustrate). It is appropriate to make a costs order on a broad brush approach, in order to spare both parties additional costs: see Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [18]-[19]. Bearing in mind all of those matters, I shall order the defendant to pay 75% of the plaintiffs' costs of the proceedings.
I am conscious that on the one hand the plaintiffs, by their service of an offer of compromise, are entitled to a favourable costs order from 27 February 2018, while on the other hand, because they persevered in a cause of action which should never have been commenced or maintained, I consider that there should be a departure from the ordinary position that costs follow the event. The reconciliation of those two considerations is that the plaintiffs be entitled to 75% of their costs, assessed on the ordinary basis up to and including 26 February 2018, and assessed on the indemnity basis thereafter. I have considered, only to reject, the possibility that the effect of the defendant's rejection of the offer of compromise is that the plaintiffs be entitled to 100% of their costs assessed on the indemnity basis thereafter. That outcome, in circumstances where the costs included costs which should not have been incurred and in relation to which the plaintiffs failed, would not be correct in principle, so it seems to me.
[6]
An indemnity for the defendant?
Finally, the plaintiffs seek an order that the defendant have an indemnity out of the estate in respect of the costs ordered to be paid to them, but that she have no indemnity out of the estate for her own costs.
No submissions are advanced in support of the first aspect of that order, nor are any submissions advanced against such an order by the defendant. I shall return to it below.
In contrast, there was an exchange of submissions on whether the defendant was entitled to an indemnity in respect of her costs. The plaintiffs accepted that in ordinary circumstances an executor is paid her costs out of the estate, but pointed to UCPR r 42.25(2), which confers power upon the Court to order that a person's costs not be paid out of the estate if she "has in substance acted for [her] own benefit rather than for the benefit of the fund". The plaintiffs say that here, the defendant was the sole beneficiary (save for three rings) and was clearly acting to protect her own interests rather than those of beneficiaries. The defendant accepts that she was acting in her own interests, as effectively the sole beneficiary of the estate, but adds that she also had a significant duty to uphold the will of the deceased and to ensure that the testamentary intentions of the deceased were honoured in circumstances where it is clear that she did not have personal knowledge of the relevant transactions which occurred 20 and 40 years ago. She added that there was no objective or independent evidence upon which she could assess the worth of those claims.
Each of the plaintiffs was cross-examined extensively on the basis that they were perjuring themselves. The instructions for counsel taking that course must have come from the defendant. In those circumstances, it would be inconsistent for me to accept the submission that the executrix did not have personal knowledge of the relevant transactions and for that reason fell outside the rule that she was acting self-interestedly.
There is no reason to displace the operation of the rule. No differently from Nowell v Palmer (1993) 32 NSWLR 574 at 581-2, this was a case where the defendant was essentially defending her own personal interests. She should not be entitled to an indemnity from the estate for those costs.
Should, however, the defendant be entitled to an indemnity from the estate in respect of her obligations to pay the plaintiffs' costs? No submissions were made in support of that contention. Doing the best I can, I do not think the submission is correct in principle.
The executrix is entitled, as a matter of general law and by reason of s 59(4) of the Trustee Act 1925 (NSW) (noting the extended definition of trustee in s 5), to an indemnity for costs properly incurred in her capacity as executrix. The reason she is denied that indemnity for her own costs is that she was in substance defending her interests as sole beneficiary under the will. This is an exception to the usual rule: see Drummond v Drummond [1999] NSWSC 923 at [43]-[47], approved in Free Serbian Orthodox Church Diocese for Australia and New Zealand Property Trust v Bishop Irinej Dobrijevic (No 3) [2017] NSWCA 109 at [14]. I see no reason to treat the liability of the defendant to pay party-party costs to the plaintiffs consequent upon her acting in her own interests any differently from her liability to pay solicitor-client costs to her own lawyers. Both liabilities are personal. True it is that if the defendant has the benefit of an indemnity from the estate, the person benefited by a costs order may in effect obtain a form of security: see In Re Raybould; Raybould v Turner [1900] 1 Ch 199. But the existence of the indemnity depends on the quality of the conduct of the defendant in incurring the liability, and thus her liabilities for costs stand and fall together in this respect.
[7]
Orders
The parties have each enjoyed a measure of success on the issues raised after judgment was delivered. It is appropriate that there be no order as to the costs of the application for orders, with the intention that the parties bear their and her own costs of that application.
For those reasons, I make the following orders:
1. Judgment in favour of the first and second plaintiffs in the amount of $162,593.
2. Judgment in favour of the third and fourth plaintiffs in the amount of $101,621.
3. Defendant to pay 75% of the plaintiffs' costs of the proceedings, excluding the costs of the application for orders, assessed on the ordinary basis up to and including 26 February 2018, and on the indemnity basis from 27 February 2018.
4. No order as to the parties' costs of the application for orders, with the intention that they and she each bear their own costs.
5. No order concerning the defendant's liability to pay costs, with the intention that she not be entitled to be paid out of the estate in respect of costs.
[8]
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: 12 March 2019