Plaintiff v Defendants

2 The parties were unable to resolve the issue of the costs of the proceeding.

3 The plaintiff seeks orders that the costs of the proceeding be paid as a debt of the estate out of the residue 'as a whole', with his costs assessed on the standard basis, and the defendants' costs assessed on the trustee basis.

4 The defendants seek orders that the costs of both parties be paid out of the plaintiff's share of the residue of the estate, with the plaintiff's costs assessed on the standard basis and the defendants' costs assessed on the trustee basis. In the alternative, the defendants seek orders that all costs after the date of a Calderbank offer made on 4 October 2019 be paid out of the plaintiff's share of the residue of the estate.

5 Costs are a matter for 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]

6 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.[4] That is, costs follow the event. The relevant 'event' is success in the action 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]

7 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.[7] A special order for costs will only 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.

8 Costs ordered out of a trust fund or deceased estate in favour of a trustee or executor are commonly quantified on an indemnity basis, sometimes termed the 'trustee basis'. This is the position at common law, and is also reflected in the Trustee Act 1958,[8] and the Supreme Court (General Civil Procedure) Rules 2015.[9] The basis for the principle is that persons engaged in litigation in a representative capacity should not, if a costs order is made in their favour, be out of pocket because of the litigation.

9 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.[10] Expenses and liabilities that are improperly incurred, such as acting beyond power, in bad faith or in the exercise of power 'with an absence of care and diligence that a person of ordinary prudence should exercise' are not caught by the right of indemnity and should be borne by the trustee personally.[11]

10 Where a trustee fails in litigation, his or her costs may be allowed out of the estate. Where a trustee succeeds, his or her costs would ordinarily be allowed out of the estate. However, the basis of quantification of costs remains in the discretion of the Court. The Court may nonetheless deny or reduce the quantification for indemnity by reference to, for example, the size of the estate, the parties' conduct in the litigation, what offers of settlement were made, or the effect a costs order may have on a beneficiary.

11 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'.[12]

12 Pursuant to the deceased's will, the plaintiff was left the following assets or interests in the estate:

(a) farm property and livestock at 131 Banks Road, Mannerim was devised to the executors upon trust for sale, with the power to postpone sale and permit the plaintiff to have the use and enjoyment of the property and livestock for so long as the executors in their absolute discretion see fit. The net proceeds of any sale of 131 Banks Road were to be held on trust for the first defendant as part of a will trust for his benefit;

(b) the property known as 52 De Burgh Road, Drysdale ('the De Burgh Road property'), together with its contents, was devised to the executors upon trust for sale, with the power to postpone the sale to allow the plaintiff to personally occupy the premises as his principal place of residence. The will stipulated that the plaintiff was to personally pay all rates, taxes and outgoing expenses, as well as maintenance and insurance costs. Upon the plaintiff failing to occupy the De Burgh Road property personally, pay outgoing expenses, keep the property in good order or keep the property insured, the property was to be sold. The net proceeds of sale of the De Burgh Road property were to pass to the deceased's grandchildren in equal shares upon their attaining the age of 21 years;

(c) the deceased's share portfolio be held upon trust for sale, with one sixth of the sale proceeds to be distributed to the plaintiff's will trust for his benefit;

(d) the balance of the residuary estate to be divided into three equal shares, with one third to be held upon trust for the benefit of the plaintiff and his children, to pay the income as the executors in their discretion think fit and, upon the plaintiff's death, to such grandchildren as are then living in equal shares. The executors retained a further discretion, notwithstanding the trust, to pay or apply sums out of the capital of the trust for the benefit of the plaintiff during his lifetime.

13 At the first directions hearing, the plaintiff quantified the further provision claimed at 50 per cent of the estate of the deceased. This position was confirmed by email to the Court dated 14 June 2019.

14 By email to the plaintiff's solicitors dated 19 June 2019, the Court sought clarification of the plaintiff's claim against the estate. On 21 August 2019, the plaintiff's solicitors informed the Court that the plaintiff sought further provision by way of an absolute interest in the De Burgh Road property, the land at 131 Banks Road, part of the land at 100 Banks Road, one sixth of the deceased's shares in listed companies and one third of the residue of the estate. This position was confirmed in the plaintiff's written submissions dated 6 November 2019.

15 By letter dated 4 October 2019, the defendants made an offer to settle the plaintiff's proceeding (the 'October 2019 offer') on the basis that the plaintiff receive:

(a) an absolute interest in the De Burgh Road property;

(b) an absolute interest in one sixth of the deceased's shares in publically listed companies;

(c) an absolute interest in one third of the net residue of the estate (estimated at the time at $290,000), excluding the defendants' costs of the proceeding;

(d) a cash payment of $200,000 to be paid from the defendants' entitlements to the residue of the estate; and

(e) payment of the plaintiff's costs taxed on the standard basis.

16 The October 2019 offer was conditional upon the consent of the seven remainder beneficiaries of the De Burgh Road property. The offer provided for cash payments totalling $130,200 to be made to each of the remainder beneficiaries out of the defendants' shares of the estate. The cash payments were said by the defendants to reflect the value of the interests of the remainder beneficiaries in the De Burgh Road property.

17 The October 2019 offer remained open until 18 October 2019.

18 By return letter dated 18 October 2019, the plaintiff rejected the defendants' offer and set out the following counter-offer:

(a) the plaintiff receive an absolute interest in the De Burgh Road property;

(b) the plaintiff receive further provision from the estate of $1,410,000 inclusive of his costs and disbursements; and

(c) the estate bear its own costs.

19 The counter-offer remained open until 1 November 2019.

20 The trial took place on 13 and 14 November 2019. The plaintiff sought the following provision absolutely:

(a) the De Burgh Road property;

(b) the property at 131 Banks Road;

(c) part of the land at 100 Banks Road as contained in Certificate of Title Volume 8042 Folio 487, however, this claim was abandoned on the first day of the trial;

(d) one sixth of the deceased's share portfolio; and

(e) one third of the residuary estate.

21 In their written opening submissions, the defendants proposed the following resolution of the proceeding:

(a) conversion of the plaintiff's interest in the De Burgh Road property to an absolute or extended life interest;

(b) receipt of the plaintiff's one sixth entitlement to the deceased's shares in public companies absolutely, rather than in trust;

(c) receipt of the plaintiff's one third of the residue of the estate absolutely, rather than in trust; and

(d) receipt of the first defendant's one third share in the residue of the estate, free of any trust, in lieu of any entitlement to 131 Banks Road.

22 At trial, the plaintiff failed to receive an absolute interest in any part of the estate. As stated, his claim for 100 Banks Road was abandoned on the first day of the trial. He lost his limited right to use 131 Banks Road during his lifetime, at the discretion of the trustees. He received an extended life interest in the De Burgh Road property, instead of a right to reside, but was required to repay unpaid rent and outgoings in respect of the property. He received two thirds of the residuary estate, instead of one third, to be paid into his will trust. This amount was reduced by $62,103.47 being the agreed amount for the unpaid rent and outgoings in respect of the De Burgh Road property.

23 The plaintiff submits that his rejection of the October 2019 offer was reasonable in circumstances where:

(a) the value of the offer was less than the provision ultimately awarded by the Court;

(b) the offer did not provide an estimate of the defendants' costs from which the value of the exclusion of such costs from the value of the net residue of the estate could be calculated;

(c) the offer did not address the land at 131 Banks Road at all; and

(d) the total value of the estate was in excess of $9 million.

24 The plaintiff also submits that his rejection of the defendants' proposal at trial was reasonable where the provision granted by the Court was largely consistent with its terms and it was not communicated to him until the day before commencement of the trial.

25 The defendants submit that the costs of the proceeding ought to be paid out of the plaintiff's share of the residue of the estate. The practical effect of payment on that basis is that the entire costs burden will fall upon the plaintiff rather than between the plaintiff and the second defendant. They say that this is the appropriate order in circumstances where the plaintiff cannot be said to have succeeded in his application, and his rejection of the October 2019 offer was unreasonable.

26 With respect to their own costs, the defendants submit that they acted properly and reasonably in all of the circumstances of the proceeding. They say that the October 2019 offer comprised a genuine and generous offer to settle the proceeding without the need for a trial in accordance with their obligations under the Civil Procedure Act 2010. Further, the defendants say that they have acted in accordance with their fiduciary obligations as executors of the estate, protecting the interests of the other beneficiaries and not allowing their personal interests to conflict with their duties.

27 The defendants accepted that the plaintiff was an eligible person and that the deceased owed a moral duty to him. The only issue in dispute between the parties at trial was the amount of any further provision to the plaintiff. Although he has succeeded in receiving an extended life interest in the De Burgh Road property and two thirds of the residuary estate on trust, the plaintiff lost his limited interest in 131 Banks Road and was required to reimburse the estate $62,103.47. As stated, the plaintiff failed to receive an absolute interest in any part of the estate.

28 In his costs submissions, the plaintiff characterised the further provision awarded to him by reference to the value of the relevant underlying assets in the estate, not the nature of his interest. On this basis, he says that the value of the October 2019 offer was less than the provision ordered at trial. Such an approach is erroneous. The deceased's will bequeathed limited interests to the plaintiff that were under the control and discretion of the trustees of the estate. Likewise, the further provision awarded to the plaintiff remains subject to the control and discretion of the trustees. In contrast, the October 2019 offer provided for absolute interests in the assets referred to in the offer, plus a cash amount and costs. Acceptance of that offer would have left the plaintiff in a better position than that in which he finds himself following the Court's order.

29 The plaintiff's limited interest to have the use and enjoyment of 131 Banks Road and livestock was not mentioned in the October 2019 offer at all, and therefore remained as set out in the deceased's will. Even if the plaintiff was uncertain as to 131 Banks Road, he could easily have clarified the position with the defendants before the expiry of the offer. The Court does not consider that the omission of that land was a valid reason to reject the October 2019 offer.

30 Likewise, the Court places no weight on the plaintiff's suggestion that he could not quantify the value of the exclusion of the defendants' costs. By email dated 17 June 2019, the defendants' solicitors informed the Court and the plaintiff's solicitors that the defendants' costs including trial were estimated at $90,000. By the time the October 2019 offer was made, the plaintiff knew of the defendants' estimate of their costs and could determine the value of their exclusion from the calculation of the residuary estate.

31 The fact that the total value of the estate was in excess of $9 million is not itself a valid reason to reject the October 2019 offer. Although the size of the estate is one matter to which the Court may have regard in determining what is proper provision, it is not determinative. The plaintiff's solicitors would be well aware that evidence of the plaintiff's financial circumstances was required in order to substantiate his claim. It was difficult on the evidence to draw any clear conclusion concerning the plaintiff's need. As determined by the Court, the plaintiff provided no evidence to substantiate his expenses or any other need on his part.

32 On balance, it was unreasonable for the plaintiff to reject the October 2019 offer.

33 In respect of the defendants' proposal at trial, the plaintiff relies on the fact that the offer was not communicated to him until the day before the trial and that the provision granted by the Court was largely consistent with the terms of the offer. As with the October 2019 offer, it was unreasonable for the plaintiff to reject the offer on the basis that the offer was largely consistent with the provision granted by the Court. A comparison between the offer and the provision granted by the Court shows that the October 2019 offer is more generous. At trial the plaintiff did not receive an absolute interest in any part of the estate. Had he accepted the defendants' proposal, the plaintiff would have received absolute interests in both the share portfolio and his share of the residue of the estate. The fact that the offer was communicated the day before the trial is not a basis for rejecting it. By that stage, the plaintiff was in the best position to assess the proposal and should have been well aware of the risks of the litigation continuing to trial.

34 On balance, it was unreasonable for the plaintiff to reject the proposal before trial.

35 Both the October 2019 offer and the proposal before the trial were genuine and generous offers to settle the proceeding without the need for a trial, in accordance with the defendants' obligations under the Civil Procedure Act 2010. The Court is also satisfied that the defendants acted in accordance with their fiduciary obligations as executors of the estate, protecting the interests of the other beneficiaries of the estate and not allowing their personal interests to conflict with their duties as executors. Both offers made by the defendants involved compromise of their own interests in the estate, not those of the remaining beneficiaries.

36 The orders sought by the plaintiff for the combined costs of the proceeding to be paid from the residue of the estate would mean that the burden of the costs would fall two thirds upon the plaintiff's will trust and one third upon the second defendant's will trust.

37 On the basis of the result of the plaintiff's claim, it cannot be concluded that the plaintiff was the successful party in the proceeding. In addition, having regard to the fact that it was unreasonable for the plaintiff to reject the October offer and the proposal before the trial, the plaintiff should bear the costs of the proceeding from his share of the residue of the estate. In the circumstances, it would be unjust for any part of the costs of the proceeding to be borne by the second defendant's share of the residue of the estate.

38 The defendants were acting in their capacities as the executors and trustees of the estate. At all times they acted properly and reasonably in all of the circumstances of the proceeding. The defendants' costs of and incidental to the proceeding should be assessed on the trustee basis and also paid from the plaintiff's share of the residue of the estate.

Further issues in respect of the plaintiff's costs

39 For the purposes of the proceeding, the plaintiff filed two affidavits: an affidavit sworn 19 October 2018 by the plaintiff and an affidavit sworn 19 February 2019 by Wendy Dodson. The affidavit of Wendy Dodson was not relied on by the plaintiff at trial.

40 The plaintiff's affidavit contained a substantial amount of inadmissible and irrelevant material. These issues were first raised by the Court in an email to the parties dated 30 May 2019, as follows:

The plaintiff's affidavit has a substantial amount of irrelevant and inadmissible detail and the affidavit could not be tendered in its current form. In the circumstances, the costs of and incidental to the affidavit will be an issue for the Court.

41 By return email dated 14 June 2019, the plaintiff's solicitors informed the Court that its observations were noted.

42 On 19 June 2019, the Court reminded the plaintiff's solicitors that it would be necessary to review the affidavits sought to be relied upon by the plaintiff. On 21 August 2019, the plaintiff's solicitors informed the Court that counsel had been instructed to review the plaintiff's affidavits. No further correspondence was received from the plaintiff's solicitors in regard to the affidavits, which were not amended before trial.

43 In its reasons for judgment, the Court observed:

Steven's affidavit comprises some twenty pages, yet contains little to no evidence that establishes any present need on his part. Fifteen pages of the affidavit set out the history of Steven's relationship with the deceased, which is then followed by several bare assertions regarding Steven's current position in life.

Steven's assertions are not borne out by the five documents that are exhibited to his affidavit: a copy of the will, an x-ray report detailing his spinal injuries, a title search for De Burgh Road, a record of land transferred to Anne, and a market appraisal of that land. Of the exhibits to his affidavit, the only document that related at all to his current circumstances was the x-ray report, from which Steven distanced himself in his viva voce evidence. Steven asserted that his expenses are approximately equal to the income received from his disability support pension. However, he provided no list of weekly or monthly expenses, nor any other documentary evidence to support his assertions, as would normally be expected of a party seeking further provision from an estate.[13]

44 By email dated 11 March 2020, the Court required the parties' solicitors to provide some detail of their costs. On 23 March 2020, the plaintiff's solicitors provided a summary of the plaintiff's costs and disbursements, as well as their costs disclosure and costs agreement. The plaintiff's total costs were $94,467.17 comprising professional fees at $46,778.60 and counsel's fees at $39,600 and other disbursements (including mediator fees, transcript, filing and hearing fees and 'other disbursements') at $8,088.57. The plaintiff's overall costs are unusually high having regard to the fact that the only live issue in the proceeding was the amount of any further provision to the plaintiff.

45 Despite the communications from the Court in respect of the plaintiff's affidavit, the solicitors did not attend to the concerns or take any steps to amend the affidavit. The Court does not have an itemised account of the plaintiff's costs but was provided with counsel's fee slips. Counsel was retained at an early stage to confer with the plaintiff, provide written advice and settle the plaintiff's affidavit. This work was undertaken before the first directions hearing. Counsel's fee slips do not record any further work reviewing the affidavit on or around 21 August 2019.

46 The failure of the plaintiff's practitioners to draw and settle the affidavits properly and their failure to address the Court's concerns has caused increased costs and has wasted the time of the Court.

47 The defendants submitted that the plaintiff should only receive half of his costs in relation to the preparation of his own affidavit, and no costs in relation to the affidavit of Wendy Dodson. In terms of assessing the costs arising from the affidavits, it ought be born in mind that the two affidavits will have caused considerable costs to be incurred by both the plaintiff's solicitors and the defendants' solicitors in responding to them. These costs will be assessed by the Court.

48 The plaintiff's solicitors are to forward the details of the wasted costs in respect of the two affidavits and any written submissions in respect of these costs to the Court.

49 In their written submissions, the defendants also raised the issue of the costs of the application for costs. They referred to a letter to the plaintiff's solicitors dated 25 February 2020 which proposed that costs be agreed on the alternative basis now sought by them - that the plaintiff bear the costs burden from 18 October 2019. The proposal remained open until 28 February 2020. No response to the letter was received from the plaintiff's solicitors. The defendants now submit that both parties' costs of the costs application should be paid out of the plaintiff's share of the residue of the estate.

50 The Court has determined that the plaintiff ought to bear the burden of the entire costs of the proceeding, not just those incurred from 18 October 2019. The position of the defendants is therefore better than that proposed in the letter dated 25 February 2020. The letter clearly set out the defendants' position with regard to the October 2019 offer and the plaintiff was well placed to assess the merits of the defendants' proposal. The three-day time frame in which to respond was appropriate in circumstances where the proposal only dealt with the discrete issue of the costs of the proceeding.

51 On balance, the Court considers that it was unreasonable for the plaintiff to dismiss the defendants' proposal as to the costs of the proceeding. The plaintiff therefore ought to bear the whole of the burden of costs associated with the costs application.

(a) The plaintiff's costs of and incidental to the proceeding be paid on a standard basis out of the balance of the plaintiff's share of the residuary estate pursuant to clause 8(b)(i)(1)(b) of the will, as varied by the orders of the Court dated 14 February 2020.

(b) The defendants' costs of and incidental to the proceeding, including the costs application, be paid on the trustee basis out of the balance of the plaintiff's share of the residuary estate pursuant to clause 8(b)(i)(1)(b) of the will, as varied by the orders of the Court dated 14 February 2020.

(c) The plaintiff's solicitors forward details of the wasted costs in respect of the affidavit of the plaintiff sworn 19 October 2018 and the affidavit of Wendy Dodson sworn 19 February 2019 to chambers by 5.00pm, Friday 29 May 2020.

[1] Re Dodson; Dodson v Dodson [2019] VSC 833.

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

1. [3] 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] Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.28.

[8] Trustee Act 1958 (Vic) s 36(2).

[9] Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.26.

[10] 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.

[11] Dal Pont, Equity and Trusts in Australia (n 10) 682-3 [23.135] citing Re O'Donogue [1998] 1 NZLR 116, 121; Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628; (2001) 188 ALR 566, 606; Nolan v Collie (n 10).

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