The plaintiffs in these proceedings made an unsuccessful application for provision out of the estate of their aunt, the late Belinda Noble: Noble v Durrant [2023] NSWSC 513 (Judgment). Following judgment, the parties were directed to file submissions and they were heard on the issue of costs on 30 May 2023.
The defendants, who are the executors of the deceased's estate, seek an order that the plaintiffs pay their costs of the proceedings, assessed on the ordinary basis up to 24 March 2022 and on the indemnity basis thereafter, because of a Calderbank offer made by the defendants on 24 March 2022 to pay each of the plaintiffs $40,000 out of the estate, on the basis that the parties would bear their own costs (Calderbank Offer). The Calderbank Offer was expressed to be open for acceptance for a period of 21 days, to be made without prejudice save as to costs, and to be made pursuant to the principles in Calderbank v Calderbank [1975] 3 All ER 333. The defendants also seek an order that the plaintiffs' respective liability for costs be charged against the monies standing to the credit of the plaintiffs in the trust account of the solicitors for the estate of the late Ruth Margaret Noble (who were also the defendants' solicitors), which is $137,000 each.
The plaintiffs submit that, because of the size of the estate, the relative financial position of the plaintiffs and the beneficiaries, and the nature of the plaintiffs' claim, each party's costs should be paid out of the estate or, at the very least, there should be no order as to costs or if the plaintiffs are ordered to pay the defendants' costs they should be "substantially capped".
There is no dispute that the Court has a wide discretion on making orders as to costs: Civil Procedure Act 2005 (NSW), s 98(1). Section 99 of the Succession Act 2006 (NSW) confers a further discretion on the Court to order that costs in family provision applications be paid out of the estate or notional estate. Although broad, the Court's discretion must be exercised judicially: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [65] (McHugh J).
The usual order is that costs follow the event: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1. This applies to family provision matters: see e.g. Haertsch v Whiteway (No 2) [2020] NSWCA 287. The usual order "embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour": Oshlack at [67] (McHugh J).
The plaintiffs were wholly unsuccessful in these proceedings. In the Judgment, I concluded at [102] that there were no factors warranting the application as required by s 59(1)(b) of the Succession Act. I also concluded at [122]-[123] that, even if there were factors warranting the application, inadequate provision had not been made for the proper maintenance, education or advancement in life of either of the plaintiffs as required by s 59(1)(c) of the Succession Act. One of the matters leading to this conclusion was the failure of the plaintiffs to provide updating evidence of their financial position so that the Court was unable to make the assessment required by s 59(1)(c) to consider the financial position of the plaintiffs (including in light of the financial position of the beneficiaries): [123]. Similarly, there was no evidence on this costs application regarding the plaintiffs' current financial position.
Counsel for the plaintiffs submitted that the usual order for costs should not be made and relied on the following observation of Gaudron J in Singer v Berghouse [1993] HCA 35; 114 ALR 521 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.
Her Honour's reference to s 33 is to s 33 of the Family Provision Act 1982 (NSW) which has now been superseded by s 99 of the Succession Act.
It is clear that the default rule in r 42.1 of the UCPR applies to family provision proceedings, so that the prima facie position is that the unsuccessful plaintiff should pay the defendant's costs and it is necessary for the plaintiff to show that there is good reason to depart from that prima facie position. This is not inconsistent with the observations of Gaudron J in Singer: see Chapple v Wilcox (2014) 87 NSWLR 646; [2014] NSWCA 392 at [27] and [139]; Haertsch at [6]. Nevertheless, in family provision cases the Court exercises a greater degree of "liberality and discrimination" than usual in deciding whether to depart from the default rule: Haertsch at [6]. The main reasons for that more liberal approach are that the impecuniosity of the unsuccessful applicant may in some circumstances be a relevant matter (in contrast to other types of proceeding) and that family provision claims are often decided on difficult evaluative and discretionary judgments: Haertsch at [7], [9] and [11]. However, it is clear that applicants in family provision claims cannot have an expectation that as a general rule the discretion in r 42.1 will be exercised in their favour so as to exempt them from liability for costs in the event of an unsuccessful application, or that an order will be made for the payment of costs out of the estate: see e.g. Brindley v Wade (No 2) [2020] NSWSC 882 at [198]-[204].
The first question is whether there is good reason for departing from the default rule in r 42.1. The plaintiffs put forward two matters. First, it was said that because Charlotte was not in a strong financial position, that both plaintiffs (particularly Charlotte) were in an inferior financial position compared to the beneficiaries of the estate (Graham and Julie), and the size of the estate (approximately $2m), the beneficiaries would suffer no significant financial deprivation if the defendants' costs were to be paid out of the estate and an order that the plaintiffs pay the defendants' costs would almost certainly have a detrimental effect on their financial position. Second, it was submitted that the applications made by the plaintiffs were not frivolous, vexatious or made without any prospects of success.
As to the first matter, the mere fact that a costs order would have a detrimental effect on the plaintiffs' financial position is not enough to displace the default rule, and there is no evidence to suggest that the plaintiffs are impecunious or unable to pay the defendants' costs. In particular, they each have an entitlement to $137,000 from the estate of their great aunt Ruth, which would be more than sufficient to meet any costs order against them. Further, the estate of the deceased largely comprises two properties: a farm (and related assets) which was given to Graham, the deceased's de facto spouse, who still lives and works on the farm, and a half-share in an adjacent property which was given to the other beneficiary, Julie, the plaintiffs' half-sister. Taking into account the evidence of the two beneficiaries (Graham and Julie) as to their financial position, I am satisfied that making an order for costs to be paid out of the estate would likely result in these assets being either encumbered or sold. I am not satisfied that such an order would be appropriate in all the circumstances of the case.
As to the second matter, I accept that the plaintiffs' claims were not frivolous or vexatious. However, even putting to one side the failure to establish that there were factors warranting the making of the application, the claims had little merit as they would have involved the plaintiffs supplanting the deceased's de facto husband, Graham, with whom she had lived for almost the entirety of her adult life and the other beneficiary, Julie, who had a greater claim on the deceased's testamentary bounty than they did: see Judgment at [101] and [106]. For these reasons, I am not satisfied that there is good reason for departing from the default rule.
The second question is whether the Court should, in the exercise of its discretion, order the payment of indemnity costs from 24 March 2022 in light of the plaintiffs' rejection of the Calderbank Offer.
In order to warrant the making of an indemnity costs order, a Calderbank offer must embody a genuine compromise and the party seeking to rely on it must show that it was unreasonable for the unsuccessful party not to accept it, which is an evaluative judgment to be made by reference to the terms of the offer and all the circumstances at the time that the offer was made: Wheatley v Lakshmanan (No 2) [2022] NSWSC 851 at [97]-[99].
Relevant factors in determining whether the rejection of an offer was unreasonable include (a) the stage of the proceeding at which the offer was received; (b) the time allowed to the offeree to consider the offer; (c) the extent of the compromise offered; (d) the offeree's prospects of success, assessed at the date of the offer; (e) the clarity with which the terms of the offer were expressed; and (f) whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it: Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 at [25]; Wheatley at [98].
The Calderbank Offer was a genuine offer of compromise, being an offer to pay the plaintiffs $40,000 each, with each party to bear their own costs. There is no evidence on this application addressing the plaintiffs' costs as at 24 March 2022, but there is evidence that the plaintiffs' costs were $44,000 (including GST) as at 13 July 2021, which was after all the plaintiffs' evidence had been filed and a mediation had taken place. Given that the plaintiffs' written submissions (which were very brief) were not filed until 22 June 2022, it can be inferred that the plaintiffs' costs were not significantly greater at 24 March 2022, and that each would have received a net benefit of around $18,000 had the defendant's offer been accepted. Counsel for the plaintiffs ultimately accepted that this was probably correct (T15.20). Therefore, the Calderbank Offer cannot be said to be derisory or involve a capitulation on their part.
On the question whether it was unreasonable for the plaintiffs to reject the Calderbank Offer, it is necessary to address each of the matters referred to in [15] above. As to (a) and (b), the Calderbank Offer was made after the filing of the evidence (except for the updating affidavits of the defendants and the two beneficiaries, which are not material for present purposes) and allowed 21 days for acceptance. I regard these factors as largely neutral. Likewise, (e) and (f) are largely neutral.
As to (c), the claims ultimately made by the plaintiffs were that Charlotte would receive $300,000 (inclusive of costs) and Carolyn would receive $150,000 (inclusive of costs). The Calderbank Offer would provide them with a benefit which was not immaterial (see above), but the amount each would receive was relatively small compared to their respective claims.
As to (d), it is necessary to make an assessment of what would have been a reasonable view of the plaintiffs' prospects of success at the time the offer was made without the benefit of hindsight. In my view, while the plaintiffs were unsuccessful, it cannot be said that at the date of the offer they had no prospects of success or that it was unreasonable for them to bring their claims. It is relevant that there were a number of contested factual matters and that the ultimate disposition of the applications turned on the resolution of factual disputes and an evaluative judgment as to whether the pre-conditions in ss 59(1)(b) and (c) of the Succession Act were satisfied.
It is also relevant in my view that the Calderbank Offer did not give any reasons why the defendants contended that the plaintiffs should accept the offer (i.e. why their applications would fail), which is a matter which can in an appropriate case be taken into account in determining whether the rejection of the offer was unreasonable: Dukemaster Pty Ltd v Bluehive Pty Ltd [2003] FCAFC 1 at [8]; Hazeldene's Chicken Farm at [26]-[27]; Marriner v Australian Super Developments Pty Ltd [2016] VSCA 141 at [235] and [238]. It is appropriate to do so here because the plaintiffs were unsophisticated, there were no pleadings exposing the weakness in the plaintiffs' claims (the claim being made by summons without pleadings) and the defendant's affidavits did not do so, and the defendants' written submissions were not served until a considerable time after the offer expired. There is no evidence of any informal communications in which the defendants set out their position as to why the plaintiffs' claims would fail.
Taking into account all of these matters, in my opinion the defendants have not established that it was unreasonable for the plaintiffs to reject the Calderbank Offer, and accordingly an order for indemnity costs will not be made.
The third question is whether the defendants' costs should be capped. The power to do so arises under s 98 of the Civil Procedure Act and UCPR, r 42.4(1). In my view, it would not be appropriate to do so here as no evidentiary basis has been put forward that would allow the Court to make a rational assessment of what cap would be appropriate in the present case, and no amount was put forward by the plaintiffs in submissions: see Sherborne Estate (No 2); Vanvalen v Neaves (2005) 65 NSWLR 268; [2005] NSWSC 1003 at [46]; Preston v Nikolaidis [2017] NSWSC 1527 at [314]. In particular, the plaintiffs' costs at the date of the hearing were $120,000 on the ordinary basis and $150,000 on the indemnity basis (see Judgment at [6]) which exceeds the defendants' actual costs to the date of the hearing of the costs argument ($138,792.10) which indicates that the defendants' costs are reasonable and strongly suggests that capping of those costs would not be appropriate.
Finally, I am not satisfied that it would be appropriate to make an order "charging" the monies standing to the credit of the plaintiffs in the trust account of the defendants' solicitors, in particular because there is no evidence to suggest that they will not pay the costs ordered by the Court.
For these reasons, the plaintiffs are to pay the defendants' costs of the proceedings on the ordinary basis, as agreed or assessed.
[3]
Amendments
28 November 2023 - Corrected typographical error in [9]
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: 28 November 2023