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[2013] VSC 510
General information, not legal advice.
Supreme Court of Victoria
2013-09-24
DALY AsJ
Original judgment source is linked above.
TESTATORS FAMILY MAINTENANCE - Costs - Offer of compromise - Relevance of overarching obligations under the Civil Procedure Act 2010 (Vic) to family provision claims
1 On 6 September 2013 I delivered reasons for judgment in which I indicated that the Court would order that, subject to certain safeguards, the title in the assets of the estate of Domenic Trapani should pass to the plaintiff absolutely. During the course of the hearing on 6 September 2013, counsel for the plaintiff produced a copy of a document dated 27 February 2013, headed "Offer of Compromise" ("Offer").
2 The terms of the Offer are reproduced in full below:
This offer of compromise is open to be accepted for fourteen (14) days after service of this Notice.
This offer of compromise is served in accordance with Part 2 of Rule 26 of the Supreme Court (General Civil Procedure) Rules 2005.
3 Receipt of the Offer was acknowledged by the solicitor for the defendants.
4 The plaintiff submits that, given that the outcome of the trial was substantially more favourable to the plaintiff than the terms of the Offer, the defendants should pay the plaintiff's costs on an indemnity basis after the date of the Offer, or, alternatively, be denied their costs of the proceeding, or, further in the alternative, have their costs capped at $15,000.
(a) the provisions of Order 26 apply in family provision matters;
(b) the defendants' refusal to accept the Offer was unreasonable, given that the evidence demonstrates that, as from around February 2013, the defendants no longer wished to be executors of the estate, which would have in effect been the outcome of the Offer. The terms of Domenic's will would otherwise remain unchanged;
(c) the first defendant is a beneficiary and the second defendant is the mother of a class of beneficiaries and therefore both had a conflict of interest;
(d) the defendants have given an unsatisfactory explanation as to their management of the estate;
(e) given the modest size of the estate, an order for costs in favour of the defendants would unduly prejudice the plaintiff; and
(f) it is apparent that the defendants misunderstood both the case that was put against them and the terms of the Offer, treating the case as if it were an application to remove them as trustees.
6 Counsel for the defendants submitted that there was no basis for departing from the usual order that the defendant executors, who were simply defending the terms of the deceased's will, should have their costs paid from the estate on an indemnity basis. He relied upon authorities which support that view, save in circumstances where an executor conducted themselves improperly in the proceeding. Further, the defendants' rejection of the Offer did not mandate an adverse costs order being made against them, and it was not unreasonable for the defendants to reject the Offer and continue to uphold the deceased's wishes, as stated in his will. Furthermore, the terms of the offer were ambiguous, in that, at the time of the Offer (and at the time of trial) the estate comprised of the farm and some cash, and it is well known that the Senior Master does not accept noncash assets. Any suggestion that the defendants were in a position of conflict was rejected.
7 In response, counsel for the plaintiff submitted that the defendants cannot submit that the Offer was incapable of acceptance when they sought no clarification regarding whether the farm ought to be sold in order to create a fund which could be administered in its entirety by the Senior Master. Counsel referred me to the statements in Harkness v Harkness (No 2),[1] whereby Hallen AsJ stated as follows:
I commend to parties involved in proceedings in which a family provision order is sought, that every effort, particularly in a relatively small estate, as this one is, to conduct negotiations frankly and openly, to try to resolve the proceedings, and if there are issues or concerns about an offer that has been made, to raise any issues at the first convenient opportunity with the offeror's solicitors, so that any ambiguities, or other concerns, can be resolved. The Court should be able to see that the parties have considered what is being offered in a sensible, practical and commercial way.
8 Counsel for the plaintiff also submitted that the obligation to resolve any ambiguities is consistent with the defendants' obligations under the Civil Procedure Act 2010 (Vic) ("CPA") to take all reasonable steps to resolve any disputes.
9 In my view, the defendants acted unreasonably in first, if they did not fully comprehend the terms of the Offer, not seeking clarification regarding its terms, and secondly, rejecting the Offer. However, the rejection of the Offer does not, of itself, determine the issue of the estate's liability for the defendants' costs. Most of the authorities referred to me by counsel concerned the question of the costs of an unsuccessful plaintiff, or, the question of costs where a plaintiff has been successful in making a claim for further provision, but has fallen short of the result it would have achieved had the plaintiff accepted an offer. From these cases, it is clear that it is often difficult to establish whether a plaintiff's rejection of an offer is unreasonable, and, even if found to be unreasonable, the question of costs is still a matter for the discretion of the Court. For example, a plaintiff's unreasonable rejection of an offer may not result in an adverse costs order if enforcement of that order detracts from what the Court has found to be adequate provision.
10 Ultimately, the Court is required to make an order which is, in all of the circumstances of the case, just.[2] In some cases, particularly in cases where the size of the estate is modest, that may require a departure from the general practice that the costs of all parties are paid from the estate. Almost invariably, the costs of the deceased's personal representative are paid on an indemnity basis from the estate, which is understandable, given that an executor has an obligation, at least until advised or determined otherwise, to uphold the terms of the will.
11 But just as the Courts have expressed concern that universal application of the general practice that all parties will have their costs paid out of the estate may encourage weak and unmeritorious claims (see IMO Moerth (No 2)),[3] the usual practice that a defendant executor will recover their costs from the estate should not apply so universally so as to permit an executor to act in a recalcitrant manner in the defence of a meritorious claim to the detriment of the beneficiaries of the estate, safe in the belief that the costs will be paid out of the estate. True it is that the freedom of testamentary capacity is an important principle in our legal system. However, the legislature has seen fit to modify and constrain that freedom by making it possible for claimants for whom adequate provision has not been made to seek relief from the courts. An executor who irresponsibly and stubbornly defends the terms of a will, in the face of a meritorious claim, and at the expense of the beneficiary of the estate, should not be immune from any adverse costs consequences any more than a plaintiff who brings an unmeritorious claim. Indeed, no such distinction was made by the Court of Appeal in Forsyth v Sinclair (No 2),[4] where it was stated (emphasis added):
We consider that it is a matter for concern that in many family provision cases, the amount available for distribution amongst 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 the costs get out of proportion.
12 In that case, it was the manner in which the executor conducted the appeal which led to a costs order in his favour which fell short of providing a full indemnity.
13 The concerns expressed by courts regarding the erosion of small estates by legal costs are now reinforced by the provisions of the CPA, in particular, the overarching obligations of parties and practitioners under s 22 of the CPA to use reasonable endeavours to resolve a dispute. Of course, there is a corresponding obligation upon the Court, in the exercise of its powers, to give effect to the overarching purpose of the CPA, which is to facilitate the just, efficient, timely and costeffective resolution of the real issues in dispute. Further, s 28 of the CPA provides that the Court may take into account, in exercising its powers, or any discretion with respect to costs, any contravention by any party of the overarching obligations.
14 Of course, these provisions do not, of themselves, detract from the fact that the peculiar features of the family provision jurisdiction usually result in decisions on costs which depart from the usual practice in litigation that costs follow the event. However, there can be no suggestion that litigants in family provision proceedings, including executors, are somehow relieved of their duties under the CPA, or that any breaches of those obligations should carry less weight. Unfortunately, this proceeding is an illustration of such a case, where animosity and strong emotions (and in particular, the hostile relationship between the second defendant and the plaintiff's litigation guardian) may have clouded the better judgment of the parties. That of itself does not relieve or excuse the parties (and their legal advisers) from their obligations or the consequences of their conduct under the CPA.
15 That said, it would be rare that, of itself, merely defending a claim for further provision would preclude a defendant executor from recovering their costs from the estate. There would generally need to be some unreasonable or improper conduct connected with the conduct of the proceeding itself which would warrant an adverse costs order of that kind. In the current case, I consider that the defendants' unreasonable rejection of the Offer, which had the result of substantially diminishing the pool of assets available to provide for the support and maintenance of the plaintiff (regardless of the outcome of the plaintiff's claim), in circumstances where the defendants had sent, at best, mixed messages regarding their willingness to continue as trustees, warrants a departure from the general practice.
16 However, I am conscious that the defendants did not assume their responsibilities as trustees voluntarily, but rather were appointed under deceased's will, and no doubt felt an obligation to assume those duties. Further, one can understand their concern to avoid a situation where full control of the assets of the estate passed to the plaintiff, in the absence of any safeguards. And, while there is no evidence regarding the financial position of the defendants, one can assume that an adverse costs order will be a material imposition upon them. These matters need to be balanced against my findings that the defendants unreasonably rejected the Offer, thus diminishing the assets available to support a plaintiff who is in great need, in circumstances where, if they did have doubts about the terms and efficacy of the Offer, they ought to have attempted to identify and resolve any ambiguity.
17 In my view, the appropriate reconciliation of these competing concerns is to order that the plaintiff's costs of the proceeding be paid from the estate, and that the defendants' costs be paid from the estate, but that the defendants' costs be limited to those costs incurred up to the date of the Offer.
[1] [2012] NSWSC 35, at [14].
[2] Section 97(6) of the Administration and Probate Act 1958 (Vic).
[3] [2011] VSC 275 at [28].
[4] [2010] VSCA 195 at [27].
Trapani
Ciocca