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[2009] VSC 406
Supreme Court of Victoria
2009-09-16
Justice Mandie
Original judgment source is linked above.
COSTS - successful application for revocation of probate on the ground of lack of testamentary capacity - whether costs should follow the event - relevance of conduct of professional trustee and executor at time of making will and during the proceeding.
1 On 4 June 2009 it was ordered[1] that the grant of probate made to the defendant on 24 August 2006 of the will of Daniel Duggan deceased dated 12 October 2004 be revoked on the ground that the deceased lacked testamentary capacity at the times of giving instructions for and of making the will. These reasons should be read together with the reasons for judgment handed down on 4 June 2009.
2 The successful plaintiffs say that costs should follow the event and seek orders that the defendant pay the plaintiffs' taxed costs on a party-party basis and that, in any event, the defendant pay and bear its own costs. The defendant says that the costs, both of the plaintiffs and of the defendant, should be paid out of the residuary estate of the deceased.
3 There was no dispute about the relevant legal principles. It was common ground that the overriding principle was that costs were in the discretion of the Court but that the general rule was, in probate cases as in other cases, that costs should follow the event.[2] It was also common ground that in probate cases there were certain exceptions to the general rule, where "adequate reason" was shown and under which the costs of both the successful and unsuccessful parties might be paid from the estate or the costs might be left to be borne by those who incurred them. One exception is where the litigation is brought about by the conduct or "fault" of the testator. Another exception is where it is, broadly speaking, "reasonable" for the unsuccessful party to have brought or to have defended the litigation, for example, because the unsuccessful party had a reasonable and bona fide belief that the testator had or lacked testamentary capacity (as the case may be) or because, in the case of a propounder, the testator gave every appearance of being able to manage his or her affairs.[3]
"It is of high public importance that doubtful wills should not pass easily into proof by reason of the cost of opposing them. It is of equal importance that parties should not be tempted into a fruitless litigation by the knowledge that their costs will be defrayed by others."
5 In the same case, two exceptions to the rule that costs follow the event in probate matters were relevantly expressed as follows:[6]
"[F]irst, if the cause of litigation takes its origin in the fault of the testator...the costs may properly be paid out of the estate; secondly, if there be sufficient and reasonable ground, looking to the knowledge and means of knowledge of the opposing party, to question...the capacity of the testator...the losing party may properly be relieved from the costs of his successful opponent."
"On the best consideration that I can give to the subject, it appears to me that an executor is primâ facie justified in propounding a will. That does not carry us very far, because, of course, although he may be justified in propounding it in the absence of any evidence throwing light on the testamentary capacity of the testator; yet, if it is made to appear that, when propounding it, he must have known that he was attempting to obtain the sanction of the Court to a document which could not be supported, he ought to be condemned in the costs. It would be very unjust to hold otherwise. The question in this case depends upon whether Sir Charles Boughton, as executor, was bound to propound this will, and to determine that I must consider the whole of the evidence which is now before me.
...
Was the testator really and substantially the cause of the litigation that has occurred? I think the testator was substantially the cause of the litigation. His conduct was such that any person on whom was thrown the responsibility of determining whether or not his will was a good one was justified in bringing the whole of the facts bearing on that question before the Court. I am, therefore, of opinion that the costs should be paid out of the estate. The question must be decided on general principles, for the observation that a residue must bear the costs applies to every case. Thinking that Sir Charles was honestly led into this litigation by the fact that the testator seemed to all outward appearance to be capable of managing his affairs; and, in the absence of evidence to the contrary, was justified in bringing the case before the Court, I order costs on both sides out of the estate."
"Where the facts show that neither the testator nor the persons interested in the residue have been to blame, but where the opponents of the will have been led reasonably to the bonâ fide belief that there was good ground for impeaching the will, there will be no order as to costs. Of course the opponents must have taken all proper steps to inform themselves as to the facts of the case, but if, having done so, they bonâ fide believe in the existence of a state of things which, if it did exist, would justify litigation, then, although no blame should attach to the testator or to the executors and persons interested in the residue, each party must bear his own costs."
"The general rule is, of course, that costs, after a trial of this character, should follow the event unless, according to the principles which are in force in this Court, there should be adequate reason for an order of a different character.
Speaking generally, there are in this Division two classes of cases in which there should be, and generally is, a departure from the ordinary 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 bonâ fide belief in their case, and have, therefore, felt it desirable to inquire into the testamentary dispositions of the testator or testatrix."
9 In the same case, Gorell Barnes J distinguished Boughton v Knight and said:[13]
"It is obvious, from the short recital of the facts which I have given here, that the three plaintiffs cannot be said, in the words I have just read, to have been "honestly led into this litigation by the fact that the (testatrix) seemed to all outward appearance to be capable of managing (her) affairs," the facts here being, indeed, quite the contrary: she was a very old woman; she was not managing her own affairs; they were being managed for her, and being managed for her
by these three gentleman.
...
The point which remains for consideration is whether the costs ought not to follow the event. When all the facts are considered and what was in the cognizance of these parties, it cannot be contended that they were led into the belief that this old lady was capable of managing her own affairs and of making these wills. The truth is, as I said before, they took a view and acted upon it; and when it came to a fight between themselves, on the one side, and the persons interested under an intestacy, on the other side, they stood to win one way and to lose the other. I see, therefore, nothing to warrant a departure from the ordinary rule. Costs must follow the event."
"Costs are in the discretion of the Court, and the established principle on which the discretion as to costs will normally be exercised is that costs follow the event. In probate litigation, in particular, however, exceptions have been recognised, one being that where the testator has been the cause of the litigation the costs of unsuccessfully opposing probate may be ordered to be paid out of the estate, and another being that if 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 (see for example [I]n the estate of Hodges: Shorter v Hodges (1988) 14 NSWLR 698 at 709).
The two exceptions tend to overlap. As was said by Santow J in In the estate of Moyle: Moyle v Moyle (18 June 1988, unreported), 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 (Davies v Gregory (1873) 3 P & D 28; Roe v Nix (1893) P 55; In the will of Millar [1908] VicLawRp 95; (1908) VLR 682), and the costs of both sides in testamentary capacity cases have often been allowed out of the estate (In the will of Severs [1887] VicLawRp 110; (1887) 13 VLR 572; Phillips v Dundas (Smith J, VSC 4 December 1995, unreported); Redroff v Miegoch (Santow J, NSWSC, 22 April 1996, unreported); re Ryan: Williams v Ryan (1998) VSC, 109; In the will of Ryan: Williams v Ryan (Byrne J, VSC, 23 October 1998, unreported); cf Middlebrook v Middlebrook (1963) 26 ALJR 216 where Dixon CJ and McTiernan, Taylor and Owen JJ ordered that the parties bear their own costs but Menzies J would have ordered that the costs be paid out of the estate)."
11 As indicated, these guiding principles have been stated and re-stated in many cases.[16]
"Due to the subjectivity of the test, no clear rules seem to have evolved from the many cases on point. Further, the large degree of overlap between the two exceptions has complicated the question. The most that can be said is that the exceptions, like the general rule, provide a starting point for analysis and then the Court is able to exercise its discretion as to costs in order to do justice between the parties."
13 In the present case, the plaintiffs contended that the conduct of the defendant at and about the time of execution of the will and its conduct after the death of the deceased should be taken into account in deciding the appropriate order for costs. The plaintiffs pointed out that Sandhurst was a professional trustee which in the course of business provided its services in that and various other capacities to the deceased. The plaintiffs said that at the time of the deceased making his 2004 will the defendant was aware that the deceased was over 91 years of age, that the deceased had executed an enduring power of attorney and had allowed the defendant to take over complete control of his affairs (a substantial change from his previous independent attitude) and that he had entered a nursing home. Further, the defendant was aware that the deceased had made a will, at the age of 86, in which he left his entire estate to his relatives (John Brown, Lyn Smith and their children) and that he was now proposing to make a will which would entirely exclude those relatives (although on the recommendation of the defendant he made a small provision for John Brown and Lyn Smith) and which would leave the whole of his substantial estate to charities. The defendant had downloaded a list of charities from the internet from which the deceased had selected a number as beneficiaries to receive legacies of a specified amount and the deceased proposed to leave the residue of his estate on a charitable trust, a disposition which appeared to have resulted from a suggestion or suggestions of, even a degree of encouragement from, one of the defendant's officers (Mr Athorn). The defendant was aware of aspects of recent behaviour of the deceased that might fairly be described as unusual, the plaintiffs submitted.
14 The plaintiffs said that the defendant had, in all the circumstances, quite properly referred the deceased for a medical opinion about his testamentary capacity prior to his execution of the will but had failed to inform the medical practitioner concerned of any background information concerning the deceased or his assets, further or alternatively, had failed to ensure that the medical practitioner had any understanding of the requirements of testamentary capacity. In addition, the defendant had received a medical certificate from the doctor in terms that should have raised doubts about the reliability of his opinion.
15 The plaintiffs submitted that a professional trustee/executor who undertook the responsibility of drawing a will in those circumstances and failed to properly perform the task should be responsible for the costs that followed as a consequence of its failure.
16 The plaintiffs relied on the following chronology of events starting with the death of the deceased:
17 To that chronology I would add that, in the middle of the case, the defendant made an offer to settle the proceeding but on a basis far less favourable to the plaintiffs and their family than the offers earlier made by the plaintiffs. Further, on 30 April 2009 towards the end of the case, the defendant finally offered to settle the proceeding on the basis that probate of the 2004 will be revoked, the plaintiffs obtain administration with the will annexed of the 1999 will, $200,000 be paid to the 2004 will beneficiaries and the defendant's costs and executor's commission be paid. This offer was of course far more favourable to the plaintiffs than the offers that the plaintiffs had earlier made although it might not unreasonably be suggested that, by this stage and in the light of the evidence that had then been heard, "the writing was on the wall."
18 In essence, the plaintiffs' submission was that, having regard to the conduct of the defendant at the time that the deceased had made his 2004 will that had contributed to the litigation and having regard to the conduct of the defendant during the litigation, it was appropriate to treat the defendant as having accepted the risks and costs involved and that, having regard to such conduct, no adequate reason was shown to depart from the general rule that costs should follow the event.
19 On the other hand, the defendant submitted that it was reasonable for it to have propounded the will (or to have resisted revocation of probate thereof), that it was the "habits" of the testator that had lead to the litigation and that the circumstances were such that a reasonable investigation was called for. The defendant had a duty to propound the will and it derived no benefit from doing so because it was equally entitled to commission as executor under the earlier will.
20 The defendant emphasised that the deceased was "the cause" of the litigation. His delusions manifested themselves only in correspondence with his niece whereas many witnesses (including the nursing home proprietors, local farmers and officers of the defendant) had not perceived him as being delusional. The evidence upon which the plaintiffs had succeeded was unknown to the defendant until, during the litigation, the contents of the letters and the opinion of Dr Ingram became known to it. The defendant pointed to a number of other evidentiary matters that had only emerged during the hearing. The defendant stressed that important and indeed somewhat decisive evidence from Dr Ingram had only come out during his oral evidence and had not been contained in his written report.
21 The defendant said that it had elected not to obtain any expert opinion in response to that provided by Dr Ingram but had rather decided to challenge the factual substratum of his opinion and his limited knowledge of the full circumstances affecting the deceased, which it was entitled to do, and that it was in the course of giving oral evidence that Dr Ingram had significantly elucidated and added to the views that he had expressed in his written report.
22 It is undoubtedly the case that the litigation was, in substantial part, the "fault" of the deceased in the sense that his delusions led to the making of the 2004 will and the dramatic change from his earlier will. It is also the case that these delusions were not known to the defendant and, but for his correspondence with his niece, may possibly never have come to light.
23 Nevertheless, I think that the conduct of the defendant also contributed to the circumstances that gave rise to the litigation. I accept the plaintiffs' submissions in that regard. While accepting that the deceased expressed his dissatisfaction with his earlier will, it was the defendant that planted the idea of a charitable trust in perpetuity (with consequent financial benefits for the defendant) and it was the defendant that produced the list of charities as potential legatees from which the deceased might choose. The defendant, whilst appreciating that there was a need to check the deceased's mental capacity, failed to ensure that the medical practitioner was properly informed or that a satisfactory opinion had been obtained.
24 I would also accept that it was reasonable of the defendant, at the outset, to defend the litigation given its then state of knowledge and the evidence then available. However, I do not think that it was reasonable of the defendant to proceed on with the litigation, once aware of the significant contents of the letters written by the deceased to Lyn Smith in 2004 and of the nature of the opinions expressed by Dr Ingram, without obtaining an expert opinion of its own. At any rate, I consider that the defendant should be treated as having assumed all the risks of the litigation by its decision to defend the proceeding without obtaining such an opinion and, as it were, to hazard all partly upon an attempt to undermine the factual substratum of Dr Ingram's opinion, partly in reliance on lay witnesses with limited insights and partly on manifestly unsatisfactory evidence to be given by a general practitioner.
25 While the defendant has, I think, partially brought itself within each of the so-called "exceptions" to the general rule, I think that the conduct of the defendant to which I have referred is such that those exceptions are inapplicable or not sufficiently satisfied. In short, I do not think that the defendant has established "adequate reason" to depart from the general rule that costs should follow the event.
26 More particularly, I am of the view that in the circumstances to which I have referred the discretion of the Court should be exercised, in the interests of justice, by making an order that the defendant pay the plaintiffs' costs of this proceeding and pay or bear its own costs. The residuary estate should not have to bear any of the costs of this proceeding.
[1] See John Brown v Sandhurst Trustees Ltd [2009] VSC 212.
[2] See Pates v Craig (Unreported, Supreme Court of New South Wales, Santow J, 5 September 1995).
[3] Pates v Craig (Unreported, Supreme Court of New South Wales, Santow J, 5 September 1995).
[5] (1863) 164 ER 1280, 1281-1282.
[6] (1863) 164 ER 1280, 1281.
[12] [1902] P 92, 93-4 - this statement was referred to with approval by Owen J in Perpetual Trustee Company Ltd v Watson (1902) 2 SR (NSW) (B and P) 13 (Full Court, Supreme Court of New South Wales).
[13] [1902] P 92, 97-8.
[15] [1999] NSWCA 244 at [13]- [14].
[16] See Middlebrook v Middlebrook (1962) 26 ALJR 216; Trustee for the Salvation Army (NSW) Property Trust v Becker [2007] NSWCA 136; Re Young: Purcell v Acciarito [2008] VSC 96; Perpetual Trustees WA Ltd v Elliott [2009] WASC 76.
[18] [2007] WASC 195 at [13].
Brown & Anor
Sandhurst Trustees Ltd
(1988) 14 NSWLR 698
(1963) 26 ALJR 216
(1962) 26 ALJR 216