Plaintiff v Defendant

2 The plaintiff is the deceased's adult daughter. The defendant is the executor of the estate and was the deceased's partner of 20 years. Pursuant to his will, the deceased bequeathed a legacy of $50,000 to the plaintiff and left the residue of his estate to the defendant.

3 The estate comprises the home of the deceased and the defendant in Boronia ('the Boronia property') and a share portfolio valued at trial at $118,303.53. At trial, the value of the Boronia property was determined to be between $650,000 and $715,000. The liabilities of the estate principally comprised estate expenses and legal fees of the proceeding. The defendant has personally funded the liabilities by providing a loan of $86,626 to the estate. The legacy of $50,000 to the plaintiff has not yet been paid pending the outcome of the proceeding. In order to pay the legacy, the defendant proposed to fund personally any shortfall between the net value of the share portfolio and the $50,000. After payment of the legacy and the loan, the net value of the estate would be between approximately $631,000 and $696,000. Since these figures were provided, further liabilities for legal costs have been incurred by the estate.

4 The parties were unable to agree on the costs of the proceeding.

5 The plaintiff seeks an order that her costs be paid from the estate on the standard basis and there be no order as to the costs of the defendant, alternatively, an order that the parties bear their own costs personally.

6 The defendant seeks an order that the plaintiff pay the her costs on the standard basis up to and including 19 February 2020, being the date of a Calderbank offer made by the defendant, and from 20 February 2020 onwards on an indemnity basis.

7 Costs are in the discretion of the Court, unless otherwise provided by an Act or the Rules.[2] As from 1 January 2015, costs in respect of family provision claims are to be determined in the exercise of the Court's general costs discretion.[3]

8 The usual order as to costs is that a successful party in litigation is entitled to an award of costs in its favour and the unsuccessful party bears the liability for the costs of the litigation, that is, costs follow the event.[4] The relevant 'event' is success in the proceeding or on particular issues.[5] The central guiding principle is that the Court ought make an order that is fair and just between the parties in the circumstances of each case.[6]

9 With costs in respect of family provision claims being determined in the exercise of the Court's general costs discretion, there is no basis for an unsuccessful plaintiff to presume that they will be awarded their costs out of the estate. Further, it may be fair and just as between the parties for an unsuccessful plaintiff to be ordered to pay the estate's costs, having regard to the size of the estate, the reasonableness of the plaintiff's conduct, and the financial burden that would otherwise fall on the residuary beneficiaries.[7]

10 The prima facie position in respect of costs in litigation is for standard costs to be ordered by the Court, with the Court having the discretion to award costs other than on the standard basis.[8] A special order for costs may be made where there is some special or unusual feature in the proceeding, or special circumstance, which justifies it. Each proceeding must be considered on its own facts and, specifically, whether those facts support the making of a special order for costs. A special costs order usually means costs on an indemnity basis, that is, an entitlement to all costs except insofar as they are of an unreasonable amount or have been unreasonably incurred.

11 Trustees are ordinarily entitled as of right to indemnity out of the trust for expenses properly incurred. The concept of 'proper' expenditure excludes costs which are of an unreasonable amount, have been unreasonably incurred, or have been incurred as a result of conduct that demonstrates want of prudence or diligence.[9] Any indemnity 'must be given effect in such a way as to make the burden fall upon the beneficiaries equitably having regard to the circumstances under which the costs, charges and expenses were incurred'.[10]

12 By letter dated 30 November 2017, the plaintiff's solicitors informed the defendant's solicitors of the plaintiff's claim for further provision pursuant to Part IV of the Administration and Probate Act 1958. The plaintiff's solicitors requested that the defendant's solicitors seek instructions as to whether the defendant was willing to consider negotiating a resolution without resorting to legal proceedings. By letters dated 7 February 2018, 1 May 2018, 12 June 2018 and 3 August 2018, the plaintiff's solicitors made further enquiries as to the defendant's willingness to reach an out of court settlement. The response from the defendant's solicitors was that they held instructions to accept service of the plaintiff's claim.

13 On 12 June 2018, the plaintiff issued her proceeding.

14 On 4 March 2019, the parties attended a mediation.

15 By letter dated 18 March 2019, the defendant made an offer to settle the plaintiff's proceeding ('the March 2019 offer') on the basis that the plaintiff receive:

(a) the legacy of $50,000 to which she was entitled under the will; and

(b) $200,000 as a debt payable by the defendant's estate on the death of the defendant.

16 The March 2019 offer was silent as to costs, and did not make the standard reference to the principles in Calderbank v Calderbank[11] and Cutts v Head.[12] The March 2019 offer was not accepted by the plaintiff.

17 On 17 April 2019, the plaintiff made an open offer to settle the proceeding ('the April 2019 offer') on the basis that:

(a) the plaintiff receive $70,000 in lieu of the legacy of $50,000;

(b) the defendant's interest in the Boronia property be converted from a freehold interest to a portable life interest, with the plaintiff to receive the property on the defendant's death; and

(c) the plaintiff bear her own legal costs.

18 The April 2019 offer was open for acceptance until 1 May 2019, and contained the usual references to the principles in Calderbank v Calderbank and Cutts v Head, that is, if the defendant failed to accept the offer and the plaintiff obtained an outcome equal to or more favourable than its terms, the plaintiff would seek an order that the estate pay the plaintiff's costs on an indemnity basis from 17 April 2019 onwards.

19 The April 2019 offer was not accepted by the defendant.

20 On the morning of the commencement of the trial on 19 February 2020, the defendant made an open offer to the plaintiff ('the February 2020 offer') to pay the plaintiff the sum of $150,000, inclusive of the $50,000 legacy and the plaintiff's costs. The February 2020 offer was rejected by the plaintiff.

21 Notwithstanding that the plaintiff was wholly unsuccessful in her claim, she submitted that the proceeding exhibited a number of special or unusual circumstances that should encourage the Court to exercise its discretion so that the plaintiff, but not the defendant, should have her costs paid from the estate.

22 First, before the proceeding commenced, the plaintiff made exhaustive attempts to resolve her foreshadowed claim. Rather than making a genuine attempt to resolve the foreshadowed claim, the defendant forced the proceeding to a trial and demonstrated a pattern of unhelpful conduct.

23 Further, after the commencement of the proceeding the plaintiff alleged that the defendant:

(a) failed to respond to or engage with the plaintiff in order to narrow issues or address concerns about the defendant's affidavits;

(b) made misleading statements as to the deceased's share portfolio;

(c) failed to comply with directions of the Court;

(d) filed burdensome and unnecessary attachments to her affidavits; and

(e) filed affidavits of both her personal financial position and the financial position of the estate the day before trial, and also after trial.

24 Secondly, it was reasonable for her to have rejected the defendant's March 2019 offer because:

(a) the payment of $200,000 on the defendant's death was uncertain, as the defendant had deposed she was suffering from a life threatening illness but had provided no evidence whatsoever as to her life expectancy, and no detail was provided as to how the payment would be secured in the event that the defendant returned to her native Canada during her lifetime;

(b) the offer was silent on the question of costs; and

(c) as at the date of the offer, the defendant's stated intention was to sell the Boronia property.

25 Thirdly, it was unreasonable for the defendant to not have accepted the plaintiff's April 2019 offer on the basis that the defendant had failed to provide a reason why a portable life interest in the Boronia property was unsuitable to her.

26 Fourthly, it was reasonable for the plaintiff to have rejected the defendant's February 2019 offer because:

(a) the offer was made on the morning of the trial;

(b) if accepted, the plaintiff's costs of trial preparation and the plaintiff's appearance in Melbourne would have been thrown away; and

(c) the plaintiff was given little time to consider the offer.

27 Fifthly, the plaintiff's claim for provision was entirely reasonable, she had no means to pay an adverse costs order and such an adverse costs order would be punitive and financially ruinous to the plaintiff.

28 The defendant submitted that there was no reason why the ordinary rule that costs follow the event should not apply. The repeal of ss 96(6) and (7) of the Administration and Probate Act 1958 on 1 January 2015 meant that the Court no longer should take any special approach when making a costs order in a family provision proceeding.

29 In support of her submission that costs should follow the event, the defendant pointed to:

(a) the modest size of the estate;

(b) the fact that the plaintiff had received a legacy from the deceased which was not 'meaninglessly small', but nevertheless sought further provision;

(c) the matters relied on by the Court in dismissing the plaintiff's claim were all matters the plaintiff was aware of prior to commencing the proceeding, but she failed to give proper weight to, including the strength of the defendant's claim as the deceased's partner; the modest size of the estate; and the fact that a Crisp order would not satisfy the plaintiff's asserted current financial needs;

(d) the plaintiff's April 2019 offer seeking $70,000 and a remainder interest in the Boronia property, subject to a portable life interest, was unrealistic; and

(e) the substantial costs and expenses of the estate, including that the costs of the proceeding have so far been funded by a loan from the defendant, and that, unless an order for costs is made against the plaintiff, the defendant will suffer the loss of the costs being borne by the estate as she is the residuary beneficiary.

30 The defendant submitted that she should be entitled to indemnity costs from 20 February 2020 onwards, by reason of the plaintiff's unreasonable rejection of the defendant's February 2020 offer. The defendant submitted that, although the offer was made at the commencement of trial, it should have been accepted in circumstances where it was a very generous compromise, its terms were clear and concise, and the evidence was concluded on that same day, at which point the plaintiff should have assessed her likelihood of success and accepted the defendant's offer.

31 The only issue in dispute between the parties at trial was whether the sum of $50,000 was sufficient to discharge the deceased's moral obligation to the plaintiff, in circumstances where there was a competing paramount claim on a small estate.

32 The estate comprised the Boronia property plus a small share portfolio. Although the plaintiff placed a higher value on the Boronia property than the defendant, the Court accepted the valuation provided by the defendant. Despite the plaintiff's position that the value of the Boronia property was higher than asserted by the defendant, the plaintiff's valuation still meant that the estate was modest in value.

33 The plaintiff had the advantage of legal advice both prior to issuing the proceeding and thereafter. For the period prior to the proceeding, her attempts to negotiate a settlement of her foreshadowed claim were rejected by the defendant. That is not surprising as the plaintiff's evidence had not been filed. Prior to commencing the proceeding, the plaintiff would have been aware of the strengths and weaknesses of her claim, the financial risk in making a claim and the paramount position of the defendant as the deceased's partner.

34 After the proceeding was issued, the defendant made the March 2019 offer. That offer gave a strong indication of the defendant's position in the litigation. The plaintiff rejected the March 2019 offer.

35 The plaintiff's April 2019 offer sought a slightly larger legacy and for the defendant's interest in the Boronia property to be converted into a portable life interest with the remainder interest for the defendant. This latter proposal was unrealistic in the circumstances. The defendant rejected the April 2019 offer.

36 The plaintiff submitted that this was not a proceeding where, properly advised, she should not have brought the claim. This submission related to the plaintiff's discontent with the defendant's failure to engage with her prior to the commencement of the proceeding. She says that the defendant forced her to proceed to trial so that she could demonstrate the alleged unhelpful conduct of the defendant. This submission is rejected. The defendant did not force the plaintiff to issue the proceeding and is not responsible for the proceeding continuing to trial. It is for the plaintiff to consider the strengths and weaknesses of her case and make the decision to proceed having regard to the principles relevant to a family provision claim in the circumstances of this proceeding. Likewise, the defendant's conduct of the proceeding after its commencement was not such that she should be deprived of her costs.

37 The plaintiff must be taken to have been aware that the estate was of a modest value and that the principal asset of the estate was the Boronia property. At trial, the plaintiff's claim was couched in the alternative. Her preferred and primary claim for further provision was the freehold of the Boronia property, subject to the defendant retaining a portable life interest in the form of a Crisp order. This relief could not have addressed the plaintiff's alleged present need and, in any event, was misplaced for the reasons set out in the judgment. The plaintiff's alternative claim was for a percentage of around 35 per cent of the net sale proceeds of the Boronia property. This quantum was first raised at trial and was not explained by the plaintiff in terms of her financial need. The plaintiff's alternative claim would have required the defendant to sell the Boronia property and would be detrimental to the defendant in that she would not have sufficient funds to purchase another home, contrary to the deceased's testamentary intentions.

38 The defendant's February 2020 offer was made on the morning of the trial. The plaintiff's assertion that she was given little time to consider the offer is rejected. That an offer was made on the morning of a trial is not a proper basis for rejecting it. By that stage, the plaintiff was in the best position to assess the offer and well aware of the risks of the proceeding continuing to trial.[13] Had the plaintiff sought further time to consider the offer, time would have been granted. By the conclusion of the trial, the plaintiff's advisers were in an even better position to assess the prospects of the plaintiff in the proceeding. Had the plaintiff accepted the offer, she would have been significantly better off financially compared to her present position.

39 Whether a party has unreasonably rejected a Calderbank offer is a matter the Court will consider in determining whether to depart from the prima facie position of ordering costs on the standard basis. The factors that are relevant in considering whether the rejection of a Calderbank offer was unreasonable are well known and set out in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2).[14] Although that is the basis upon which the defendant seeks indemnity costs in this proceeding, it is not the only basis upon which the Court may make such an order. The Court may exercise its discretion to award indemnity costs in any proceeding in which the overall justice of the case supports such a conclusion.[15]

40 The defendant is sued in her capacity as the executor and trustee of the estate. As such, prima facie she is entitled to indemnity from the estate for her costs. The defendant has incurred substantial costs and has funded those expenses by providing a loan to the estate. The defendant's position as residuary beneficiary means that an order that the defendant bear her own costs, or an order that costs be paid out of the estate, means that she will suffer a substantial financial loss notwithstanding that she was successful in the proceeding. To the extent that the defendant does not recover her costs from the plaintiff, the defendant would have to pay those costs out of her own assets.[16]

41 The defendant was successful in the proceeding. It would be unjust in the circumstances for the defendant to bear her own costs. The value of the estate is modest with the bulk of the value represented by the Boronia property, which is the defendant's home. The burden of the costs should not fall on the defendant, either as trustee of the estate or as the residuary beneficiary. In the circumstances, it is just and fair that the costs of the proceeding follow the event and that the plaintiff pay the defendant's costs assessed on an indemnity basis.

(a) the plaintiff pay the defendant's costs of and incidental to the proceeding on the indemnity basis, to be taxed in default of agreement; and

(b) there be no order as to the plaintiff's costs of the proceeding.

[1] Re Schlink; Keane v Corns [2020] VSC 180.

[2] Supreme Court Act 1986 (Vic) s 24(1).

1. [3] The Justice Legislation Amendment (Succession and Surrogacy) Act 2014 (Vic) repealed ss 97(6) and (7) of the Administration and Probate Act 1958 (Vic).

[4] Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 97 [67] (McHugh J).

[5] Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622, 624 (McHugh J); Seng Hpa v Walker [2017] VSC 320, [77] (McMillan J).

[6] Earnshaw v Loy (No 2) [1959] VicRp 44; [1959] VR 252, 253 (Sholl J) See also GE Dal Pont, Law of Costs (LexisNexis Butterworths, 4th ed, 2018) 158-9 [6.15].

[7] See, eg, IMO Moerth (No 2) [2011] VSC 275, [26], [29] (Gardiner AsJ); Seng Hpa v Walker (n 5) [87].

[8] Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.30.

[9] GE Dal Pont, Equity and Trusts in Australia (Lawbook Co, 7th ed, 2018) 682 [23.135] citing Turner v Hancock (1882) 20 Ch D 303, 305; Re Beddoe [1893] 1 Ch 547, 558; Nolan v Collie [2003] VSCA 39; (2003) 7 VR 287, 303**-**10 (Ormiston JA); Dimos v Skaftouros [2004] VSCA 141.

[10] National Trustees Executors & Agency Co of Australasia Ltd v Barnes [1941] HCA 3; (1941) 64 CLR 268, 279 (Williams J).

[11] [1975] 3 All ER 333.

[12] [1983] EWCA Civ 8; [1984] 1 All ER 597.

[13] See, eg, Re Dodson (No 2) [2020] VSC 266, [33].

[15] Jvancich v Kennedy (No 2) [2004] NSWCA 397, [11] (Giles JA).

[16] See, eg, Carey v Robson (No 2) [2009] NSWSC 1199, [4] (Palmer J).