Plaintiff v First Defendant

2 The proceeding requested direction in respect of eight questions. My judgment dealt only with the first two questions concerning the gift of land. The remaining six questions have been answered by Associate Justice Irving and orders have been made, including as to costs in respect of those parts of the proceeding. I am concerned only with the costs of the hearing and determination of the questions before me.

3 The plaintiff seeks an order that his costs and expenses of and incidental to the first two questions of construction of the will be paid from the assets of the estate on an indemnity basis. He makes no submission as to the appropriate costs orders in relation to the defendants.

4 The two defendants seek competing proposed costs orders in respect of their costs and those of the plaintiff. The first defendant seeks her costs from the second defendant and submits that neither her costs nor those of the second defendant, nor the plaintiff, should be paid out of the estate. She submits that the application was in practical effect a contested inter-partes application between the first and second defendants, and therefore as between all parties, costs should follow the event. The second defendant submits that the costs of both defendants should be paid out of the estate. This is because the will as drafted, left the meaning of the clauses gifting land to the second defendant uncertain and thereby open to competing constructions. He submitted it was reasonable each of the defendants be represented for those competing constructions to be articulated. The second defendant characterised the litigation expenses as 'testamentary expenses' which the will directed are to be paid from the estate. He contends that the way in which the testator made her testamentary intentions known is what has led to the need for judicial advice, in which case costs are ordinarily paid out of the estate.

5 The will in question made specific gift of five parcels of land. Of those five gifts, two failed because the testatrix owned the land jointly with her husband who acquired it by right of survivorship on her death. One of these failed gifts was to Stephanie (by clause 2.4 of the will) and the other was to Andrew (by clause 2.1 of the will). Although there was some ambiguity in the wording of clause 2.1 such that the initial request sought direction in relation to the gift at clause 2.1, the parties were agreed that this gift failed. The dispute was solely whether the gift to Andrew by clause 2.3, which was of land described as Lot 231, had failed.

6 The question arose because the testatrix did not own Lot 231. It was owned by a company, Hall's Poultry Farm Pty Ltd (HPF). HPF had two shareholders, the deceased and her husband. HPF owned fixed assets including land additional to Lot 231 and buildings, as well as plant and equipment, current and intangible assets and it had liabilities. The will did not mention HPF. The will did mention businesses known by various names including Halls Poultry Farm, which were (at least in part) carried out on the land subject to the failed gift in clause 2.1. The business of Halls Poultry Farm was not carried out on the land owned by HPF.

7 The circumstances in which the executor sought judicial advice on the question is relevant. On commencement of the proceeding seeking judicial advice, the affidavit of the plaintiff under the heading 'Construction of the Will', outlined the two parcels of land that were relevant. He identified that Lot 230 passed to the husband on death pursuant to the right of survivorship and that the registered proprietor of Lot 231 was HPF at the time of death. The affidavit in support was sworn on 18 December 2020 and the originating motion issued a few days later.

8 In March 2021, each of the two surviving children of the deceased applied to be joined as a party. The affidavit in support joining the first defendant to the proceeding was sworn by her solicitor and notes 'Ms Haydon wishes to contend before the Court that the gift in clause 2.1 has indeed failed and that Lot 231 forms part of the residuary estate of the deceased'. The affidavit also notes that Ms Haydon has a substantial interest in the outcome of the proceeding as one of the three residuary beneficiaries. It also observed that the purported gift to her by clause 2.4 of the will failed.

9 Equally, the second defendant swore an affidavit in support of his application for joinder in which he affirmed:

A dispute has arisen between my sister Stephanie Lyn Haydon and I regarding factual and legal matters pertaining to the will including in particular the proper construction of clause 2.1 of the will.

Despite the affidavits referring to clause 2.1, ultimately the dispute centrally focused on the validity of the gift of Lot 231 as set out in clause 2.3.

10 The plaintiff expressed no view on whether or not the gift had failed. In written submissions he said:

The plaintiff takes a neutral position on the construction issue as the opposing construction arguments are being put by the first and second defendants respectively.[2]

11 The first defendant argued that that as the deceased did not own the land, but was merely a 50% shareholder in the company that owned the land, the gift failed. The second defendant argued that the deceased intended to gift her interest in the land, which could only be her shareholding in the company that owned the land. In order to give effect to that intent, the second defendant relied on a construction of the precatory words of Clause 2 that empower the Trustee executor to act. The relevant words in the Will empowered the Trustee:

to so arrange my affairs so that the following gifts to my children are effected (whether by direct gift or control of shares or otherwise).

12 Ultimately, I came to the view that the gift of land comprising Lot 231 to Andrew failed. As a consequence, the company share in HPF held by the deceased forms part of the residuary estate.

13 Section 24(1) of the Supreme Court Act 1986 makes clear that costs are in the absolute discretion of the Court. That discretion must be exercised judicially. In the context of litigation concerning deceased estates, the costs are generally paid out of the estate if the litigation has been caused, or contributed to, by the way in which the testator made her intentions known or by the conduct of the residuary beneficiaries.

14 Generally speaking, there are three classes of litigation regarding the distribution of deceased estates. Those classes were initially identified in Re Buckton.[3] They are:

(i) applications made by trustees of a will who ask the Court to construe the will for their guidance in order to ascertain the interests of the beneficiaries;

(ii) applications made by some beneficiaries in which the trustees are respondents because that course has deemed more convenient, but is otherwise of a character like the previous category; and

(iii) an application made by a beneficiary whose claim is adverse to other beneficiaries which proceeding is properly characterised as adversary litigation.

15 In discussing these three classes, the Ward JA of the New South Wales Court of Appeal in Warton v Yeo,[4] said:

If litigation seeking to construe a will falls within the first or second class of case, then the court is in substance carrying out the same task (with respect to costs) as it would have carried out had it been administering the estate itself. On the other hand, if such litigation falls into the third class of case, the court is concerned only with who, out of the parties before it, should pay the costs of any other of the parties before it (that is, it applies the usual rule as to costs), and does not need to be concerned about indemnification from the estate.[5]

16 The first defendant says that this aspect of the originating motion is properly characterised by the third class. The second defendant says it is properly characterised by the first class.

17 Poor drafting by a testatrix or her advisors can lead to a need to clarify intent.

Cussen J said where 'the testator and his draftsmen have drawn up a document of such a character that no-one could, I think, be quite sure of its meaning',[6] then the cost of ascertaining the correct construction is part of the administration of the estate and should be borne by the estate.

18 Those observations were made where the Court was dealing with a will disposing of property to six daughters and if a daughter died, to her children, until distribution upon certain future events occurring. Prior to distribution of the estate a daughter died without having any children, a circumstance not envisaged in the will. The court was asked whether that daughter's interest would go to her personal representative and form part of her estate or was payable in equal shares to the surviving beneficiaries. In Macartney, the intent of the testator on a factual scenario not contemplated by the words was inferred by the majority from the construction of the will as a whole. A'Beckett J in dissent, despite accepting that the testator's intent was probably that the surviving sisters would receive the income of the deceased sister in the circumstances, was not prepared to infer that intent as he could not see any words in the will that demonstrated this. He noted the document was one where it was 'useless to look for any well considered scheme of disposition'.[7]

19 The fact that some question of construction of a will arises is not conclusive of which way a proceeding is characterised. In Buckton, Kekewich J observed of the first class of cases:

A question of construction or of administration may be too clear for argument, or it may be the duty of the trustees to inform a claimant that they must administer their trust on the footing that his claim is unfounded, and leave him to take whatever course he thinks fit. But, although I have had to caution timid trustees against making applications which might with propriety be avoided, I act on the principle that trustees are entitled to the fullest possible protection which the Court can give them, and that I must give them credit for not applying to the Court except under advice which...must not readily be treated as unwise.[8]

... The application is necessary for the administration of the trust, and the costs of all parties are necessarily incurred for the benefit of the estate regarded as a whole.[9]

It is often difficult to discriminate between cases of the second and third classes, but when once convinced that I am determining rights between adverse litigants I apply the rule which ought, I think, to be rigidly enforced in adverse litigation, and order the unsuccessful party to pay the costs. Whether he ought to be ordered to pay the costs of the trustees, who are, of course, respondents, or not, is sometimes open to question, but with this possible exception the unsuccessful party bears the costs of all whom he has brought before the Court. [10]

An amicable procedure for determining speedily and inexpensively a question the solution of which must sooner or later be found for the benefit of all concerned, including the trustees.[11]

21 Therefore, it seems to me that one consideration to be considered in classifying the substance rather than the form of the proceeding is whether the application (and therefore the costs of the parties) are incurred 'for the benefit of the estate regarded as a whole'. Thus in Macartney, the question was one that gave clarity by identifying those who are beneficiaries.

22 In Murdocca v Murdocca (No 2),[12] Campbell J traced a number of cases where it was concluded that applications for clarification of the terms of a will were nevertheless in substance adversarial litigation. Thus, in Re Halston[13] an application by a person to establish he was an intended beneficiary where all bar one respondent conceded the right, the costs of the applicant were to be paid by the respondent who unsuccessfully contested his right. In Re Cunningham; Sproule v Quested,[14] the defendants had asserted that the plaintiff was adopted and not a lawful child of the deceased and therefore not entitled under the will. The Supreme Court of New South Wales noted that the parties 'have always been in the position of hostile litigants'. In O'Brien v Ritchie, a claim by a son of the deceased, which was accepted by all other beneficiaries but contradicted by the executor, was accepted as being adversarial litigation notwithstanding the case was 'occasioned by difficulties of construction; difficulties sufficient no doubt to have justified an application by the trustees had they thought it advisable'.[15]

23 The question of whether the costs of the defendants in the litigation are testamentary expenses and therefore payable from the residuary of the estate under the terms of the will is also raised. Testamentary expenses are those expenses 'incidental to the proper performance of the duty of the executor'[16] and include ascertaining and paying the debts and liabilities of the estate and the proper distribution of the estate. They can include the costs of an application for the assistance of a Court in deciding matters of this nature, including the costs of other parties to an application for interpretation of a will. In Murdocca, Campbell J observed that the scope of the duties of an executor has a bearing on what falls within the term 'testamentary expense'.[17] He ultimately concluded that the discretion given to the Court as to costs[18] gives a very wide discretion that 'enables the Court to decide who should bear the costs of litigation before it, quite independently of whether those costs do, or do not, amount to testamentary expenses'.[19]

24 Therefore, in my view, whether or not the costs incurred by a party are testamentary expenses does not determine the question of what are the appropriate costs orders in the exercise of my discretion.

25 In my view, although the proceeding could conceivably be characterised as the trustee seeking guidance in the administration of the estate, this would be a characterisation reflecting form rather than substance. In my opinion, the substance of this case was adversarial as between the two defendants for the following reasons. First, is clear from the neutral stance taken by the executor, the litigation was one commenced by the executor to resolve the competing claims of the beneficiaries whose claims were adverse to each other. The hearing was conducted as adversarial litigation in which the executor remained a silent bystander. The executor's neutral position was alert to the prospect that an asset not owned by a testator could nevertheless be given to a beneficiary in circumstances where the executor was empowered by the will to take control of that property and dispose of it in accordance with the testamentary disposition.[20] Any other step would have caused the executor to enter the ring as a partisan player for one construction or the other.

26 Second, the application by each defendant to be joined demonstrated they sought to propound their individual interest as beneficiary and a construction that favoured that individual interest. It was as described by the second defendant himself, a dispute between two siblings. The second defendant's argument was one that benefitted him by way of specific gift at the expense of the residuary beneficiaries, of which he himself was one. In those circumstances I do not accept that the judicial advice was sought for the benefit of all concerned, including the trustees. Rather, it was necessary to resolve a stand-off between individual beneficiaries.

27 Third, while there is no doubt that the validity of the gift in question raised a question of construction of the will, that question turned on whether the deceased could gift an asset that she did not own. It was not so much that the words of clause 2.3 were unclear or ambiguous, or failed to address an event that had come to pass, such that intent needed to be inferred. Rather the second defendant sought to uphold the validity of the gift. He did so by inviting the Court to infer, firstly that the deceased intended to gift a different asset than that as described in the will, and secondly that the executor could give effect to that intended gift by a construction of the executor's powers that enabled it to dispose of the share in HPF in order to give effect to clause 2.3.

28 I do not accept the first defendant's submission that the case is analogous to an unsuccessful plaintiff seeking further provision from a will. Such an application is quite different conceptually and gives rise to different factual and legal considerations. Further, the cases relied on to draw such an analogy were decided in the context of specific statutory provisions regarding costs[21] or in circumstances where in part an executor acted unreasonably in appealing factual findings of the trial judge.[22] Such matters are not relevant here.

29 Therefore, I do not accept the first defendant's submission that the executor's costs ought also be paid by the second defendant. It does not follow because as between adversarial parties costs orders follow the event, that the costs of the executor should also be awarded on that basis. As Kekewich J discussed (set out at [19] above), the costs of an executor may be an exception to those parties who might be covered by an adverse costs order. The neutral position taken by the executor here was reasonable. The executor took advice in relation to coming to Court.[23] It is not appropriate in my view to treat him as a partisan participant in the adversarial dispute.

30 Nor do I accept that an order that the plaintiff's costs be paid from the estate would work an unfairness on the first defendant as a residuary beneficiary. The fact that the executor sought the advice was to resolve the opposing views of the two beneficiaries. He did not play a partisan role and the commencement of the proceeding enabled the two 'real' contradictors to benefit from the speedy and efficient procedure to determine their rights.

31 It is not appropriate in my view that the plaintiff's costs be met by the unsuccessful party and, in the circumstances of this case, he is entitled to his costs from the estate in the usual way.[24]

(a) The second defendant pay the costs of the first defendant, on the standard basis, to be taxed in default of agreement.

(b) The plaintiff's costs be reserved.

(c) By 4:00pm on 18 July 2022, the plaintiff file details of the quantum of his costs of the proceeding.

[1] Kempson v Haydon & Anor [2022] VSC 30.

[2] Plaintiff, 'Submissions of the Plaintiff', Submission in Kempson v Haydon & Anor, S ECI 2020 04795, 7 December 2021, [4].

[3] [1907] UKLawRpCh 98; [1907] 2 Ch 406 ('Buckton'), 414 (Kekewich J).

[4] (2015) 14 ASTLR 462; [2015] NSWCA 115 ('Warton').

[6] Macartney v Macartney [1908] ArgusLawRp 109; [1908] VLR 649, 673 (Cussen J) ('Macartney').

[12] [2002] NSWSC 505 ('Murdocca').

[13] [1912] UKLawRpCh 8; (1912) 1 Ch 435.

[14] 31 WN (NSW) 44.

[15] 48 WN (NSW) 85.

[16] Sharp v Lush [1879] UKLawRpCh 11; (1879) 10 CH D, 468.

[18] Supreme Court Act 1970 (NSW), s 76 applicable at the time that case was decided.

[20] Transcript of Proceedings, Kempson v Haydon & Anor (Supreme Court of Victoria, S ECI 2020 04795, Justice Forbes, 14 December 2021) 68-70.

[21] Administration and Probate Act 1958 (now repealed), s 97(7); In the Estate of Sitch [2005] VSC 383 (Gillard J).

[22] Forsyth v Sinclair (No 2) (2010) 2 VR 635.

[23] Plaintiff, Affidavit of Peter Ruston Kempson, Affidavit in Submission in Kempson v Haydon & Anor, S ECI 2020 04795, 18 December 2020, [27].

[24] Macedonian Orthodox in Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia & New Zealand [2008] HCA 42; (2008) 237 CLR 66, 87, Wales v Wales (No 3) [2015] VSC 151, [56].