Plaintiffs v Caveator

1 These reasons concern the costs payable in consequence of an order of the Court made on 18 December 2018 that a probate caveat filed on 6 March 2018 under the Administration and Probate Act 1958 (Vic) (A&P Act) be summarily dismissed. I published reasons for the order on 4 December 2018 as Re Munro [2018] VSC 747 (Reasons). I will not repeat the reasons save where necessary and I will use the same abbreviations and definitions used in those reasons.

2 The plaintiffs seek an order that the caveator pay the plaintiffs' costs on an indemnity basis. The caveator seeks that the plaintiffs' and the caveator's costs should be paid out of the estate or, in the alternative, that there should be no order as to the caveator's costs.

3 For the reasons set out below, in my view, the plaintiffs' costs of the proceeding should be paid by the caveator on an indemnity basis from the time that it should have been clear to the caveator's legal advisors that there was no real prospect of his opposition to the grant of probate to the plaintiffs succeeding. That was a reasonable time after the filing and service of the principle affidavits relied on by the plaintiffs, being Patricia's first affidavit and Craig's affidavit, which were filed on 18 June 2018. I identify 5 July 2018 as an appropriate date from which the caveator should pay the plaintiffs' costs on an indemnity basis. Before that date, the caveator should bear his own costs and the plaintiffs' costs should be paid out of the estate of the deceased.

4 The applicable principles in relation to costs, so far as relevant to the present dispute, may be stated as follows:

(a) unless otherwise expressly provided by any Act or by the Rules, the costs of and incidental to all matters in the Supreme Court are in the discretion of the Court, and the Court has full power to determine by whom and to what extent the costs are to be paid;[1]

(b) the discretion regarding costs has been described as absolute, unconfined or unfettered, although that discretion must be exercised judicially, that is, not by reference to irrelevant or extraneous considerations, but upon facts connected with or leading up to the litigation;[2]

(c) in the exercise of the discretion, practices or guidelines have been developed.[3] These practices or guidelines are not legal rules that confine the exercise of the discretion;[4]

(d) there is a settled practice (sometimes called a general rule) that in the absence of good reason to the contrary a successful litigant should receive his or her costs.[5] It is not, however, a legal rule devised to control the exercise of the discretion.[6] Where the general rule applies, it has the result that the successful party should be entitled to the whole of its costs;[7]

(e) the purpose of a costs order is to compensate the successful party for the costs incurred, and not to punish the unsuccessful party. That purpose is a guide to the exercise of the discretion;[8]

(f) a special costs order, conventionally an order for indemnity costs, may be made in circumstances where unusual features or special circumstances are present. An award costs over and above the ordinary is reserved for cases where the losing party has engaged in unmeritorious, or deliberate or high-minded or other improper conduct such as to warrant the Court showing its disapproval and at the same time preventing the successful party being left out-of-pocket;[9]

(g) encompassed in unmeritorious or improper conduct is the unsuccessful party proceeding where, properly advised, they should have known that they had no real prospect of success, or allegations were made which ought never to have been made or the undue prolongation of a case by groundless contentions. In such cases, the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.[10]

5 In contested probate proceedings, there are two well-established exceptions to the principle that costs should follow the event:[11]

(a) where the testator has been the cause of the litigation. In that case, the costs of unsuccessfully opposing probate may be ordered to be paid out of the estate (first costs exception);

(b) where the circumstances led reasonably to an investigation concerning the testator's will, the costs may be left to be borne by those who incurred them (second costs exception).

6 The two exceptions tend to overlap. As Giles JA and Brownie AJA observed in Perpetual Trustee v Baker:[12]

As was said by Santow J in In the estate of Moyle: Moyle v Moyle..., if a testator is by his mental frailty and other circumstances in a position where the circumstances reasonably call for investigation of the validity of the will 'in one sense the testator, though usually with no sense of blameworthy fault, has by his or her conduct caused the litigation to occur'. A party reasonably but unsuccessfully propounding or challenging the will, and so bringing about the necessary investigation, should no more have to bear his own costs than pay the costs of the other party. So it has been said that where the conduct and habits and mode of life of a testator have given ground for questioning his testamentary capacity the costs of the unsuccessful party should be paid out of the estate, as distinct from being left to be borne by that party ..., and the costs of both sides in testamentary capacity cases have often been allowed out of the estate....

Where the testator is not the cause of the litigation, but an investigation is reasonably called for, there is either no order as to the unsuccessful party's costs or costs are paid out of the estate. For there to be reasonable grounds for an investigation, it must be established that when proceedings were commenced, all proper steps were taken to inform the challenger as to the facts of the case and, having done so, the challenger has been led reasonably to the bona fide belief that there was good ground for impeaching a will.[14] If there is no reasonable cause for investigation, that is, if the unsuccessful party has not acted reasonably, then he or she will pay the costs.[15]

8 One of the cases referred to by McMillan J shows that the principles referred to above have been applied in this State for a very long time. It is In the Will of Millar, a decision of Hood J in this Court in 1908. His Honour said:[16]

In England the general rule is that costs 'should follow the event, unless ... there should be adequate reason for an order of a different character. Speaking generally, there are... two classes of cases in which there should be, and generally is, a departure from the general rule; the first is where the litigation has been brought about through the conduct of the testator or testatrix, and the second is where the parties who have failed have reasonably been led into the litigation by a bona fide belief in their case, and have therefore felt it desirable to enquire into the testamentary dispositions of the testator or testatrix: Twist v Tye.[17] This second-class is somewhat differently stated by the same learned Judge in a later case, where he says that - 'another principle is that if the circumstances lead reasonably to an investigation of the matter, then the costs may be left to be borne by those who have incurred them:' Spiers v English.[18] And where the testator by his conduct or habits or mode of life has given the opponents of the Will reasonable ground for questioning his testamentary capacity, their costs must be paid out of the estate. But where that is not so, but the opponents after due enquiry entertain a bona fide belief in the existence of a state of things which if it did exist would justify the litigation, the unsuccessful party must pay his own costs: Davies v Gregory.[19]

9 The plaintiffs identified that the caveator's allegations had two elements:

(a) conflicts of interests such that the executors should be passed over (conflict issue);

(b) invalidity of the will by reason of lack of testamentary capacity and lack of knowledge and approval (validity issues).

(a) the first costs exception does not apply because the circumstances which were exposed in detail in the Reasons showed that the testator was not the cause of either the conflict issue or the validity issues;

(b) the second costs exception does not apply because, in relation to the conflict issue, the circumstances surrounding the will did not lead reasonably to an investigation by the caveator. That issue was a discrete issue which the caveator sought to agitate. In relation to the validity issues, the Court found that the caveator had no reasonable prospect of success in relation to these issues, so that it cannot be said that the investigation initiated by the caveator was reasonable;

(c) there are aggravating factors in this case that warrant a special costs order, in particular:

(i) the caveator's failure to give evidence in relation to serious allegations concerning the validity issues, in particular that in his grounds of objection, the caveator said 'the caveator will give evidence that suggests that the deceased was in cognitive decline for many years prior to his death...';[20]

(ii) despite not alleging undue influence or unconscionable conduct in the grounds of objection, in submissions the caveator contended that the transactions that caused the movement of assets from the deceased to his widow, Patricia, before his death 'may have been the product of undue influence or unconscionable conduct and therefore have the potential to be set aside'. This had no factual basis and was improper;[21]

(iii) the caveator made allegations which ought never have been made and pursued the case in wilful disregard of known facts, to which I will later refer;

(iv) these matters constituted contraventions of the overarching obligations under the Civil Procedure Act 2010 (Vic) (CPA), including not making a claim which does not, on the factual and legal material available at the time of making the claim, have a proper basis.[22]

11 The caveator submitted that the evidence established that there were reasonable grounds for investigating both the validity issues and the conflict issue.

12 In relation to the validity issue, some of the arguments considered in the Reasons were recounted, including:

(a) the deceased made his Will (dated 24 February 2015) at an advanced age (approximately 92 years old);

(b) in November 2014, the deceased suffered a period of acute confusion;[23]

(c) in April 2015, shortly after the Will was made, the deceased was diagnosed with dementia;[24]

(d) the deceased's death certificate states that the deceased was suffering with Alzheimer's disease for two years before his death (on 10 November 2017);

(e) the file note taken by the solicitor on 13 December 2015 during the deceased's will instructions does not record any testing of the deceased's testamentary capacity at the time the Will was made.

13 In relation to the conflict issue, it was reasonable of the caveator to investigate the following issues:

(a) the payment of the sum of $100,000.00, received from the Fairness Fund, into Patricia's joint account with the deceased instead of into an account in the name of the estate;

(b) the sale of the Broadbeach Property and the payment of $360,979.05 of the net proceeds into the Munro Pension Plan, a superannuation fund that benefited only Patricia. This was a matter Counsel for the plaintiffs accepted deserved some thought by the executors as to how the net sale proceeds of the Broadbeach property were dealt with;

(c) because of the caveator's personal knowledge of the close relationship between Patricia and Mr Clarke, it was reasonable for the caveator to believe he would be affected by the same conflict as Patricia.

(d) the ownership of the Eaglemont Property.

14 The timeline relating to the filing of the caveat, the grounds of the caveat and the plaintiffs' and caveator's evidence in this proceeding is material to a resolution of the conflicting submissions made by the parties. The caveat was filed on 6 March 2018, the application for probate was filed on 19 March 2018, the grounds of objection were filed on 18 April 2018, the caveator's summons was filed on 24 April 2018, Patricia's first affidavit and Craig's affidavit were filed on 18 June 2018 and on 21 or 22 June 2018 the plaintiffs filed a brief submission for the hearing before the Court on 22 June 2018, at which they sought to strike out the grounds of the caveat as not having a proper basis. That brief submission included a table that purported to deal with each ground of opposition to the grant of probate to the plaintiffs. As I noted in the Reasons (at [3]), the caveator objected that the application should be made properly, by summons, so that the caveator could see the basis of the application.

15 Consequently, on 3 July 2018 the plaintiffs issued the summons which sought a summary dismissal of the grounds of objection (in substance a dismissal of the caveat) pursuant to s 63 of the CPA.[25] Orders were then made on 5 July 2018 for the filing of further affidavits and submissions, and for the hearing of the application by me. Robert's affidavit was filed on 29 August 2018.[26] As a result of some matters raised in Robert's affidavit, on 6 September 2018, the day of the hearing, Patricia's second affidavit and Alan's affidavit were filed.

16 Despite some errors in Patricia's first affidavit, it was evident from it that there were very sound reasons to conclude that there was no basis for the validity issues beyond speculation. Indeed this speculation was all that could be advanced in support of the caveat, as is demonstrated by Robert's affidavit where it was said:[27]

I appreciate that the fall in the price for taxi licences would have influenced Pa's financial position and, due to his ailing health from at least 2012, I doubt that he was able to comprehend this. By way of example, I moved to Brisbane in July 2012. By this time, Pa was unable to remember that I moved to Brisbane. I noticed that his short-term memory had clearly deteriorated as he kept repeating the same questions multiple times in any conversation with me. With his health ailing, he was even more dependent on those around him for support, especially Pat.

17 In the face of the medical evidence produced by Patricia, and exhibited to her first affidavit (albeit on information and belief), it is remarkable that the caveator continued to contend that the deceased lacked testamentary capacity during the period shortly before or at the time of execution of the will. Similarly, the evidence produced as to the execution of the will provided a reasonably sound basis to negative the proposition advanced by the caveator that the deceased did not know and approve the contents of the will.

18 With respect to the conflict issue, it is unnecessary to do much more than refer to the Reasons at [58]-[108], save that some of that material depends on the affidavit of Alan Clarke and Counsel for the caveator points out that his affidavit was not made until the day before the hearing. In that respect, the basis for saying that Alan Clarke should be passed over as co-executor of the will and estate of the deceased was entirely unsatisfactory. In his affidavit, Robert stated:[28]

The other executor, Alan John Clarke ('ALAN') named as Pa's executor has a close personal relationship with Pat. Pat consistently spoke of Alan with affection and provided various updates on their interactions. Based on my knowledge of Alan's close relationship with Pat, I think that he is also likely to be affected by Pat's conflict.

19 This is little more than a conclusion from facts which are understated. It never constituted a proper basis for Alan Clarke being in a position of conflict sufficient to warrant passing over him as executor. Properly advised, the caveator should never have proceeded with that ground in opposing the grant of probate to the plaintiffs.

20 It is also particularly relevant that the caveator has given no evidence in support of the caveat and the evidence given on his behalf by his son Robert does not reveal much of relevance beyond speculation. What does come through Robert's affidavit is that, likely as not, it was he and not the caveator (his father) who gave the relevant instructions. This is evident from the text and tone of the affidavit. Early in the affidavit Robert deposes:[29]

As far as I can remember, I have foreshadowed that there would be a dispute over Pa's will and estate. This has been due to the latent distrust I have with my step-Grandmother, Patricia Margaret Munro ('Pat'). As outlined further below, this distrust has been created through a series of events in my life that have led me to believe that Pat would do everything in her power to ensure that she and her son Craig Alan Munro ('Craig') could take all of my grandfather's wealth.

21 The grounds of the caveat raise serious allegations, particularly in relation to the validity issues, which turned on the cognitive capacity of the testator. The evidence advanced by the caveator in support was largely circumstantial and was pressed in the face of the medical evidence given in Patricia's first affidavit. The grounds of the caveat stated 'the caveator will give evidence that suggests that the deceased was in cognitive decline for many years prior to his death'. No such evidence was given by the caveator (or on his behalf) and the central allegation to the validity issues was never made out.

22 It is also important to identify that the grounds of objection were very largely speculative, as was Robert's affidavit, and the caveator's submissions in support. As the plaintiff submitted, despite not alleging undue influence or unconscionable conduct in the grounds of objection, in submissions the caveator contended that the transactions that caused the movement of assets from the deceased to Patricia before his death 'may have been the product of undue influence or unconscionable conduct and therefore have the potential to be set aside'. This had no factual basis and was improper.

23 I agree with the plaintiffs' submissions that the caveator made allegations which ought never have been made and pursued the case in wilful disregard of known facts, in the following respects:

(a) the grounds of objection claimed that the will was changed in circumstances which constituted a radical departure from previous wills and in a way which favoured Patricia. However, this allegation was simply not open to be made. As I observed in the Reasons, in every one of the six wills admitted to evidence, Patricia was the residuary beneficiary and Eaglemont was left to Craig (Reasons, [56]) and the wills were remarkably consistent in their general approach (Reasons, [109]);

(b) the allegation of conflict against Alan Clarke never had a proper basis, as I have said;

(c) the proposition that Patricia was in a position of conflict because of the transfer, in 2012, of the Ivanhoe property to her as joint tenant with the deceased was just speculation (see Reasons, [74]-[78]);

(d) it could not be seriously contended that Craig's claim to the Eaglemont property could be resisted (see Reasons, [92]). There was no basis for the allegation that a beneficial interest in it was or might be an asset of the estate;

(e) there was no basis for the allegations concerning the Munro Taxi Services (see Reasons, [93]-[97]).

24 Despite there being some corrections to her evidence by Patricia's second affidavit, and despite the Alan Clarke's affidavit not being filed until the day of the hearing, I consider the principal affidavits gave the majority of the relevant evidence necessary for the caveator to pause, stand back and come to the conclusion that the grounds of the caveat, summarised at [15] of the Reasons, had no real prospect of success. This is particularly so having regard to the evidence subsequently given in Robert's affidavit. That affidavit shows, in my view, that it is likely that there was little evidence in support of the grounds of the caveat beyond circumstantial evidence, such as the age of the deceased at the time of making the will and Robert's observation concerning the deceased's memory (see above at [16]). At least, if there was evidence to support the grounds, it has not been revealed. Moreover, when it came to an attempt to sustain the allegation of a lack of testamentary capacity, the most significant evidence was obtained from Patricia's first affidavit (see above at [12]).

25 In my view, having regard to these facts, and the principles of law stated earlier, the plaintiffs' costs of the proceeding should be paid by the caveator on an indemnity basis from the time that it should have been clear to the caveator's legal advisors that there was no real prospect of the caveator sustaining the grounds in the caveat. That was a reasonable time after the filing and service of the principal affidavits relied on by the plaintiffs, being Patricia's first affidavit and Craig's affidavit, which were filed on 18 June 2018. It seems to me that an appropriate time from which the caveator should pay the plaintiff's costs on an indemnity basis is the date upon which the parties agreed on the timetable for the filing of material and the hearing of the application for summary judgement, namely 5 July 2018.

26 This is not a case where it has been shown that the testator has, by his conduct or habits or mode of life, given the caveator reasonable ground for questioning his testamentary capacity. The caveator must pay his own costs before that date. There is no reason why the plaintiffs' costs before that date should not be paid out of the estate of the deceased.

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

[2] See, eg, Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534, 537; cited with approval in Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 86 (Oshlack).

[3] Oshlack [1998] HCA 11; (1998) 193 CLR 72, 86.

[4] Norbis v Norbis [1986] HCA 17; (1986) 161 CLR 513, 537; Oshlack [1998] HCA 11; (1998) 193 CLR 72, 86.

[5] Ritter v Godfrey [1920] 2 KB 47, 52; Donald Campbell and Co Ltd v Pollak [1927] AC 732, 809; Milne v Attorney-General for the State of Tasmania [1956] HCA 48; (1956) 95 CLR 460, 477.

[6] Oshlack [1998] HCA 11; (1998) 193 CLR 72, 86 [35].

[7] Lollis v Loulatzis (No 2) [2008] VSC 35, [26].

[8] Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534, 563 (Toohey J, Mason CJ agreeing), 567 (McHugh J); Ohn v Walton (1995) 36 NSWLR 77, 79.

[9] Australian Guarantee Corp Ltd v De Jager [1984] VicRp 40; [1984] VR 483, 502; PCRZ Investments Pty Ltd v National Golf Holdings Ltd [2002] VSCA 24; Fountain Selected Meats (Sales) Pty Ltd v Int Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397, 401.

[10] Fountain Selected Meats (Sales) Pty Ltd v Int Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397, 401; Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, 233, 244.

[11] Perpetual Trustee Co Ltd v Baker, [1999] NSWCA 244, [13]-[14] (Perpetual Trustee v Baker); Giarusso v Veca [2105] VSCA 214, [42].

[12] [1999] NSWCA 244, [14] (citations omitted).

[13] [2016] VSC 232, [22].

[14] Davies v Gregory (1873) LR 3 P & D 28 (Sir James Hannen).

[15] Gray v Hart [No 2] [2012] NSWSC 1562, [19] (White J); Spiers v English [1907] P 122; Re Cutliffe's Estate [1959] P 6; In the Will of Millar [1908] VicLawRp 95; [1908] VLR 682.

[16] In the Will of Millar [1908] VicLawRp 95; [1908] VLR 682, 684.

[18] [1907] P 122.

[21] Caveator's submissions filed 5 September 2018, [21]-[23].

[22] CPA s 18; Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) [2012] VSC 399, [4], [19]; see also Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd [2013] VSCA 237, [529]-[572].

[23] Patricia's first affidavit, [63].

[25] A mistaken reference which should have been a reference to s 62 of the CPA.

[26] It was due to be filed on 23 August 2018.