2138 of 2006 DAVID ANDREW RUTTER and ANOR -v- ANNE MAIRE McCUSKER [No. 2]
JUDGMENT (as to costs)
1 HIS HONOUR: On 28 March 2008 I published my reasons for judgment and made orders in each of these two proceedings. Consonant with the requests in that regard made by Counsel for the respective parties, I stood each matter over to a date to be fixed by arrangement with my Associate, for argument as to costs.
2 Subsequently, the matters were listed for such argument. I had the benefit of receiving written outlines of submissions from Counsel for each of the Plaintiffs. Those written outlines will be retained in the Court files.
3 Costs, although in the discretion of the Court (Uniform Civil Procedure Act 2005, section 98 (1)), normally follow the event (Uniform Civil Procedure Rules 2005, Part 42, rule 42.1).
4 However, the Family Provision Act 1982 makes express provision, in section 33, concerning the costs of proceedings under that statute, especially regarding the extent to which a Court may order that costs be paid out of the estate of a deceased person. (The interaction between section 98 of the Civil Procedure Act and section 33 of the Family Provision Act was considered by Barrett J in Moussa v Moussa [2006] NSWSC 509, 29 May 2006, in which he quoted from the decision of Young J (as he then was) in Bearns v Bearns-Hayes, 6 May 1997 (unreported), referring to the tension between section 33 of the Family Provision Act and the relevant provision of the Supreme Court Act 1970 as it was then in force. It will be appreciated, however, that section 33 of the Family Provision Act regulates only the extent to which the Court may order that costs be paid out of the estate.)
5 In proceedings under the Family Provision Act (as was each of the present proceedings) an executor is normally entitled to an order that her costs be paid out of the estate, irrespective of the outcome of the proceedings, since it is the duty of such an executor to uphold the terms of the will of the testator.
6 In the instant cases, however, it should be recognised that the executor, Anne Maire McCusker (the first Defendant in proceedings 3119 of 2005 and the sole Defendant in proceedings 2138 of 2006), was not only the executor, as such having an obligation to uphold the terms of the will, but was also the chief beneficiary named in the will of the Deceased.
7 To a very significant extent the proceedings took on the character of adversarial proceedings between, on the one hand, the children of the Deceased by his marriage (being David Andrew Rutter and Jane Elizabeth Rutter) and, on the other hand, the executor Anne McCusker and the daughter born to herself and the Deceased. In my reasons for judgment of 28 March 2008 I stated (paragraph 126) that it was apparent that the present proceedings by Alexandra Florence Margaret Rutter (referred to as Flossiy) had been brought with the complete support and encouragement of her mother, the executor; and, further (paragraph 128), that it was difficult to resist the conclusion that the claim of Flossiy had been instigated (and financially supported) by Anne, essentially with a view to reducing the assets of the estate and thus the benefits given by the will of the Deceased to his two elder children. I observed that such conduct on the part of Anne was totally inconsistent with her duty as executor to act even-handedly in the interests of all the beneficiaries, and not, for example, to prefer (as she did) the interests of her daughter Flossiy (who was not a beneficiary under the will) to those of David or Jane.
8 (In this judgment, as in my earlier reasons for judgment, I shall, for convenience and without intending any disrespect, refer to each of the three Plaintiffs and to the Defendant executor by his or her first given name, or, in the case of the Plaintiff in proceedings 3115 of 2005, by the name by which she is usually known).
9 I ordered that the claim of Flossiy be dismissed. Normally a concomitant of such an order would be that Flossiy, the unsuccessful Plaintiff, would be ordered to pay the costs of the Defendant executor. In the instant case it should be observed, however, that the opposition to Flossiy's claim was primarily conducted by David and Jane, who had been added as additional Defendants to Flossiy's proceedings. Further, no party sought that a costs order should be made against Flossiy. Certainly, Anne did not seek any order that Flossiy should pay Anne's cost.
10 It was submitted on behalf of Flossiy that in her proceedings there should be no order as to costs, to the intent that she bear her own costs of the proceedings brought by her, and that no Defendant should have the benefit of a costs order against Flossiy.
11 On behalf of David and Jane it was submitted that Flossiy should bear her own costs of the proceedings brought by her, and that the costs of David and Jane be paid personally by Anne, without indemnity from the estate of the Deceased.
12 It was Anne's submission that Flossiy should bear her own costs, but that Anne herself should be indemnified from the estate for the costs which she incurred in Flossiy's proceedings, and that David and Jane should bear their own costs of those proceedings.
13 For completeness, I would refer to several judicial authorities which have considered the appropriateness of a costs order being made against an unsuccessful applicant for provision in a claim under the Family Provision Act (or under its statutory predecessor, the Testator's Family Maintenance and Guardianship of Infants Act 1916). In Singer v Berghouse [1993] HCA 35; (1993) 114 ALR 521, Gaudron J, dealing with an application for security for cost in the High Court of Australia, said, at 522,
Family provision cases stand apart from cases in which costs follow the event. Leaving aside cases under the Act which, in s.33, makes special provision in that regard, costs in family provision cases generally depend on the overall justice of the case. It is not uncommon, in the case of unsuccessful applications, for no order to be made as to costs, particularly if it would have a detrimental effect on the applicant's financial position. And there may even be circumstances in which it is appropriate for an unsuccessful party to have his or her costs paid out of the estate.
14 In Jvancich v Kennedy (No 2) [2004] NSWCA 397, Giles JA (with whom Handley, and McColl JJA agreed) said that "the overall justice of the case" is "not remote from costs following the event". (See, also, Re Sherborne Estate (No 2) [2005] NSWSC 1003, a decision of Palmer J, and Nicholls v Hall [2007] NSWCA 356, per Hodgson JA.)
15 Since Flossiy lost, she is not entitled to an order that her costs should be paid by any other party or out of the estate of the Deceased.
16 There next must be considered the question whether Flossiy should be required to pay the costs of Anne and of the other Defendants to her proceedings, being David and Jane. Since opposition to Flossiy's claim was primarily conducted by David and Jane, who had been added as additional Defendants to Flossiy's proceedings, there is no basis for any costs order being made in favour of Anne upon the dismissal of Flossiy's claim. In any event, Anne did not seek such an order.
17 Normally, David and Jane would be entitled to an order that Flossiy pay their costs of successfully resisting her claim. There appears to me to be no reason why such an order should not be made in the instant case. However, both David and Jane expressly eschewed any costs order being made in their favour against Flossiy. Had it not been for this position expressly taken by David and Jane, I would have had no hesitation in making an order that Flossiy pay the costs of those parties of successfully resisting her claim.
18 If, however, David and Jane do not wish to pursue against Flossiy the costs to which they would normally be entitled, then I do not see how they can establish an entitlement to receive those costs either from Anne personally or from the estate. If they were prepared to claim their costs against Flossiy and if ultimately they were not able to recover those costs from her, then there might be grounds for David and Jane to look to the estate for reimbursement. But, since they have expressly disclaimed any costs order in their favour against Flossiy, they cannot look instead to the estate for those costs.
19 In this regard, I do not overlook the fact that the joinder of David and Jane as Defendants to Flossiy's proceedings was made upon the basis, first, that Anne as executor thereafter take no role in those proceedings, but that the claim of the Flossiy be defended by David and Jane, who, in respect to that claim, would seek to uphold the terms of the will; and, upon the basis, further, that Anne would not oppose the application by David and Jane for costs from the estate (subject to the quantum of those costs). However, as I have already observed, David and Jane do not choose to pursue their entitlement to claim their costs from Flossiy. That being so, they cannot look to the estate for those costs.
20 It is difficult to see how David and Jane can be entitled to a costs order against Anne in Flossiy's claim, in circumstances where Anne, formally, took no role in those proceedings after the joinder of David and Jane as Defendants. Again, the case might have been otherwise had David and Jane chosen to pursue Flossiy for their costs. In the event that they did so but could not recover those costs, it is possible that, in the light of the actual role of Anne in instigating, and funding, Flossiy's proceedings for a purpose, which, in my conclusion was, a collateral and, indeed, an improper purpose, they may have been entitled to look to Anne for the payment of any costs which they might not have been able to recover from Flossiy.
21 However, the express position which David and Jane have adopted, that they do not seek a costs order against Flossiy, has in my conclusion the inevitable consequence that they are not entitled to look to either the estate or Anne personally for the payment of their costs.
22 I have already referred to Anne's submission that in Flossiy's claim the appropriate costs order should be that Flossiy should bear her own costs, that Anne should be indemnified by the estate for her costs, and that David and Jane should bear their own costs.
23 I can see no justification for Anne being indemnified from the estate for her costs. Apart from the fact that the burden of resisting Flossiy's claim was borne, not by Anne, but by David and Jane, the conduct of Anne in instigating the claim of Flossiy and in unnecessarily burdening the estate by that claim is such as falls within the provisions of rule 42.25 of the Uniform Civil Procedure Rules. That rule provides,
(1) Subject to subrule (2), a person who is or has been a party to any proceedings in the capacity of trustee or mortgagee is entitled to be paid his or her costs in the proceedings, in so far as they are not paid by any other person, out of the fund held by the trustee or out of the mortgaged property, as the case may be.
(2) The court may order that the person's costs not be so paid if:
(a) the trustee or mortgagee has acted unreasonably, or
(b) in the case of a trustee, the trustee has in substance acted for his or her own benefit rather than for the benefit of the fund.
24 In my conclusion the conduct of Anne attracts the provisions of subrule (2) (a) of the foregoing rule, and thus disentitles her from looking to the estate for reimbursement of any costs in Flossiy's proceedings. Accordingly, to the extent that she may have incurred any costs in those proceedings, Anne must bear her own costs.
25 I propose, therefore to make no order in respect to the costs of proceedings 3119 of 2005, to the intent that each party to those proceedings will bear her or his own costs of the proceedings, and to order that Anne not be entitled to resort to the estate of the Deceased for payment of any costs incurred by her in those proceedings, and that, if she has already used any of the assets of the estate for payment of such costs, she should reimburse the estate to that extent.
26 David and Jane were each unsuccessful in their respective claims under the Family Provision Act.
27 As I have already observed, David and Jane, being unsuccessful Plaintiffs, would normally be required to pay the costs of Anne of successfully resisting their respective claims. Anne, as executor, would then normally be entitled to recover from the estate of the Deceased the difference between, on the one hand, any costs which she might recover from David and Jane and, on the other hand, Anne's own costs on the indemnity basis.
28 It was submitted on behalf of David and Jane that in their proceedings, 2138 of 2006, Anne's costs be paid from the estate of the Deceased, but that the burden of such costs be borne by the asset consisting of the indebtedness of Designplace Sydney Pty Limited ("Designplace") to the Deceased, and that such payment be made only after the satisfaction of the legacy of $150,000 to Jane; that Anne be otherwise not entitled to indemnify herself from the estate; that David and Jane bear their own costs; and that the costs cross-defendants to Anne's cross-claim (being David, Jane, their mother Mrs Anne Caroline Rutter and Halibut Pty Limited), be paid by Anne on the indemnity basis.
29 It was submitted on behalf of Anne that her costs of successfully resisting the claims of David and Jane should be paid by those parties to Anne on the party and party basis and that the difference between the amount of those costs which Anne might recover from David and Jane and Anne's costs on the indemnity basis should be paid out of the estate. Further, that Anne's costs of the cross-claim should be paid out of the estate. To the extent that Anne might be entitled to look to the estate for payment of any of her costs, it was submitted on her behalf that those costs should not be limited (as was the submission made on behalf of David and Jane) to the debt owed to the estate by Designplace.
30 The situation in regard to the costs in proceedings 2138 of 2006 and to Anne's entitlement to a costs order of the nature sought by her against, first, David and Jane, and then against the estate, is, however, complicated by two further matters. One such matter is the fact that Anne on the fifth day of the hearing filed an amended cross-claim, seeking, first, a determination as to the shareholdings in Halibut Pty Limited ("Halibut"), as at 29 March 2004 (that being the date of the death of the Deceased); second, any consequential relief arising out of that prayer for relief which the Court might consider necessary; further, an order pursuant to section 1071F of the Corporations Act 2001 that Anne be registered by transmission as the holder of one A class and one B class share formerly held in the name of the Deceased.
31 In regard to that cross-claim, it is appropriate to record that on 8 October 2007 (that being the date upon which the amended cross-claim was filed) an order was made by Justice Windeyer, as the Duty Judge in the Equity Division, directing that all issues in the matter be determined by an Associate Judge. Each of Mrs Anne Rutter and Halibut appeared by the same legal representatives who appeared for David and Jane. Mr Justin Smith of Counsel (who together with Mr S. Aspinall of Counsel, appeared for David and Jane) made submissions on behalf of Halibut in opposition to the relief sought by Anne pursuant to section 1071F of the Corporations Act 2001, and in respect to the shareholdings in Halibut. It should be recognised, also, that the interests of Mrs Anne Rutter (whose affidavits of 29 June 2006 and 15 February 2007 had been filed in support of the claim of David and Jane, her children, and in resisting the cross-claim of Anne) were identical with those of David and Jane in the cross-claim, and that the interests of Halibut in the cross-claim were in no way inconsistent with those of David and Jane.
32 I do not consider that the costs of the totality of the proceedings for the duration of the hearing were materially increased by either Mrs Anne Rutter or Halibut being named as Defendants to the amended cross-claim.
33 Anne, however, was not successful in obtaining the relief which she sought concerning the shareholdings in Halibut.
34 Substantially, the determination which I made on 28 March 2008 by order 2 in proceedings 2138 of 2006, in respect to the shareholdings in Halibut, was a determination along the lines asserted by David and Jane, and denied by Anne, and was not a determination of the nature asserted by Anne.
35 As I have already observed, the proceedings brought by David and Jane under the Family Provision Act were in fact, even if not in form, adversarial proceedings between those Plaintiffs and Anne. The proceedings brought by Anne by way of her amended cross-claim in respect to the shareholdings in Halibut, were also adversarial proceedings, between herself, on the one hand, and David and Jane, their mother and Halibut, on the other hand. Anne was totally unsuccessful in her claim made upon her amended cross-claim.
36 I have already recorded in my reasons for judgment of 28 March 2008 (paragraph 150) that David agreed under cross-examination that the only reason why he instituted his claim was to defeat the claim of Flossiy.
37 In the proceedings brought by David and Jane, had it not been for Anne's cross-claim, it is possible that I might have made an order that David and Jane pay Anne's costs, since Anne as executor was successful in resisting the claim of those Plaintiffs for orders under the Family Provision Act. However, that situation was complicated by the filing of the amended cross-claim to which I have already adverted, in which Anne was totally unsuccessful and in which David and Jane were totally successful.
38 The other matter which is relevant to, and which has the effect of further complicating, the situation in regard to Anne's entitlement to a costs order of the nature which she seeks in proceedings 2138 of 2006 is Anne's own conduct in carrying out her duties and responsibilities as executor in the administration of the estate of the Deceased, and in carrying out those duties and responsibilities in regard to each of the present proceedings before the Court.
39 I consider that it is not possible to approach the costs of the claim of David and Jane for relief under the Family Provision Act in isolation from, first, the amended cross-claim brought by Anne against them (and against their mother and Halibut), second, the proceedings brought by Flossiy against the estate, and, third, the conflict of interest which Anne deliberately allowed to exist between her duty as executor and her interest as a beneficiary in the estate.
40 Were I to make an order in proceedings 2138 of 2006 that Anne be paid any costs by David or Jane, the making of such an order would be inconsistent with the absence of a similar order being made against the other unsuccessful Plaintiff, Flossiy, in proceedings 3119 of 2005.
41 Further, the conduct of Anne throughout this litigation has been totally inconsistent with -indeed, contrary to - her duty and responsibilities in the role of protectress and conservatrix of the assets of the estate. She encouraged her own daughter to make and to persist in a hopeless claim against the estate, with the clear intention that that claim, if successful, would diminish the assets available to meet the entitlement of David and Jane, first, under the terms of the will of their father, and, second by way of any order for additional provision out of their father's estate.
42 Moreover, the cross-claim brought by Anne against David and Jane, their mother and Halibut by way of the amended cross-claim also appears to have been largely motivated by an intention to diminish the assets available to meet any order for provision in favour of David and Jane or to meet the testamentary benefits given to those persons under the will of the Deceased.
43 I have already, in my reasons for judgment of 28 March 2008 (paragraph 107) adverted to the failure of Anne in her capacity as executor of the estate of the Deceased to get in the indebtedness of Designplace owing to the estate. As I there stated, the obvious reason for that failure on her part to carry out one of the fundamental duties of an executor - to get in the assets of the estate - was doubtless that she is the sole shareholder and sole director of Designplace, and that she personally stands to benefit if that company is not required to pay its indebtedness to the Deceased.
44 Anne clearly was in a position where she experienced a conflict of interest between her duty as executor and her personal benefit as a joint debtor to the estate. She should not have allowed herself to be placed in that position.
45 Any costs order which might be made in favour of Anne, in her capacity as executor upholding the terms of the will (and thus, ultimately, entitling her to look to the estate for reimbursement of such costs), would have the effect of advancing what I regard as her improper purpose of attempting to diminish the assets of the estate available to meet the entitlement of David and Jane under the terms of the will of their father.
46 This conduct on the part of Anne also falls squarely within the provisions of rule 42.25 of the Uniform Civil Procedure Rules, to which I have earlier made reference.
47 In the circumstances of the instant case I consider that Anne as trustee has acted unreasonably and in substance has acted for her own benefit rather than for the benefit of the estate. Were it necessary for me to make an express order invoking the foregoing provisions of rule 42.25, I would be prepared positively to order that Anne's costs not be paid out of the estate for the foregoing reasons.
48 It seems to me, therefore, that the appropriate course in respect to the claims of David and Jane and the cross-claim of Anne is that none of those parties should receive any costs from any of the other parties or from the estate of the Deceased. That is, each of those parties must bear his or her own costs of the proceedings, and will not be entitled to a costs order against any other party.
49 I have already referred to the joinder of Mrs Anne Rutter and Halibut as Defendants to the amended cross-claim filed, in the face of opposition from at least Halibut, on 8 October 2007. The interests of Halibut and Mrs Anne Rutter were, if not identical to, at least in no way inconsistent with, the interests of David and Jane. I do not consider that any separate order in respect to the costs of Mrs Anne Rutter or of Halibut should be made, either in favour of those parties, or against them.
50 For completeness, I should also record that I do not overlook the correspondence between the legal representatives of the respective parties, which included letters in the nature of Calderbank letters. Those letters do not, however, affect the conclusions that I have already expressed concerning costs.
51 I have already referred in my reasons for judgment of 28 March 2008 (paragraphs 28-31) to the respective estimations of the costs of the various parties of the proceedings - costs which were based upon a hearing occupying either three days or four days, instead of the seven hearing days which the case ultimately occupied. I considered an amount of almost $400,000 for a three day hearing and an amount in excess of $312,000 for a four day hearing to be totally excessive and to be outrageous. I now repeat those sentiments.
52 The claim of Flossiy could be regarded as a claim made for a collateral, indeed an improper, purpose, being to reduce the value of the estate of the Deceased. The claim had no merit and was brought at the instigation of Flossiy's mother, the executor, for the purpose of ensuring that the value of the estate would be so diminished (either in consequence of an order in favour of Flossiy or at least in consequence of costs payable out of the estate in resisting Flossiy's claim) as to deprive David and Jane of the benefits to which they were entitled under the will of their father. After David and Jane instituted their own claims for provision, Flossiy persisted in her unmeritorious claim, such persistence also being for the collateral purpose of reducing the value of the estate which might be available to meet any order for provision which might ultimately be made in favour of David or Jane.
53 The claim of David had no merit, and was brought, as he frankly admitted under cross-examination, merely to support the claim of his sister Jane. The Court can only be unfavourably impressed by parties who institute, or defend, estate proceedings, essentially for the purpose of reducing the value of the estate available for distribution among those persons who are entitled to benefits under the will of a testator. None of the parties to the present proceedings (with the possible exception of Mrs Anne Caroline Rutter and Halibut) are innocent of such conduct.
54 In each of the present proceedings costs should be left to lie where they have fallen. I do not propose to make a costs order in favour of any party. I do not propose to make a costs order against any party. I do not propose to make any order which will enable Anne, as executor, to recoup from the estate of the Deceased any moneys which she has expended resisting the claims of the three Plaintiffs or in asserting her own cross-claim. If she has already expended any of the assets of the estate in the costs of the present proceedings, she must reimburse the estate to that extent.
55 I make the following orders:
3119 of 2005 ALEXANDRA FLORENCE MARGARET RUTTER -v- ANNE MAIRE McCUSKER and ORS [No 2]
1. I make no order as to costs, to the intent that each party will bear her or his own costs of the proceedings.
2. I order that the Defendant Anne Maire McCusker not be entitled to resort to the estate of the late Barry Rutter ("the Deceased") for the payment of any costs incurred by her in the proceedings, and that, to the extent that she has already used any of the assets of the estate for payment of such costs, she reimburse the estate to that extent.
3. The exhibits may be returned.