These are family provision proceedings on which I delivered judgment in December last year: Scott v Scott [2021] NSWSC 1619. I found that the plaintiff's application for further provision succeeded. I adjourned the proceedings to allow the parties to agree, if possible, on the form of orders to give effect to my judgment, and on costs.
The parties later agreed on the form of the provision order to be made. Costs remain in dispute and are the subject of this judgment.
The judgment assumes familiarity with my December judgment, to which I refer as "J1". It also uses abbreviations used in the December judgment. In particular, the Succession Act 2006 is referred to as "the Act".
The successful plaintiff ("Coralynne") seeks an order for indemnity costs in her favour. The application is based on several offers to compromise the proceedings, the earliest of which was made in November 2020.
The unsuccessful defendant ("Charlene") who is the deceased's executor, contends that Coralynne should receive only an order for costs on the ordinary basis. Charlene also seeks an order from the Court that her costs be paid out of the estate on an indemnity basis.
[2]
Background, procedural history and decision
The background to the case is set out at J1 [15]-[36]. The deceased was pre-deceased by her husband ("Clifton Snr") who died in 2015. When the deceased died in July 2019 she was survived by their daughters, Coralynne and Charlene, and a son ("Clifton Jnr").
The major asset in the estate was the family home at Fairfield the value of which was later agreed for the purposes of the trial at $780,000. There was also at least $150,000 in cash: see J1 [310].
The deceased's last will was made in May 2019, about two months before her death. That will appointed Charlene as the deceased's executor and gave her the Fairfield property for herself. Out of the residue of the estate, legacies of $40,000 each were to be paid to Coralynne and Clifton Jnr. The remainder of the residue was to be divided three ways between Coralynne, Clifton Jnr and Charlene.
This will replaced a will which had been made by the deceased in 2015. Under the deceased's 2015 will, if Clifton Snr predeceased her, her estate was to be divided equally between the three children. That will had been made in mirror form with a will by Clifton Snr.
The May 2019 will was prepared for the deceased by Mr Ray Wehbe, solicitor. At the same time the deceased signed a testamentary statement which explained, or purported to explain, the dispositions in the will. That testamentary statement severely criticised Coralynne and Clifton Jnr for their supposed neglect of the deceased and supposed mistreatment of her and Charlene.
As executor, Charlene retained Mr Wehbe to apply for probate of the May 2019 will. Coralynne retained Mr David Duncombe, solicitor, to act for her in connection with the estate. Mr Duncombe had acted for the deceased in preparing her 2015 will.
In early September 2019 Mr Duncombe wrote to Mr Wehbe asking for a copy of the May 2019 will. In due course that was supplied. No caveat against the grant of probate was lodged. The Court made an order for the grant of probate in common form, in favour of Charlene, in October.
There was correspondence between Mr Duncombe and Mr Wehbe about Coralynne making an application for further provision beyond what she was to receive under the May 2019 will. In January 2020 Mr Duncombe formally gave notice Coralynne would be making a family provision claim.
In March 2020, Mr Duncombe wrote to Mr Wehbe requesting a copy of the file maintained by the solicitor who had prepared the will (that of course was Mr Wehbe himself). This was declined. Mr Wehbe took the position that Coralynne would have to make her application and comply with her disclosure obligations under the Supreme Court Probate List Guidelines for the request to be entertained.
Coralynne's summons was filed, commencing these proceedings, in July 2020. Mr Wehbe acted for Charlene as the defendant in the proceedings. He entered an appearance in September 2020.
Paragraphs 1-8 of the prayers for relief in Coralynne's summons were described as "preliminary relief". They first sought production of all documents in the possession of Charlene or her solicitors which had been generated in the course of preparing the May 2019 will. This in substance was what Mr Duncombe had asked for from Mr Wehbe in March, except that it also included any relevant documents which Charlene herself held. The basis for the order sought was put in various ways, including by way of preliminary discovery under the Rules; the Probate and Administration Act 1898, s 150; and the Civil Procedure Act 1995, s 68.
The "preliminary relief" sought also included an order that Mr Wehbe prepare and file an affidavit setting out the circumstances in which he had prepared the May 2019 will for the deceased. An order was then sought that further consideration of the proceedings be reserved until after production of the documents and the filing of Mr Wehbe's affidavit. That consideration was to take into account the possibility of Coralynne bringing proceedings to challenge the grant of probate for the May 2019 will.
The remainder of the prayers for relief were described in the summons as "substantive relief". This relief consisted essentially of an order for further provision in Coralynne's favour. This was expressed as follows:
An order that provision be made for the plaintiff's maintenance, education or advancement in life … out of the estate and/or notional estate of the deceased.
There was a settlement conference between the parties on 26 October 2020. The matter did not settle, but a few days later a written offer was made by Mr Duncombe on Coralynne's behalf. It took the form of a Calderbank letter which was emailed by Mr Duncombe to Mr Wehbe at 4:09 pm on 2 November. The offer was to compromise Coralynne's claim "on the basis of a payment to her in the sum of $130,000 including costs". The offer was open for acceptance for fourteen days.
About an hour later, at 5:02 pm on the same day, Mr Wehbe responded with his own written offer. This was made in the form of an offer of compromise under UCPR 20.26. The offer provided for an order for provision of $90,000 to be made in Coralynne's favour "from the estate" of the deceased "inclusive of" her legacy in the will. The offer also provided for Coralynne's costs, as agreed or assessed on an ordinary basis, to be paid out of the estate.
On 16 November, Mr Duncombe responded with another Calderbank offer. The wording of this was slightly different from the wording used in the letter of 2 November. The offer consisted of two paragraphs. The first was that "the defendant pay the plaintiff the sum of $100,000 plus costs". The second was that "party/party costs be agreed at $25,000".
This offer was verbally rejected on 27 November. On 1 December, Mr Duncombe wrote to Mr Wehbe stating that Coralynne would not be "proceeding with the probate suit". But the family provision application was to be pursued, and the letter stated that Mr Wehbe would need to file evidence as to Clifton Jnr's financial circumstances. Later, on 4 December, leave was obtained to amend the summons, and on 9 December an amended summons was filed which deleted all of the "preliminary relief" which had been claimed in the original summons.
Meanwhile, on 3 December Mr Duncombe made yet another written offer. This was in the form of an offer of compromise under the Rules. It essentially followed the wording of Charlene's offer of compromise of 2 November, except that the provision sum was $100,000 rather than $90,000.
This offer was also not accepted. There was then a ten month hiatus, so far as the evidence goes, in settlement negotiations, while the parties prepared for a hearing. The hearing was eventually fixed for the second half of October last year.
On 6 October, Mr Duncombe wrote to Mr Wehbe enclosing a notice to produce addressed to Charlene as the defendant, and a subpoena addressed to Mr Wehbe himself. The notice to produce and the subpoena sought production of documents concerning the preparation of the May 2019 will, and included the whole of Mr Wehbe's file.
Mr Wehbe objected. A particular concern was the requirement that he be cross-examined. Mr Wehbe stated that this would create a conflict for him which would make it impossible for him to conduct the hearing.
The proceedings came before Hallen J for mention on 13 October. His Honour was told about the requests for production of documents and the notice requiring Mr Wehbe for cross-examination. His Honour expressed displeasure that these matters had been raised so close to the hearing date. The proceedings were adjourned to 14 October.
On 14 October his Honour conducted an informal settlement conference involving both the parties and their legal representatives. The matter did not settle, and his Honour referred again to the late request for production of documents and notification that Mr Wehbe was required for cross-examination. He indicated that the latter, if pressed, might require the proceedings to be adjourned. His Honour then stood the proceedings over for further directions at 2:00 pm the following day (15 October) to allow settlement negotiations to continue.
Later on the afternoon of 14 October, Mr Duncombe sent Mr Wehbe a further written offer. This was in the form of a Calderbank letter. The offer provided for an order for provision to be made out of the estate of the deceased in the sum of $100,000 in lieu of the provision for Coralynne under the May 2019 will. The plaintiff's costs were to be paid out of the estate in a specified gross sum of $40,000. The defendant's costs, on an indemnity basis, were to be paid out of the estate. The letter added:
We note that how the burden of provision is borne is a matter for the estate.
The offer was not accepted and the settlement negotiations came to nothing. The matter proceeded to hearing before me on 20, 21 and 22 October and my judgment was delivered on 13 December.
In the end the application to have Mr Wehbe cross-examined at the hearing was withdrawn. Mr Wehbe's file was produced at the hearing and documents were tendered from it. It is not clear to me from the evidence whether this was as a result of a formal response to the notice to produce or the subpoena, or whether it took place by informal agreement.
I found on the evidence that both Charlene and Coralynne had contributed to the emotional support of the deceased, and Coralynne had contributed financially to the Fairfield property (J1 [182]-[187]). Coralynne was in a stronger position financially than Charlene, but by no means impregnably wealthy (J1 [331]-[332], [339]-[340]).
It was argued for Charlene that the Court should respect the testamentary judgment, favourable to Charlene and unfavourable to Coralynne, made in the May 2019 will. But I found that the will and the accompanying testamentary statement were the product, albeit unknown to Mr Wehbe, of Charlene's influence behind the scenes. The statement painted a false picture which had come, directly or indirectly, from Charlene. The grounds given for the dramatic reduction in Coralynne's inheritance were spurious (J1 [247]-[260]).
The principle that a capable and fair-minded testamentary judgment should carry weight with the Court therefore did not apply to the May 2019 will. And further, once that will was put to one side, the principle increased the weight of the equal division between Coralynne and Charlene in the 2015 will. There had been no material changes (or, at least, unforeseeable material changes) to the parties' circumstances since that will had been prepared (J1 [346]-[347]).
In the circumstances, I concluded that the provision in favour of Coralynne in the May 2019 will was inadequate, and further provision should be made for her (J1 [349]).
One of the practical questions which arose about the making of further provision was what part of the deceased's estate that provision should come from. If it came out of the residue, it would fall first on Charlene's and Clifton Jnr's two-thirds share of the remainder of the residue, and then on Clifton Jnr's legacy of $40,000. At the top end of the range claimed by Coralynne, the residue, and thus Clifton Jnr's share of the estate, was likely to be exhausted.
This issue was raised at the hearing. Counsel for Charlene made it clear that her position was that if further provision were made, Clifton Jnr's share should be quarantined from it, so that it would fall on Charlene's share of the estate alone. In my judgment I fixed the amount of the further provision at $180,000, on the understanding that it would come out of the Fairfield property which Charlene had been left under the will (J1 [350]-[355]).
The proceedings returned to Court on 21 December for the making of final orders. The parties agreed an order for provision in the following terms:
… in lieu of the provision made for the Plaintiff in Clauses 7(c) and (d) of the Will dated 16 May 2019 of [the deceased]: (1) the Plaintiff receive, by way of provision, a lump sum of $180,000 out of the Defendant's share of the estate of the deceased; and (2) the Defendant receive the share of the estate which the Plaintiff would have received.
The orders also provided for the Fairfield property to be sold, and the $180,000 legacy to be paid, by May this year. My judgment has been appealed by Charlene. I do not know whether the property has been sold and the legacy paid.
On the evening before the listing on 21 December, counsel for Coralynne lodged a lengthy written submission on costs. Among other things, counsel referred to some of the offers of compromise which had been made and argued that costs should be awarded on an indemnity basis.
On 21 December, counsel for Charlene first indicated that she wished to proceed with the costs argument despite the late service of the submissions. But it became apparent that she wished to refer to additional factual matters beyond the offers of compromise to which counsel for Coralynne had referred in his submissions. I also raised with both counsel a question about the validity of the offers of compromise, which counsel for Coralynne, at least, wished to consider in more detail.
In the end, directions were made for questions of costs (including the incidence of the parties' costs on the estate) to be dealt with on the papers. This resulted in supplementary submissions and evidence from Coralynne; submissions and evidence in response from Charlene; and further submissions and evidence in reply from Coralynne.
[3]
Costs
Coralynne succeeded in obtaining a substantially higher provision than was made for her in the deceased's will of May 2019. There was no dispute that she should obtain a costs order in her favour. Four points need to be addressed.
[4]
Incidence of costs on estate
The order sought on behalf of Coralynne was that her costs be paid "out of the estate". The making of an order in this form was not disputed, although the quantum of costs was a matter for debate. For her part, counsel for Charlene sought an order that her costs be paid "out of the estate" on an indemnity basis and this was apparently not opposed by counsel for Coralynne.
Although the parties apparently agreed on the incidence of costs on the estate, there are still Clifton Jnr's interests to consider. If "out of the estate" meant that in the first instance the costs were to be paid out of residue, then, as with the additional provision in favour of Coralynne, that would substantially cut into, if not eliminate, Clifton Jnr's legacy. But at the hearing on 21 December last year, counsel for Charlene made it clear that Clifton Jnr's legacy should be quarantined from the costs of the proceedings, just as it is to be quarantined from the additional provision in favour of Coralynne. I did not understand counsel's position to have changed in her later written submissions.
This means for practical purposes that Charlene will be paying both Coralynne's costs and her own costs of the proceedings. Nevertheless, I propose to make orders about the incidence of costs on the estate so that the position is clear.
Section 99 of the Act gives the Court a wide power to make orders for costs out of the estate "in such manner as the Court thinks fit". In due course I will make orders that both Coralynne's costs and Charlene's costs are to be paid out of Charlene's share of the estate. An order in this form will confirm that none of the costs of the proceedings are to be paid out of Clifton Jnr's share of the residue. It will also make clear that Charlene's liability to pay Coralynne's costs is limited to the assets Charlene will receive from the estate (although, given the value of those assets, this is unlikely to make any practical difference).
[5]
Applications for deceased's solicitor to produce documents and give evidence
Counsel for Charlene referred at some length in her written submissions to the application for the "preliminary orders" in the initial version of Charlene's summons, which referred to the possibility of an application to have probate of the May 2019 will revoked. Counsel criticised the attempt to obtain documents in support of what she called an "unpleaded" claim that the will was invalid.
According to counsel, following its abandonment in December 2020 the "claim" had in substance been reinstated in October 2021 and "conflated" with the family provision claim. Counsel complained in particular about the late notice to Mr Wehbe requiring him for cross-examination. In counsel's submission, this unreasonably (and perhaps deliberately) put him in a position of conflict.
I dealt with a similar complaint in my December judgment at J1 [341]-[342]. It is true that no application was made on Coralynne's behalf to revoke probate of the May 2019 will on the ground that the deceased lacked capacity, or lacked knowledge and understanding of the contents of the will, or was under the influence of Charlene when she executed it. But s 60(2)(j) of the Act expressly allowed the Court to take into account, for the purposes of determining Coralynne's family provision application, the deceased's testamentary intentions.
The May 2019 will was a substantial departure from the 2015 will. It involved what I have earlier described as a "testamentary judgment" against Coralynne. The deceased's testamentary statement was prepared so as to justify that adverse judgment. In opposing Coralynne's claim, counsel for Charlene herself tendered the statement in opposition to Coralynne's claim.
In these circumstances, the accuracy of the allegations against Coralynne in the testamentary statement, and the extent to which they represented a fair-minded assessment by the deceased herself, were significant factors in determining the family provision claim. As the solicitor who had prepared the May 2019 will and the testamentary statement, Mr Wehbe was always potentially open to cross-examination (assuming, of course, that notice was given in proper time).
Counsel for Charlene stated that she was not intending to re-argue, by way of costs submission, points which I had decided in the judgment. But elsewhere in her submission she stated that the Court had been "led astray" on this issue, "allowing it to fall into error". She also alleged that there had been a breach of the rules of procedural fairness in allowing Coralynne to raise the "unpleaded" issue.
Lest there be any doubt about it, I have reconsidered what I said in the judgment on this point. My views are unchanged. I remain satisfied that the evidence about the circumstances in which the will was prepared, including the deceased's mental state and the influence which Charlene had over the process, and the findings I made on that evidence, were relevant to the determination of the family provision application.
Had Coralynne pursued an application to have probate of the May 2019 will revoked, she would have needed to plead her case in accordance with the established rules of law which govern the admission of wills to probate. But a family provision application requires a wide judgment involving the evaluation of all relevant factual circumstances. Generally, such applications do not lend themselves to pleading. No statement of claim was required in this case.
I therefore do not accept that the way in which evidence about the circumstances in which the will was prepared came out at trial was somehow unfair to Charlene. In fact, as I have mentioned, the issue was one which arose out of Charlene's own arguments.
In principle, to the extent that Charlene's costs of defending the proceedings were increased by the inclusion of the "preliminary relief" in Coralynne's initial summons, those costs should be paid by Coralynne. Similarly for the costs, if any, thrown away by late requests for the production of documents or the costs, if any, thrown away by the belated request for Mr Wehbe to be available for cross-examination.
But I think that the time for applying for orders about this was when any such costs were thrown away. On the evidence before me it is unclear whether there was in fact any substantial wastage of costs. Certainly Mr Wehbe's file was produced and tendered at the hearing, so it is hard to see how the request for production of that file could have resulted in costs being wasted on that account.
[6]
Offers of compromise
It is convenient to start with the purported formal offer of compromise of 3 December 2020. If this was a valid offer under the Rules, it triggered a prima facie right to costs, subject to the Court ordering otherwise.
At the hearing on 21 December last year I raised a question about whether the offer complied with the Rules, when it did not specify how the settlement sum was to be borne by the estate. In particular it did not state whether the settlement amount was to come out of the residue (and thus, at least in part, out of Clifton Jnr's share) or out of Charlene's share of the estate only, as ultimately ordered.
A similar question had arisen prior to the hearing in a family provision case which I decided in December last year: Alvarez v Matthews [2021] NSWSC 1551. The plaintiff accepted what purported to be an informal offer made by one of the three executor-defendants. The other two executor-defendants (who were separately represented) agreed with the settlement sum but not with the way in which, under the offer, the burden of the settlement was to fall on the beneficiaries' shares of the estate. The plaintiff made an application to enforce payment of the settlement sum, on the basis that the burden would be fought out between the defendants in due course. But there seemed to me to be a difficulty with this. In the end the enforcement application was withdrawn and the case proceeded to a hearing on the merits between the plaintiff and the defendants.
The difficulty which I saw with enforcing the offer in Alvarez was this. I thought that there could not be an enforceable settlement between the plaintiff and the objecting executor-defendants which determined the amount to be received by the plaintiff but left the incidence of that amount on the defendants' shares of the estate undetermined. But, as the enforcement application was withdrawn, it had not been necessary to form a final view on this question. In the present case it is, because counsel for Coralynne contends that my preliminary view was wrong.
Uniform Civil Procedure Rules 2005, r 20.26, relevantly provides:
20.26 Making of offer
(1) In any proceedings, any party may, by notice in writing, make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms.
(2) An offer under this rule -
(a) must identify -
(i) the claim or part of the claim to which it relates, and
(ii) the proposed orders for disposal of the claim or part of the claim, including, if a monetary judgment is proposed, the amount of that monetary judgment, and
(b) if the offer relates only to part of a claim in the proceedings, must include a statement -
(i) in the case of an offer by the plaintiff, as to whether the balance of the proceedings is to be abandoned or pursued, or
(ii) in the case of an offer by a defendant, as to whether the balance of the proceedings will be defended or conceded, and
(c) must not include an amount for costs and must not be expressed to be inclusive of costs, and
(d) must bear a statement to the effect that the offer is made in accordance with these rules, and
(e) if the offeror has made or been ordered to make an interim payment to the offeree, must state whether or not the offer is in addition to that interim payment, and
(f) must specify the period of time within which the offer is open for acceptance.
(3) An offer under this rule may propose -
(a) a judgment in favour of the defendant -
(i) with no order as to costs, or
(ii) despite subrule (2)(c), with a term of the offer that the defendant will pay to the plaintiff a specified sum in respect of the plaintiff's costs, or
(b) that the costs as agreed or assessed up to the time the offer was made will be paid by the offeror, or
(c) that the costs as agreed or assessed on the ordinary basis or on the indemnity basis will be met out of a specified estate, notional estate or fund identified in the offer.
UCPR r 42.14 relevantly provides:
42.14 Where offer not accepted and judgment no less favourable to plaintiff
(1) This rule applies if the offer is made by the plaintiff, but not accepted by the defendant, and the plaintiff obtains an order or judgment on the claim no less favourable to the plaintiff than the terms of the offer.
(2) Unless the court orders otherwise, the plaintiff is entitled to an order against the defendant for the plaintiff's costs in respect of the claim -
(a) assessed on the ordinary basis up to the time from which those costs are to be assessed on an indemnity basis under paragraph (b), and
(b) assessed on an indemnity basis -
(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and
(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.
One of the requirements of UCPR r 20.26 is that the offer should set out the "proposed orders for disposal of the claim" (subrule 2(a)(ii)). In this regard, s 65 of the Act relevantly provides:
65 Nature of orders
(1) A family provision order must specify -
(a) the person or persons for whom provision is to be made, and
(b) the amount and nature of the provision, and
(c) the manner in which the provision is to be provided and the part or parts of the estate out of which it is to be provided, and
(d) any conditions, restrictions or limitations imposed by the Court.
(2) A family provision order may require the provision to be made in one or more of the following ways -
(a) by payment of a lump sum of money,
(b) by periodic payments of money,
(c) by application of specified existing or future property,
(d) by way of an absolute interest, or a limited interest only, in property,
(e) by way of property set aside as a class fund for the benefit of 2 or more persons,
(f) in any other manner the Court thinks fit.
(3) If provision is to be made by payment of an amount of money, the family provision order may specify whether interest is payable on the whole or any part of the amount payable for the period, and, if so, the period during which interest is payable and the rate of the interest.
Counsel for Coralynne appeared to acknowledge that, strictly speaking, it is a requirement of UCPR 20.26, as it applies to family provision claims, that the terms of the order to be made on acceptance of the offer be set out, or at least identifiable from, the offer. But counsel submitted that an offer could validly be made which left the incidence, or "burden", of the provision at large. Counsel argued that previous decisions of the Court did not support the contrary proposition, and were indeed inconsistent with it, at least implicitly.
Counsel suggested that an offer could validly state that the incidence was a "matter for the defendant or the estate". Counsel also suggested, in another limb of his argument, that s 72 of the Act provided a mechanism for determining the incidence of the further provision. That mechanism made it unnecessary for an offer to specify how the burden of the further proposed provision was to be borne, or at least made it unnecessary to do so in this case.
In the course of his argument, counsel canvassed wider consequences, or what were said to be wider consequences, of the contrary view. Counsel also suggested that the contrary view would also create difficulties for the executor. Counsel submitted that, in general, it is the executor's obligation to defend the proceedings on behalf of all beneficiaries. The beneficiaries themselves are "not usually welcome as parties": Pang v Fong (No 2) [2014] NSWSC 1924 at [51]. Counsel's suggestion seemed to be that requiring the offer to spell out the burdens on the beneficiaries would in some way cut across these principles. Counsel also argued that it would be unworkable for a plaintiff to have to consult with affected beneficiaries before making an offer.
I do not think there is any doubt about the general principles of interpretation to be applied in dealing with these submissions. Only an offer which complies with the terms of r 20.26 (or at least complies substantially with those terms) is effective for the purposes of r 42.14: Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311. Where an offer departs from the express terms of r 20.26, the principles in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 apply. The question is whether the rule-maker would have intended the offer to be effective notwithstanding the non-compliance. That question is to be determined as a matter of construction of the rule, having regard to its language and the purposes which it seeks to achieve: Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd (No 2) [2014] NSWCA 391 at [37].
The requirement in subrule (2)(a)(ii) that the offer state the terms of the order to be made by the Court was the subject of consideration by Campbell J in AAI Ltd v Josipovic (No 2) [2013] NSWSC 1577. That case involved an administrative law challenge to a determination of the compensation payable in a motor vehicle accident. The successful applicant for compensation, who was the defendant in this Court, made a formal offer of compromise under which he proposed to accept a sum of money which was less than the amount which had been the subject of the award which was under challenge. The challenge to the compensation order failed.
An application for an order for indemnity costs was made on behalf of the defendant. But the offer had not specified the precise orders to be made by the Court. Those orders would have included an order that the original award be set aside and in lieu thereof there be judgment for the lesser sum. His Honour concluded that this was fatal to the offer and dismissed the defendant's application for indemnity costs.
In his judgment, Campbell J made two points of general significance. First, if an offer is accepted, orders must be made formally bringing the proceedings to an end: Dawson v ACP Publishing Pty Ltd [2007] NSWSC 542 at [17]. The requirement that the proposed orders be specified is linked to the terms of UCPR, r 20.27, which provides that upon acceptance of an offer made under r 20.26, either party may apply to the Court for the "entry of judgment accordingly" (at [28]).
His Honour's second point was that the requirement is one which the rule says "must" be followed. His Honour described the language of the rule as "emphatic" (at [33]).
In Bates v Cooke (No 2) [2014] NSWSC 1322, Kunc J stated that r 20.26 and r 42.14 apply in family provision proceedings as well as other civil proceedings (see at [27]-[33]). There was no dispute in the present case that this is so. I should, however, point out in passing that the language of the Rules is not fully adapted to such offers.
Sub-rule 20.26(3)(c) contemplates that an offer may be accompanied by a proposal that the plaintiff's costs be paid out of the estate, or out of specified notional estate. The estate is under the control of the executor, but notional estate is not. The owner of notional estate will be a separate party who will have been (or ought to have been) joined as an additional defendant. Presumably an offer dealing with provision out of notional estate, or providing for costs to be paid out of notional estate, must be addressed to that additional defendant to be effective. How such an offer can be integrated with an offer to the executor for provision out of the estate, or payment of costs out of the estate, is not clear.
As I have already noted, if the offer is accepted, an application may be made by any party to have "judgment" entered "accordingly" under r 20.27. Presumably a non-party beneficiary (such as Clifton Jnr in this case) whose interests may be affected is entitled to be heard, or at least the Court may take such a party's interests into account, on such an application: Sackelariou, Edward v O'Donnell [2018] NSWSC 1651 at [76]-[81]. Presumably also, the Court retains a discretion not to enter "judgment" in accordance with the offer (which apparently would include the costs proposal). Whether the Court may instead make an order giving effect to the settlement on different terms as to costs, or must then proceed to hear the case on its merits despite acceptance of the offer, is unclear.
If a plaintiff's offer is not accepted, but is bettered at the hearing, r 42.14 gives the plaintiff a presumptive entitlement to an order for costs, including on an indemnity basis, "against the defendant". Apparently, the entitlement is to a personal costs liability against the executor, not limited to the assets of the estate. This is so even if the offer is accompanied by a proposal for payment of the plaintiff's costs out of the estate.
Presumably if the Court gives effect to the offer inter partes, it must thereafter decide whether the executor is to have indemnity from the estate against that personal costs liability. Such an issue would fall under the Court's jurisdiction over the administration of estates and trusts, and may require the joinder of the affected beneficiaries and an investigation into the reasonableness of the executor's conduct from the point of view of the estate.
In making these points, I am not intending to call into question the conclusion that the regime for formal offers applies to family provision proceedings. All I am doing is to point out some of the practical issues which may arise when the Court seeks to give effect to that conclusion. Of course, any problems with the Rules which prove intractable may be overcome by making a suitably worded informal offer.
Returning to the issue raised by counsel's argument, it is true that family provision cases are sometimes conducted on the basis that it is agreed that the plaintiff will receive a certain amount, and the only question is the way in which the burden of that additional provision should be borne by the beneficiaries. But while in practice some cases may run in that way, I do not think that there is any foundation in the Act for treating the quantification of the provision to be made in favour of a plaintiff who has satisfied the threshold requirement of s 59 and determining how the burden of that additional provision is to be apportioned.
The statutory question for the Court is what provision "ought to have been made" for the plaintiff. Making an order for further provision means that, to the extent of the further provision, existing beneficiaries' rights are displaced (as s 65 clearly contemplates). This necessarily involves considering the respective merits of the plaintiff and each beneficiary whose entitlement is to be displaced.
Furthermore, it may be necessary in some circumstances for the offer to specify where the funds are to come from in order to determine whether the eventual judgment is "more favourable" than the offer, as is required by UCPR, r 42.14. Suppose, as in this case, that the will provides for a substantial legacy in favour of beneficiary A, with the residue to go to beneficiary B. An order for provision which is to be funded both out of the legacy and the residue will, if the residue is insufficient, be manifestly more favourable than an order which provides for payment out of the residue alone.
I think my conclusion is supported by wider considerations of principle. An important feature of rules of court which provide for offers of compromise is that settlements achieved should be final. Allowing an offer to be put on the basis of the burden being worked out later will not necessarily achieve that objective. Either it will lead to the collapse of the settlement at the point of enforcement by the plaintiff (as in Alvarez) or there must be a separate hearing on burden. It means that the matter will not be fully resolved and the parties other than the plaintiff will continue to incur costs.
There was a suggestion in counsel's submissions that requiring a party who wants to make an offer to specify how the plaintiff's provision is to be borne is somehow a burden and a distraction. I reject that suggestion. In my view, in cases where there is or may be an issue as to how the provision sought by the plaintiff is to be borne, the earlier the parties are required to confront that question the better. That should be done, it seems to me, in the plaintiff's summons. But if that has not happened, making the parties face up to it when exchanging offers can only assist in the efficient conduct of the case.
Turning to authority, in Estate of May Berry, deceased [2016] NSWSC 130 Lindsay J was faced with an application for indemnity costs by a successful plaintiff. The offer of compromise simply provided for a "legacy" in favour of the plaintiff. Lindsay J stated at [62]:
… the form of each "offer of compromise", might be thought to have fallen short of the requirements of r 20.26(2) of the Uniform Civil Procedure Rules in so far as it did not set out in full the orders that could be made, or would be made, in disposition of the plaintiffs' respective family provision claims, including orders as to which part or parts of the estate of the deceased would bear the burden of any statutory provision made for the plaintiffs or costs.
Counsel for Coralynne pointed out that this was only one of the problems, or potential problems, in the offer being considered by Lindsay J. His Honour's language was tentative. An application was made for leave to appeal but it was refused on grounds which did not require the Court of Appeal to consider what his Honour had said about UCPR, r 26.2(a)(ii).
Counsel also pointed to various first instance decisions in which no point was taken about the offer not specifying the incidence of the proposed provision. These were: my decision in Megerditchian v Khatchadourian (No 2) [2020] NSWSC 112; and also the decisions of Williams J in Vella v Vella (No 2) [2020] NSWSC 1032; Robb J in Coote v Coote (No 2) [2021] NSWSC 461; and Rees J in Rathswohl v Court (No 2) [2021] NSWSC 505; together with the decision of Kunc J in Bates.
In Vella the offer did not even set out the orders required, let alone the incidence of the further provision. It is true that in none of the other decisions was the point mentioned, but in none of them was it raised. In my view they give no guidance on the question in the present case.
As I have mentioned, counsel also relied on s 72 of the Act. That provides:
72 Effect of family provision order
(1) A family provision order takes effect, unless the Court otherwise orders, as if the provision was made -
(a) in a codicil to the will of the deceased person, if the deceased person made a will, or
(b) in a will of the deceased person, if the deceased person died intestate.
(2) Without limiting subsection (1), the Court may at the time of distribution of an estate that is insufficient to give effect to a family provision order make such orders concerning the abatement or adjustment of distributions from the estate as between the person in whose favour the family provision order is made and the other beneficiaries of the estate as it considers to be just and equitable among the persons affected.
Counsel argued that the effect of s 72 was to determine the incidence of the further provision as a matter of law. In this context, counsel referred to Morrison v Abbott [2012] NSWSC 320 as an example of a case where an order for provision by way of a "legacy" was understood to come from the residue.
Subsection (1) does not assist counsel's argument. All it provides is that the order is to take effect as a codicil. The content of the order is prescribed by s 65, which requires the source of the provision to be specified. That is hardly surprising. The further administration of the estate would be impossible if the order left it unclear where the further provision was to be paid from.
Subsection (2) is not relevant for present purposes. It is a power which only applies if the estate proves insufficient to meet the further provision. Recourse to the subsection should be rare because any such issue would normally be considered in fixing the amount of the provision in the first place. But on any view subsection (2) does not provide a mechanism independent of s 65 for determining the source of the provision; rather, like subsection (1) it points up the need for the s 65 order to specify that source.
In some cases, depending on the terms of the will, specifying in the s 65 order that the further provision is to be a "legacy" may be sufficient to indicate that it will come out of the residue. But in the present case there was a clear ambiguity which was not resolved by the offer in question. The difference between the terms of the offer and the terms of the order ultimately made shows that this was so.
Finally, counsel for Coralynne relied on the decision of Wilson J in Dibbs v Emirates (No 2) [2015] NSWSC 1786. That was a personal injury claim. The defendant offered a sum of money on the basis of the plaintiff discontinuing. The offer was made in what purported to be a formal offer of compromise. The claim failed and the defendant sought indemnity costs. On behalf of the plaintiff, this was resisted on the ground that the offer did not specify the form of the order. Wilson J however overrode the objection.
On the facts of that case, it is hardly surprising that her Honour considered that the plaintiff's argument was pedantic in the extreme. Presumably the deficiency was that there would have needed to be a formal order granting leave to the plaintiff to file a notice of discontinuance. Her Honour stated at [18]:
The manner in which the defendant proposed to finalise the litigation was … clear, even without including a statement of the precise wording of the proposed orders for disposal of the claim (r 20.26(2)(a)(ii)). Had the plaintiff responded to the offer of compromise, some acceptable form of words could have been readily agreed by which the matter could have been put before the Court for consent orders to be made.
The present case is in my view quite different. For the reasons I have given, the failure to specify the fund from which the further provision was to be made was a defect of substance. In my view the offer was invalid.
In saying this, I am not seeking to engage with the wider arguments by counsel for the plaintiff. I do not suggest that a plaintiff in family provision proceedings has any obligation to consult with other beneficiaries before putting an offer; there is nothing in r 20.26 which requires that. Nor does my conclusion involve any challenge to the general principle that the conduct of a defence of a family provision claim is vested in the executor. As Robb J pointed out in Pang in [51]-[52] there may be a practical obligation to consult with other beneficiaries. If so, there may be circumstances in which opposition from a beneficiary could be a reason for the Court to order otherwise for the purposes of r 42.14. But none of that arises in the present case.
This brings me to the informal offers of compromise. The effectiveness of such an offer does not depend solely on a comparison between the offer and the eventual result. In order to make such an offer effective, it must be affirmatively demonstrated that refusal of the offer was unreasonable.
The earliest offer was the one made on 2 November 2020 (see [19] above). Counsel for Charlene pointed out that this was an "all in" offer. Counsel submitted that this fact alone disqualified it from being a valid offer for the purposes of Calderbank principles.
In support of this submission, counsel relied on the judgment of McColl JA in Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322. Her Honour referred to a line of cases, beginning with Smallacombe v Lockyer Investment Co Ltd (1993) 42 FCR 97, to the effect that an offer expressed to be inclusive of costs will not be treated as effective. Her Honour stated (at [115], citation omitted):
… Smallacombe does not lay down a "definitive rule" that an "all-in" Calderbank offer can never be considered on the question of indemnity costs. The Court cannot fetter the s 98 discretion by legal rules [citation omitted]. Smallacombe does, however, afford guidance as to the exercise of the s 98(1) discretion. It informs the question of the reasonableness of an offeree's refusal to accept an "all-in" offer. In my view it has a sound practical basis. While I accept each case should be considered on its facts, Smallacombe provides sound reasons to discourage offerors from drafting Calderbank letters on an "all-in" basis.
In terms, however, her Honour did not say that there is an absolute rule that an inclusive offer is ineffective. Basten JA pointed out that in some circumstances it might not be clear whether an inclusive offer had been more favourable than the end result. But in other cases that would not necessarily be so and the recipient party could still have behaved unreasonably in rejecting the offer despite its being inclusive (see at [143]-[147]). Beazley JA stated at [5]:
Leaving to one side the rules and principles that apply in the case of offers of compromise made under r 42.12 of the Uniform Civil Procedure Rules, I do not agree that an offer which is inclusive of costs cannot ever be the basis upon which the court exercises its discretion to award indemnity costs. The award of
indemnity costs involves the exercise of a discretion. The application of an overarching 'rule' or 'principle' that only offers exclusive of costs could ground a favourable exercise of the court's discretion would operate as a fetter on that discretion and would introduce a rigidity to the making of so called Calderbank offers which has no basis in principle.
In the present case, when the offer was made Charlene's legal representatives would not necessarily have known how much had been incurred by Coralynne for costs. But on any view the amount ultimately awarded was more favourable than the offer. In any event, any problem with the "all in" nature of the first offer was overcome in the second offer where the costs were separately quantified at $25,000.
These informal offers, like the formal offer of 3 December which I have already discussed, did not specify the source from which the further provision was to come. It is generally regarded as necessary for an informal offer to be effective that it should be an "offer capable of acceptance". This would usually require the specification of the orders to be made. But I think the reason for this is that, if the offer is incomplete, acceptance will not necessarily dispose of the claim. As with an "all in" costs offer, that may create an uncertainty but it does not always do so.
The terms of the November 2020 offers left it uncertain whether or not Clifton Jnr's share of the estate was to be quarantined from the further provision that Coralynne was seeking. The failure to do so may have been deliberate. Mr Duncombe specifically stated in his letter of 1 December that Charlene would have to put on evidence about Clifton Jnr's position. He may have perceived a forensic advantage to his client in laying claim, or being seen to lay claim, to Clifton Jnr's share of the estate. Clifton Jnr was ultimately a witness in Coralynne's case, and his evidence was not favourable to Charlene. It might have been even less favourable if it had been extracted in cross-examination
If Mr Wehbe had been left in a state of uncertainty about how Clifton Jnr's share was to be dealt with under the offers, or if he had incurred significant extra costs in defending Clifton Jnr's share of the estate from Coralynne's claim, this might have justified a submission that it had not been unreasonable to refuse the offer. But it seems that in Mr Wehbe's mind there was no such uncertainty. He ignored the suggestion that Charlene had to call evidence from Clifton Jnr. And counsel for Charlene stated in her submissions that it was always "patently obvious" that Clifton Jnr's share would be quarantined.
The result is that the offers did not create any relevant uncertainty for Mr Wehbe about how any provision in favour of Coralynne was to be borne. Nor did they result in additional costs being incurred by Charlene.
Counsel for Charlene submitted that the inclusion of the "preliminary relief" was relevant to assessing the reasonableness of the offers made in November 2020, when that relief still formed part of Coralynne's claim. I do not see why. As I noted at J1 [359], it was always open for Coralynne (or Clifton Jnr) to bring an application to have probate of the May 2019 will revoked. Settling the family provision claim and dismissing the summons would not necessarily have prevented such a claim being made, although it would have been a discretionary obstacle to a later application by Coralynne.
Nevertheless, I think there is a difficulty with the application for indemnity costs based on the November 2020 offers. A significant factor at the trial was the evidence that showed that Charlene had been responsible for the change to her mother's will. Of course, on my findings, Charlene would have known of the underlying facts. But her legal advisors may not have known, and therefore may not have appreciated the potential significance of, that evidence. At the time the offer was made the documents had not been produced. Charlene's legal representatives therefore cannot have perceived that they would form part of Coralynne's case.
In these circumstances, I think that it would be wrong to project the merits of the case as they ultimately appeared, based on the evidence given at trial, back to the time when the offer was made. In fact there was no reference at all in the settlement offers to the way in which the case was to be advanced on behalf of Coralynne. The merits of the case may legitimately have appeared quite different to Charlene's legal representatives at the time the offers were made. I therefore do not think that it has been demonstrated that rejection of the November 2020 offers was unreasonable.
The next offer was the purported formal offer of 3 December. Counsel submitted that even if (as I have found) the offer was formally invalid, it could still take effect as an informal offer.
This question was considered authoritatively in the Court of Appeal in Whitney v Dream Developments Pty Ltd [2013] NSWCA 188. Whether a purported formal offer which happens to be invalid can take effect as an informal offer is a question of intention to be determined objectively from the terms of the offer and the matrix of fact known to both parties. Bathurst CJ said at [43]:
… an offer made expressly pursuant to r 20.26 will not of itself take effect as a Calderbank offer unless there is something in it or in the surrounding circumstances to indicate that it is proposed to be relied upon on the question of costs, irrespective of its effectiveness as an offer under r 20.26.
In the present case the covering letter did not contain any suggestion that the offer would be relied upon as an informal offer if it failed to comply with the Rules. The letter was not marked "without prejudice except as to costs". In any event, even if the December offer were treated as an informal offer, I do not think that it has been demonstrated that its rejection was unreasonable. The same reasoning applies as for the November offers.
The same reasoning also applies to the informal offer made in October 2021. By that stage the documents about the preparation of the May 2019 will had been sought, but still not obtained. There was still nothing in the circumstances to draw Charlene's legal representatives' attention to the importance of Charlene's conduct in the resolution of the case. In any event, I think that the amount of time offered (less than a full day) was inadequate.
For these reasons, I do not consider that the refusal to accept any of the informal offers should give rise to indemnity costs. The costs order in favour of Coralynne will be on an ordinary basis only.
[7]
Argument about costs
Counsel for Charlene noted that, despite having served a lengthy written submission on costs the day before the hearing on 21 December, counsel for Coralynne was not able to proceed with the argument on that day. As events turned out, counsel presented a lengthy supplementary submission on costs together with a further lengthy submission in reply. Counsel for Charlene submitted that the level of costs incurred by Coralynne on the costs argument was "opportunistic". It was largely attributable to the way in which the argument on costs had been presented on Coralynne's behalf.
Coralynne has failed on the major issue debated in the costs argument, namely the claim for indemnity costs. On the other hand, despite the submissions by counsel for Charlene, the fact is that she wished to present arguments on costs which required evidence which was not before the Court on 21 December. This is not intended as a criticism, but merely as an explanation of the fact that some further period to allow both parties to present their argument on costs was inevitable.
The further argument by counsel for Charlene was largely directed on a factual level to the complaints about the applications for access to documents and evidence about the circumstances in which the will was executed. I have rejected those complaints. In my view the proper order to make is that as between Coralynne and Charlene there be no order as to the costs of the argument about costs.
[8]
Orders
The orders of the Court are:
1. Order that the plaintiff's costs (apart from costs of the argument about the costs of the proceedings) be paid out of the defendant's share of the estate, on the ordinary basis.
2. Order that the defendant's costs of the proceedings be paid out of the defendant's share of the estate, on an indemnity basis.
[9]
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Decision last updated: 08 July 2022