Rydzewski v Rydzewski

Consideration

1. Costs are in the discretion of the court and may be awarded on the ordinary basis or on an indemnity basis: s 98 of the Civil Procedure Act 2005 (NSW) (CPA) and r 42.2 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). While the Court's discretion is broad, it must be exercised judicially and in accordance with the principles stated in ss 56-60 of the CPA. The usual rule is that costs follow the event, unless it appears that some other order should be made as to some or all of the costs: UCPR, r 42.1.
2. Although a beneficiary may have standing to bring a derivative suit to recover assets on behalf of an estate, they are 'bound to conduct the derivative suit at [their] own risk as to costs': Re Estate Nitopi, deceased [2018] NSWSC 1560 at [3] (Lindsay J), citing Re Atkinson, deceased [1971] VR 612 at 617; Ramage v Waclaw (1988) 12 NSWLR 84 at 91; Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432, 436-437. See also, Dean v Antunes [2016] NSWSC 1845 at [67]; Hayward (as Executor of Felton Estate) v Speedy and Felton [2021] NSWSC 943 at [27]; Re Ciantar [2022] VSC 116 at [58].
3. Nevertheless, costs incurred by a beneficiary may be ordered to be paid from the estate where 'two requisites' are satisfied: first, that the expenditure resulted in a benefit to the common property of the estate, and second, that the expenditure was reasonably incurred: Permanent Trustee Co v Redman (1917) 17 SR (NSW) 353 at 360 (Harvey J), referred to in Reeves v Reeves (No 2) [2024] NSWSC 386 at [89] (Meek J); Wardle v Wardle (No 2) [2021] NSWSC 1663 at [9] (Slattery J).
4. This principle is consistent with the general right of an executor to be indemnified out of the estate in respect of liabilities, costs and expenses properly and reasonably incurred in the administration of the estate, which is captured in s 59(4) of the Trustee Act 1925 (NSW), rr 42.5 and 42.25 of the UCPR and the general law: JD Heydon & MJ Leeming, Jacob's Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths) at [21-09]; Olsen v James [2020] NSWSC 1015 at [87]-[103].
5. The High Court in Nobarani v Mariconte (No 2) (2018) 360 ALR 390; [2018] HCA 49 at [2] (Kiefel CJ, Gageler, Nettle, Gordon and Edelman JJ) stated that: The general rule concerning executors, like that concerning trustees, is that costs properly and reasonably incurred by the executor in connection with the administration of the estate are payable from the estate. These costs can include litigation expenses.
6. Similarly, in Cardaci v Cardaci [2023] WASCA 158 at [569] (Buss P, Murphy and Mitchell JJA), the Court noted that: The general rule of indemnity has been described by the High Court as applying to costs reasonably and properly incurred by the trustee in connection with the administration of the trust. Costs for this purpose can include litigation expenses. The rationale for indemnification in respect of litigation expenses is that the trustee who has incurred the expense has not been acting for his or her own benefit, but for the benefit of the beneficiary or the trust estate in question.
7. If Stan, as a beneficiary of the estate, was acting purely in his own interest and not on behalf of the estate, then he would not be entitled to be indemnified out of the estate: Reeves [244]-[246]. There appears to be no dispute that Stan was acting on behalf of the estate and the result of the proceedings has benefited the estate, in circumstances where the Administrator would not otherwise have brought the claim. The role in which Stan was acting in bringing and prosecuting the proceedings was recognised by the order which I made on the first day of the hearing. It was beneficial to Stan in his personal capacity as co-beneficiary, but it was also beneficial to the common property of the estate - there appears to be a congruence between the interests of the estate and Stan's personal interests in this case. If the order sought by Stan is made, Stan will effectively bear the burden of one-third of the amount of costs paid out of the estate through the diminution of his interest in the estate, and consequently the other beneficiaries will bear the costs burden in the same proportion as they have benefited from the recovery.
8. Turning now to whether the expenditure was reasonably incurred, there is a need for reasonableness which extends beyond the bringing of the claim. Even if bringing the claim was proper, as it clearly was, it is necessary that the expenditure incurred in running the claim was reasonable.
9. The Administrator submits that Stan's costs were very high at approximately $832,000 on an indemnity basis, Stan lost on one argument, there was an excessively large court book with some irrelevant material, there is no evidence that Stan made any offers to settle the proceedings and there were extensions of time for late evidence by Stan (although it is recognised that this may have little relevance to the question of costs).
10. Stan submits that when the relevant costs the subject of the proposed order (being around $212,066 based on the Joint Agreement Schedule) are viewed relative to a recovery of around $3.4 million for the estate, the amount is not disproportionate compared to the benefit received by the estate. In addition, Stan submits that there was a complex and lengthy litigation history which justified the cost, the defendants contributed to the cost by not agreeing to a single expert, there was no evidence that the Administrator would have run the proceedings any differently to how Stan did, and the Administrator also conceded that if he had taken over the proceedings it would have incurred enormous cost. The medical evidence was relevant to the other issues in the case and not just the mental capacity issue (on which Stan was not successful). The extensions of time for late evidence were explained by an affidavit given by Stan's solicitor at the time and were granted with the consent of the other parties. Further, if the Administrator had conducted the matter, provided he acted properly and reasonably, then he would have expected to have his costs paid on an indemnity basis; there is no reason why Stan, effectively standing in the Administrator's shoes, should be treated any differently.
11. I accept the force of each of the submissions for Stan referred to in the previous paragraph. In my opinion, while Stan's costs may appear, at first blush, to be high for the nature of the claim, the matters raised by the Administrator do not justify a different order to the one sought by Stan for the following reasons.
12. First, while I am not in a position to assess properly the reasonableness of the amount of Stan's costs, there is an explanation for their size in the particular features of the case: 1. Stan was a stranger to the impugned transfers, and at the time they occurred there was a schism in the family. Consequently, most of the key evidence as to the circumstances in which the transfers occurred would need to come from witnesses called by the second and third cross-defendants, but it was necessary for Stan to call a significant number of lay witnesses to establish the context in which the transfers occurred, together with expert evidence dealing with the decline in the deceased's health over a long period. 2. The significant amount of lay evidence and expert evidence is an explanation for the considerable costs in preparing for the hearing and the length of the hearing itself. The lay evidence relied on by Stan comprised 25 affidavits (for 13 witnesses). The lay evidence relied on by the second and third cross-defendants comprised 29 lay affidavits (also for 13 witnesses). There were two further lay witnesses who dealt with the deceased and whose evidence was important, but they were not called as a witness for either side: Mr Ireland, the deceased's solicitor, and Dr Bassa, the deceased's general practitioner. Also, there were two medical experts (who gave evidence in their reports, in a joint report and oral evidence at the hearing concurrently). The cross-examination of all these witnesses took up eight days of the hearing. 3. In addition, it was necessary for the Court to be referred to a large number of medical records of the deceased, and a large number of documents relating to the prior proceedings in NCAT. This material, together with the large number of affidavits accounts for the size of the court book. I do not regard any of this material as unnecessary. 4. It is apparent from the transcript of the directions hearing before Hallen J on 1 August 2022, that his Honour originally made directions for a single medical expert, but this was overtaken by the second and third cross-defendants' decision to instruct their own expert (Dr Schwartz). Hence, the fact that there were two medical experts rather than a single expert is not due to the conduct of Stan.
13. Second, I do not regard the other matters raised by the Administrator (being the failure of Stan to make a settlement offer, the extensions of time for late evidence, and the fact that he lost on the mental capacity issue) as relevant to the question of whether Stan's costs were reasonably incurred or otherwise to the question of costs in this case. While it is true that Stan failed on the issue as to whether the deceased had the mental capacity to make the impugned transfers, the medical evidence put forward for this claim was central to his success on the unconscionable conduct and undue influence claims: see Judgment at [296]-[297] and [316]. There was no significant waste of time or cost due to the mental capacity issue having been raised.
14. Third, an order that Stan is entitled to recover out of the estate the difference between ordinary costs and costs on an indemnity basis would not, assuming the costs were assessed, entitle him to recover costs which were unreasonably incurred. Under the ordinary basis of costs assessment, a party is only entitled to recover costs that are no more than fair and reasonable in all the circumstances, and that in particular are proportionately and reasonably incurred and proportionate and reasonable in amount: Legal Profession Uniform Law (NSW), s 172(1); Dal Pont, Law of Costs (5th ed, 2021, LexisNexis Australia) at [16.6]. Under the indemnity basis, a party is entitled to recover all costs other than those that appear to have been unreasonably incurred or appear to be of an unreasonable amount: UCPR, r 42.5(b); Dal Pont, Law of Costs at [16.23]. The effect of the exclusionary words is to shift the onus to the paying party to show that the costs have been unreasonably incurred, but if the paying party can satisfy the costs assessor of this, the costs which have not been reasonably incurred will not be recovered: Bouras v Grandelis (2005) 65 NSWLR 214; [2005] NSWCA 463 at [117]-[119].
15. In my view, the issue as to reasonableness of Stan's costs is properly a matter for an assessor rather than me on this application. If an amount in respect of Stan's costs is ordered to be paid out of the estate, the Administrator will be entitled to have those costs formally assessed unless otherwise agreed by the parties. The ability of the Administrator to require the costs to be assessed provides protection against the recovery by Stan of costs which were not reasonably incurred and provides an appropriate way for the Administrator to challenge the amount which Stan ultimately claims should the Administrator wish to do so.
16. In all the circumstances of this case, in particular the manner in which it came to be Stan rather than the estate bringing the cross-claim, I consider that it is appropriate that the Administrator should have the burden of establishing that some part of the costs were unreasonably incurred rather than Stan having the burden of establishing that they were reasonably incurred.

Conclusion

1. For the above reasons, the Court will make the following orders and notation: 1. NOTES that on 9 July 2024 the Court ordered that the Second and Third Cross-defendants pay the costs of the Cross-claimant of the proceedings, such costs to be calculated on the ordinary basis. 2. An order that any difference between ordinary costs and indemnity costs of the Cross-claimant, in each case as agreed or assessed, be paid out of the estate of the Deceased. 3. An order that the Fifth Cross-defendant's costs of the proceedings, including his costs in relation to the Cross-claimant's application for costs, be paid from the estate on the indemnity basis.

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