NSW Trustee & Guardian v Hull & Anor

Supreme Court of NSW|2011-11-10|Before: Mr J

JUDGMENT 1HIS HONOUR: In this matter, I delivered principal reasons for judgment on 12 October 2011, the citation of which is NSW Trustee & Guardian v Hull & Anor [2011] NSWSC 1106. In those reasons, I determined, upon enquiry, that the persons entitled on intestacy to succeed to the estate of the deceased, Warren Scott Smith, are the second Defendant David Wayne Smith, and his half brother, Daryl John Smith, equally. This required a finding that the first Defendant had not established that he was the father of the deceased. 2The matter was listed on 10 November 2011 to determine who should pay the costs of the proceedings. (It had been listed on 31 October 2011, but due to an administrative error on his part, counsel for the first Defendant did not appear and the matter was adjourned.) After hearing additional submissions, I indicated that I would make the orders set out at the conclusion of these reasons and would publish my reasons subsequently. These are the reasons. 3I received written submissions from counsel for each of the Defendants, which will remain with the papers. I carefully considered those submissions prior to the indication of the orders that I made. 4There is no dispute that there should be an order that the Plaintiff and the second Defendant should receive its, and his, costs, respectively, of the proceedings, in each case, such costs are to be calculated on the indemnity basis. This is eminently sensible, in the case of the Plaintiff, because of the principle that if, in the proper performance of the duty of an executor or administrator, he, she, or it, seeks the assistance of the court to decide a question, the costs occasioned by the proceeding instituted by the executor or administrator, for that purpose, will normally be ordered to be paid out of the estate or the fund to which the question relates. In the case of the second Defendant, he was the successful party and appeared representing his own interests and that of his half-brother. 5The only issue is whether the first Defendant should receive his costs of the proceedings, calculated on that, or on some other, basis, or whether he should pay the costs of the Plaintiff and the second Defendant, albeit calculated on the ordinary basis. A third alternative, is that I should make no order as to the first Defendant's costs, to the intent that he should pay his own costs of the proceedings.

Legislative Framework 6The 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. The discretion extends to the costs of all proceedings whatsoever, including the costs of the administration of any estate, or trust, and the court has full power to determine by whom, to whom, and to what extent, costs are to be paid. It is a judicial discretion to be exercised on a principled basis. 7The Uniform Civil Procedure Rules 2005 ("UCPR"), r 42.1, provides that costs 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. The rule provides that the discretion to award costs, ordinarily, will require an order that the successful party's costs will be paid by the unsuccessful party. The rule enables the court, in an appropriate case, to depart from the general rule if it would be unjust to apply it. Thus, there is flexibility in determining questions of costs. Again, the rule extends to the costs in any proceedings. 8The purpose of a costs order is to compensate, or indemnify, the person in whose favour it is made, not to punish the person against whom it is made: Ohn v Walton (1995) 36 NSWLR 77 at 79 per Gleeson CJ. 9Rule 54.3 of the UCPR, pursuant to which the proceedings were commenced, does not provide any different rules in relation to costs of proceedings of the type referred to. 10It is clear that the discretion to award costs in civil proceedings is unconfined or "absolute and unfettered" ( Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 per Dawson J at 557). However, it must be exercised judicially, that is, according to relevant considerations, and taking account of the contextual features and facts of the litigation. 11As has recently been 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 recognises 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]."

Submissions 12In broad summary, the first Defendant submitted that in litigation commenced by Summons by an executor, administrator, or trustee, to ascertain the interests of beneficiaries, or to have some question determined which has arisen in the administration of a trust, the general rule is that the costs of all parties are necessarily incurred for the benefit of the estate and should be taxed as between solicitor and client and paid out of the estate. He referred to In re Buckton [1907] 2 Ch 406, at 414-415, in which Kekewich J identified three categories of cases: (1) the trustee's application to determine a question which has arisen in the administration of the trust; (2) the beneficiary's application to determine a similar question which would have justified the application to be made by the trustee; and (3) adverse litigation, whether raised by a beneficiary. He held that in the first two categories, costs should be assessed on an indemnity basis and paid out of the estate, while in the third category the issue of costs is a matter between the parties as adverse litigants. 13Kekewich J also pointed out, the difficulty, in many cases, in deciding whether the particular case falls within the second class or the third class he had described. He also warned that it was "well nigh impossible to lay down any general rules which can be depended on to meet the ever varying circumstances of particular cases" (at 413-414). 14The first Defendant referred to Murdocca v Murdocca (No 2) [2002] NSWSC 505, in which Campbell J (as his Honour then was) cited Jordan CJ in Read v Dubua (1936) 36 SR (NSW) 508, at [61]: "The question of what is included in testamentary expenses was examined by Harvey J in Allen v Attorney-General [15 SR 41, at 43-4]. They include the expenses of getting in the testator's assets, and of ascertaining who the persons are to whom it is the executor's duty to hand over the various portions of the testator's property. Any costs incurred for the purpose of identifying these persons, whether it be occasioned by obscurities in the will or by difficulties arising dehors the will, are testamentary expenses: Re Baumgarten [82 LT 711]; Re Hall-Dare [[1916] 1 Ch 272]; and (apart from anything in the will or by statutory rule provided) are payable before the residue is ascertained: Re Giles [55 LT 51]." 15In Wood v Inglis (Costs) [2009] NSWSC 900, Brereton J, after referring to the passage quoted in Murdocca v Murdocca (No 2) , added, at [7]: "It was argued that this case involved getting in the testator's assets, and that the costs were occasioned by difficulties arising "dehors the will". However, first, Jordan CJ's dictum does not in terms cover such a case - the observation about difficulties arising "dehors the will" is related to identification of beneficiaries, not to getting in the assets. Secondly, it can hardly be imagined that the costs incurred by a debtor of the testator in resisting a claim by the estate could fall within the rubric of "testamentary expenses" so as to be payable out of the estate in priority to residue." 16Finally, the first Defendant, in oral submissions, referred to Allen v Attorney General (1914) 15 SR (NSW) 41. A question in that case was one "between the specific legatees and the residuary legatees as to how the expenses of the keeping and training of certain horses should be paid and also the expenses" of their sale. This question distilled into the question whether the expenses were "testamentary expenses" in the strict sense. 17The passage relied upon by the first Defendant was at page 44 of the judgment and is to the effect that "the expenses of enquiring as to who are comprised in a class of beneficiaries to whom a pecuniary legacy is given" are testamentary expenses. 18The first Defendant also points to the fact that the Plaintiff joined him as a party/Defendant. Undoubtedly, this occurred because the first Defendant had given written notice to the Plaintiff that he was the father of the deceased, and, therefore, that he was entitled to the whole of the deceased's estate on intestacy. There was always a dispute about whether he was so entitled. 19In broad summary, and unsurprisingly, the second Defendant submits that the first Defendant was unsuccessful in the proceedings and, therefore, the general rule as to costs of proceedings applies, namely that costs should follow the event. He says that in determining the question of costs, the court must proceed, in the first instance, in the way described in that rule. 20In addition, he points to the conclusions reached at [137] - [147] of the reasons for judgment. 21He also submits that the general rule relied upon by the first Defendant only applies where "the investigation of the claim results in a benefit to the estate". He refers to Sheil v Doneley (1903) 3 SR (NSW) 60, at 63. He submits, as in that case, the first Defendant's claim was, in its origin, directed for his own sole benefit and the determination of the result has not conduced to the benefit of the estate. 22There is more recent support for the proposition advanced by the second Defendant. Campbell J (as his Honour then was) in Gonzales v Claridades [2003] NSWSC 508; (2003) 58 NSWLR 188, noted that the general rule regarding costs being paid out of the estate, when an inquiry was conducted in the administration of an estate, was not an absolute one. He said: "57 In a suit for the administration of a deceased estates, if there is a doubt about the identity of beneficiaries the Court will decide any legal questions, such as questions concerning interpretation of a will, which need to be decided to ascertain the beneficiaries, or will direct the holding of inquiries into factual matters which need to be ascertained before the identity of the beneficiaries is known. ..." Analogy of How Costs are Paid in an Inquiry 59 ...In any such inquiry, the costs incurred by the executrix would be, in the ordinary course, payable from the estate, because they were an expense of administration. Whether the costs of any other parties to the inquiry would be paid from the estate would be a matter for the Court's discretion. In exercising that discretion the Court would take into account whether the inquiry was in substance adversary litigation: In Re Buckton; Buckton v Buckton [1907] 2 Ch 406; In Re Halston; Ewen v Halson [1912] 1 Ch 435; In Re Cunningham; Sproule v Quested (1914) 31 WN (NSW) 44; O'Brien v Ritchie (1931) 48 WN (NSW) 85; Murdocca v Murdocca (No.2) [2002] NSWSC 505 at [71]-[77] ...." 23Campbell J also said in Crawford v McIntosh [2004] NSWSC 180, at [9]: "It is well established, in litigation concerning deceased estates, that Courts can make orders for costs requiring the costs of disputation to be paid out of the estate, or can make orders requiring one party or the other to pay the costs of the other. The principles are set out in Murdocca v Murdocca (No 2) [2002] NSWSC 505. In essence, if the litigation is in substance adversary litigation, it is common for the Court to make orders that one party pay the costs of the other, whereas if the litigation is in the nature of a joint approach to the Court to clarify an uncertainty, then the costs can be ordered out of the estate. The litigation in the present case is litigation which fits into the category of adversary litigation." 24The Plaintiff did not express any view as to whether the first Defendant should be ordered to pay the costs of the proceedings. In fact, the Plaintiff simply informed the court, that in light of submissions made by counsel for the second Defendant, it did not intend to incur the costs of making separate submissions or of appearing on the costs argument. That was not an unreasonable course to follow.

Determination 25Neither party, expressly, referred to UCPR rule 7.12, which, relevantly, provides that in proceedings relating to an estate, all persons having a claim against the estate need not be parties, but the plaintiff may make parties of such of those persons as he, or she, thinks fit. 26It was appropriate, and necessary, in the circumstances of this case, for the first Defendant to be joined as a party/Defendant to the proceedings. The second Defendant was also joined, but in circumstances where there was no dispute as to his, and his half brother's, entitlement, on intestacy, if the deceased died without any parent having survived him. 27No doubt, the basis for the joinder of both parties was the Plaintiff's duty to distribute the assets to the beneficiary, or beneficiaries, entitled to them. That duty, under the general law, has been described as a "strict one": Gonzales v Claridades at [73]. 28The role of the Plaintiff in such proceedings was to put the matter before the court in a neutral fashion and to submit to the ruling of the court. In order to show no partiality to competing claimants, the Plaintiff, for the most part, allowed the second Defendant to act as the proper contradictor in the case. This was also a reasonable course to follow. 29As with other litigation involving a deceased estate, I am reluctant to do anything to create, or maintain, the idea that an unsuccessful litigant will, automatically, get his, or her, costs out of the estate. Experience dictates that the "lure of 'costs out of the estate' is responsible for much unnecessary litigation": Re Plant [1926] P 139 at 152. 30Whilst it is true that the present case was one to establish the identification of rightful beneficiaries, respectfully, I agree with the submission of the second Defendant that the proceedings had all the hallmarks of contentious proceedings, in which the first Defendant sought to advance his claim in his own interest only. To all intents and purposes, as between the Defendants, it was a hostile lis inter partes between two potential beneficiaries as to who was entitled on intestacy. It was certainly not a joint approach to the court to clarify an uncertainty. I was required to determine rights between adverse litigants. 31I reject the submission by counsel for the first Defendant that what he described as settled, or established, principles (even if applicable) required me to make an order for costs in the first Defendant's favour. Settled, or established, principle, if applicable, may guide, but does not control, the exercise of discretion: Kazar (Liquidator) v Kargarian; In the Matter of Frontier Architects Pty Ltd (In Liq) at [5]. 32I have considered whether the litigation was caused by the conduct of the deceased in which case an unsuccessful defendant might be relieved of the burden of costs. The principle is a well known one: "where the difficulty is occasioned by the ... conduct of the testator ... the costs are costs of administration" (Williams, Mortimer & Sunnucks, Executors, Administrators & Probate , 19th Ed (2007) at para 66 - 25; In re Hall-Dare [1916] 1 Ch 272 at 277). 33In this case, the deceased did not cause the litigation. He simply died intestate. 34I have also considered whether there were any circumstances that afforded a basis for the assertion of paternity by the first Defendant, which would justify the conclusion that, although he should not be awarded his costs out of the estate, he should be relieved of the burden of costs of the other parties. 35The first relevant circumstance that afforded such a basis, in the present case, is the evidence to which I referred in the reasons for judgment, namely, that the deceased's mother had asserted that the first Defendant was the father of the deceased. In my view, that is an important consideration in the present case. 36The second relevant circumstance was that the second Defendant had repeated what his mother had said to the funeral director. In relation to this matter, I concluded: "112 In circumstances where Mr Bance has not been cross-examined and where the second Defendant acknowledged being distressed and unable to remember very clearly what occurred in the discussions, I accept the evidence of Mr Bance that the second Defendant gave the name of the first Defendant as the father of the deceased to him." 37In the exercise of my discretion, I am not prepared to make an order that the first Defendant receive his costs out of the estate. Nor shall I make an order that he should pay the costs of the Plaintiff and the second Defendant. Neither extreme would, in my judgment, be fair or reasonable. Doing the best I can, the justice of this case warrants the making of the orders sought in relation to the Plaintiff and the second Defendant out of the estate of the deceased, and making no order as to the costs of the first Defendant, to the intent that he pays his own costs of the proceedings. 38I order that the costs of the Plaintiff and of the second Defendant, each calculated on the indemnity basis, be paid out of the estate of the deceased. I make no order as to the costs of the first Defendant, to the intent that he shall pay his own costs of the proceedings.

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: 21 November 2011

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