Plaintiff v Defendant

2 On 19 October 2015 I delivered judgment. The plaintiff was unsuccessful.

3 When I delivered my reasons I indicated I would hear the parties on the question of costs after they had an opportunity to consider my reasons. I expressed a view, that even though the plaintiff had not been successful in her application, her application was not without merit. I do not consider her application was without merit.

4 On 28 October 2015, a further hearing took place at which the parties made submissions as to what orders should be made for costs in these proceedings. Mr Pitt, of counsel, for the defendant, contended that even though the plaintiff's claim was not misconceived or frivolous, in light of two offers made by the defendant to the plaintiff by way of Calderbank letters on 30 March 2015 and 23 June 2015, which were rejected by the plaintiff, the plaintiff should pay 50 per cent of the estate's costs of the proceeding.

5 Mr Gillies, of counsel, who appeared on behalf of the plaintiff, submitted that the plaintiff should have her costs paid from the estate and that she should not be liable in any way for the estate's costs.

6 It is convenient to set out in some detail the background to the costs issue between the parties and in particular the Calderbank letters.

7 The estate's solicitors sent a Calderbank letter to the plaintiff dated 30 March 2015. The letter indicates that the estate rejected the plaintiff's offer of 50 per cent of the net value of the estate plus her costs, being the sum of $175,000 and costs of $25,000 to settle the matter. The estate's solicitors in turn indicated:

We are instructed to offer your client one-fifth of the net value of the Estate (as at the date of the mediation which was $351,507) plus her costs, being the sum of $70,301.40 plus her costs of $25,000, making a total settlement sum of $95,301.40, to settle this matter.

The above offer is open for acceptance until 4:00 pm Friday 10 April 2015 and is made in accordance with the principles set out in Calderbank v Calderbank [1976] Fam 93 and Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435. It is made upon the basis that the defendant will seek a costs order in his favour upon an indemnity basis as and from the date of the expiration of this offer, in the event that the plaintiff does not recover an amount by judgment or otherwise in the proceedings no less favourable to the plaintiff than the terms of the offer herein made.

We shall respond to the queries in your without prejudice letter and open letter dated 25 March 2015 in a separate letter.

8 By letter dated 9 April 2015 the plaintiff's solicitors wrote to the defendant's solicitors indicating that the offer made by Calderbank letter of 30 March 2015 was rejected and a counteroffer of $175,000 inclusive of costs was made. No detail was given for the basis of the rejection of the 30 March 2015 Calderbank offer.

9 By Calderbank letter dated 23 June 2015 the estate's solicitors said as follows:

Further to our without prejudice letter dated 30 March 2015, we are instructed to offer your client the sum of $125,000 inclusive of her legal costs, subject to the approval of the Supreme Court, payable within 30 days of Court approval.

We are required to make the above offer subject to Court approval as the executor of the above estate has been unable to obtain the consent of one of the residuary beneficiaries, namely Lachlan Todd.

The executor has been able to obtain the consent of Janelle, Peta and Chantal Todd on the basis that each contributes the sum of $23,750 from their respective shares of the residuary estate.

On behalf of the executor we sought the consent of Lachlan Todd to the above offer on the basis that he contributes the sum of $53,750 from his share of the residuary estate. By letter dated 9 June 2015, Lachlan Todd stated that he did not consent to the above offer.

Your client has failed to provide any supporting or corroborating evidence (other than her own affidavit material) of the relationship between her and the deceased. Further, in the 'issues paper' jointly prepared by Messrs Gillies and Pitt of Counsel your client does not propose to call any witnesses to provide any supporting or corroborating evidence at trial.

From your client's affidavit material she has a roof over her head (albeit subject to a mortgage of approximately $262,000), an income in excess of $92,000 p.a., a Laundromat business valued at approximately $50,000 and a nest egg in the form of superannuation in the sum of approximately $100,000. Lachlan Todd is no longer financially dependent on the plaintiff, has received the deceased's motor vehicle and therefore not reliant on your client for transportation and has recently received the proceeds of the deceased's PSS superannuation fund in the sum of approximately $30,000.

Based on the material available, we are of the opinion that the sum of $125,000 in a net estate of approximately $350,000 is very reasonable in the circumstances.

The above offer is put forward in a genuine attempt to settle the matter and avoid the costs of a trial.

10 By letter dated 30 June 2015 the plaintiff's solicitors responded to the offer dated 23 June 2015 indicating that the plaintiff rejected the offer and making a counteroffer in the sum of $175,000 inclusive of the plaintiff's costs. It was noted by the plaintiff's solicitors that this represented a very reasonable offer and it was put forward in a genuine attempt by the plaintiff to settle the matter without the costs of a trial.

11 For completeness, in relation to the plaintiff's son, Lachlan Todd, one of the beneficiaries, the estate's solicitors wrote a letter on a 'Without prejudice save as to costs' basis dated 4 June 2015. In that letter they sought Lachlan Todd's instructions to contribute the sum of $53,750 from his share of the residuary estate and indicated that the other three beneficiaries would contribute the sum of $23,750 from their respective shares of the residuary estate. By letter dated 9 June 2015 Lachlan Todd responded indicating that he did not consent to an offer to the plaintiff in the sum of $125,000 and considered that $220,000 was a fair offer to the plaintiff. Lachlan indicated that he considered the other three beneficiaries should contribute $55,000 each and that he should contribute $70,000 in light of the fact that he had already received $15,000 from the estate and had the deceased's car.

12 The Calderbank offer dated 23 June 2015 remained open until the conclusion of the trial.

13 At the time the two Calderbank letters were served on the plaintiff, the financial position of two of the beneficiaries, Chantal Todd and Janelle Maas, was not known to the plaintiff. The two beneficiaries filed affidavit material setting out their financial position dated 20 August and 26 August 2015. I found that both beneficiaries had dire financial needs.[1]

14 From at least 26 August onwards the plaintiff and her legal representatives had a complete picture of each beneficiary's financial position and the size of the estate. When the first Calderbank offer was made the original inventory of assets and liabilities showed the estate as having total Victorian assets of $486,477.30 with liabilities of $1,815.79. By 14 March 2015 the financial position of the estate showed assets of only $407,707.83. By trial the net value of the estate was $267,913.36. The net value of the estate was said to be in the order of $300,000 at the time of trial.

15 Even though I dismissed the plaintiff's application for further provision under the Act, I considered that the relationship between the plaintiff and the deceased had the character of a loving and close relationship and that she continued to see the deceased on an ongoing basis and that it was a relationship which was underpinned by emotional commitment to each other akin to that of a family member.[2] I found that the plaintiff did not appear to have any present significant financial need and that the financial circumstances of the deceased's children at the time of the testator's death were that they were clearly in financial need.[3]

16 The Court's jurisdiction as to costs is conferred by s 24(1) of the Supreme Court Act 1986. The general discretion must be exercised in accordance with r 63 of the Supreme Court (General Civil Procedure) Rules 2005.[4]

17 With respect to Part IV claims, the Court must also have regard to the provisions of s 97(6) and (7) of the Act. Those sub-sections provide:

(6) Subject to sub-s (7), the Court may make any order as to the costs of an application under s 91 that is, in the Court's opinion, just.

(7) If the Court is satisfied that an application for an order under s 91 has been made frivolously, vexatiously or without reasonable prospect of success, the Court may order the costs of the application to be made against the applicant.

18 I did not understand Mr Pitt to contend that the plaintiff's claim was made frivolously or vexatiously. Mr Pitt submitted that the plaintiff's case did not meet such a characterisation however in the circumstances of this case, it is just that the unsuccessful plaintiff pay some of the costs of the estate. That is, on the basis of the two Calderbank letters that were served on the plaintiff. The second Calderbank offer represented approximately 25 per cent of the capital of the estate at the time of the offer, it remained open until the conclusion of the trial and was unreasonably rejected. Ultimately, the question must be determined on a consideration of what is 'just' in the circumstances of each particular case. It is important to note, as McMillan J did in Briggs v Mantz (No 2)[5] that when a plaintiff embarks on a Part IV claim, he or she can no longer assume an entitlement of costs paid out of the estate, nor can a plaintiff assume that he or she will not be ordered to pay the costs of the estate. In Forsyth v Sinclair (No 2), the Court of Appeal said:

We consider that it is a matter of concern that in many family provision cases, the amount available for distribution amongst the competing beneficiaries is significantly reduced by legal costs. Parties should not assume that litigation can be pursued safe in the belief that costs will always be paid out of the estate. Every effort should be made to resolve the dispute before costs get out of proportion.[6]

Where a Part IV claim fails, it is most common for there to be no order as to costs, the effect of which is that the unsuccessful plaintiff bears their own costs and the defendant/executor receives their costs out of the estate.[7]

20 Where Calderbank letters are relied upon to support a claim for indemnity costs, the principles set out in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2)[8] ('Hazeldene's ') are relevant. The correct approach is to treat the rejection of a Calderbank letter as a matter to which the Court must have regard when considering whether to order indemnity costs. The critical question is whether the rejection of a Calderbank letter, containing terms more favourable than the result achieved, is sufficient to establish indemnity costs.

21 In Hazeldene's the Court of Appeal noted that the matters that should be considered are:

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(d) the offeree's prospects of success, assessed as 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 an indemnity costs order in the event of the offeree rejecting it.[9]

22 Having said that, the fact that a plaintiff has recovered judgment in an amount less than an offer of settlement does not automatically warrant the making of an order that the plaintiff pay the defendant's costs as from the date of refusal of the offer on an indemnity basis. The serving of a Calderbank offer is one of the factors that the Court will have regard to and has weight, however all the facts and circumstances of the case must be taken into account in the exercise of the Court's discretion as to costs.[10]

What is the effect of the Calderbank offers in this proceeding?

23 The defendant appropriately conceded that at the time the estate made the two Calderbank offers, the plaintiff was not fully appraised of the beneficiaries' financial positions and accordingly it may be inappropriate to seek costs from the date of the first Calderbank offer.

24 The plaintiff contends that the two Calderbank offers did not set out a reasoned basis for the offer. There is some force in this submission. The Calderbank offer dated 30 March 2015 does not set out any basis upon which it was said the plaintiff should accept the offer. The 23 June 2015 Calderbank offer refers to the plaintiff's failure to provide any supporting or corroborating evidence other than her own affidavit material in relation to the relationship between the plaintiff and the deceased. It sets out the plaintiff's financial position and asserted that the plaintiff did not in effect have any financial need.

25 The letter also made reference to the net value of the estate at that time, which was approximately $350,000. The offer amounted in effect to 25 per cent of the estate.

26 However, the Calderbank letter did not refer to a critical factor which was the beneficiaries' financial position and the competing needs. In considering the Calderbank offers, in my view it was not unreasonable of the plaintiff to reject the offers on the basis that she had reason to believe that she had a strong case in relation to establishing a relationship that gave rise to a moral duty and in the absence of knowledge up until 26 August of the financial position of two of the beneficiaries.

27 Having said that, the offers were made to the plaintiff in a timely manner, with the second offer remaining open until the conclusion of the trial. It is true that from 26 August 2015, approximately seven weeks before the trial commenced, the plaintiff had all the information before her to make a full assessment of her likelihood of success in the claim. I note that this was an unusual claim and in my findings I have concluded that there was a relationship akin to that of a family member between the plaintiff and the deceased. What was critical in the plaintiff not succeeding was the plaintiff's financial situation, the beneficiaries' financial situation, the competing needs and the size of the estate. The two offers were significantly more than the final outcome of the proceeding. I consider the offers were generous and showed good judgment on the part of the defendant. I consider the offers were commercial offers made, notwithstanding the defendant's view of the plaintiff's claim, to end the litigation between the plaintiff and the deceased's children and to preserve the estate for the beneficiaries.

28 As I have said, I accept that it was reasonable for the plaintiff to reject the first Calderbank offer made in March and the second Calderbank at the date of making the offer. The plaintiff now relies upon her poor financial circumstances as a reason for a costs order not being made against her. Regrettably an acceptance of either the first or second offer would have gone a considerable way to solving the plaintiff's financial situation. Due to the plaintiff's rejection of the offers, the defendant has been required to defend the claim at considerable cost to the estate in circumstances where the resources of the estate are small and where the estate is to be shared between four beneficiaries, all of whom have financial need.

29 It is interesting to note in the circumstances of this case that the outcome of the proceeding was not on the basis predicted and set out in the defendant's Calderbank offer.

30 In balancing all the factors in this case, it is my view that it would be unjust for the plaintiff to have to pay any significant portion of the estate's costs. The Calderbank letters did not set out in a fulsome way the basis upon which it was said the plaintiff should accept the offers. Importantly, one of the key factors, the nature of the relationship between the plaintiff and the deceased was not a basis upon which I dismissed the plaintiff's application. In coming to this conclusion, I do not consider the plaintiff's financial circumstances are a relevant factor. Ultimately, the plaintiff pursued the litigation despite being in a position that she considers to be a difficult financial position and one which would be catastrophic if required to pay any part of the estate's legal costs of the proceeding. However, the 23 June 2015 offer remained open until the conclusion of the trial and, as I said, there was at least a seven week period where the plaintiff was aware of the competing needs of the beneficiaries, the impact of the litigation on the size of an already small estate and the financial circumstances of the four beneficiaries. In such circumstances, it would be unjust for the estate to be deprived of any further costs to pay the plaintiff's costs of the proceeding. To order otherwise would cause substantial injustice to the four beneficiaries. They would be penalised and the plaintiff would be benefitting notwithstanding the dismissal of her application. In my view, such a result cannot be said to be a just outcome in the circumstances.

31 Ordinarily, the latter factors would give the Court a basis to make an order that the plaintiff pay some of the estate's costs. However, in this case one of the critical factors that the Court must consider and that was in dispute at trial, was the nature of the plaintiff's relationship with the deceased. On this issue I found, consistent with the plaintiff's case, that the relationship was significantly more than girlfriend/boyfriend as submitted by the defendant.

32 In the circumstances of this case, I consider that it is just that the estate pay its own costs irrespective of the result and that the plaintiff pay her own costs of the litigation.

33 I order that each party bear their own costs of and incidental to the proceeding.

[1] Semmler v Todd [2015] VSC 567 [56]-[65], [97].

[2] Semmler v Todd [2015] VSC 567 [92]-[93].

[4] Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) [2012] VSC 399.

[5] [2014] VSC 487 [22].

[6] [2010] VSCA 195 [17] (Neave and Redlich JJA, Habersberger AJA).

[8] [2005] VSCA 298; (2005) 13 VR 435 (Warren CJ, Maxwell P and Harper AJA) ('Hazeldene's').

[10] Re Sherborne (No 2) [2005] NSWSC 1003 [54] (Palmer J).