Sherborne Estate (No 2): Vanvalen & Anor v Neaves & Anor; Gilroy v Neaves & Anor

Sherborne Estate (No 2): Vanvalen & Anor v Neaves & Anor; Gilroy v Neaves & Anor - [2005] NSWSC 1003 - NSWSC 2005 case summary — Zoe

[15]

4 I will not recount all of the relevant facts: they are set out in my judgment of 23 June 2005 and I will assume that the reader is familiar with that judgment. For the purposes of this decision I need only refer to the following circumstances. 5 The value of the deceased's estate which passed under her will was relatively insignificant if one accepted the value put by the executor on the deceased's interest in a farming partnership. However, shortly before the deceased's death, the deceased and her son, the Second Defendant, Grant, engaged in a carefully worked out plan to transfer out of the deceased's name and into Grant's name substantial interests in real estate, shares and cash in order that any FPA claim by Barbara and Helen for further provision out of the estate might be defeated. The value of the real estate interests transferred to Grant was $3,022,500. 6 The value of the deceased's interest in the farming partnership, which was the only substantial asset left in the deceased's estate, was put by the executor at $62,573. 7 The Plaintiffs engaged in an extensive exercise of procuring by subpoena various financial records for the purpose of enabling their expert accountant to assess the true value of the deceased's partnership interest. The issuing of these subpoenas generated an expensive battle over whether they should be set aside. Eventually, the Plaintiffs' accountants valued the deceased's interest in the partnership at between $406,700 and $576,500, in round figures. Grant disputed that value but he conceded that if, contrary to his assertions, further provision was to be made for the Plaintiffs, the assets in the deceased's estate would be insufficient for that purpose and recourse to notional estate would be necessary. 8 In the result, I concluded that in addition to legacies of $20,000 which the deceased had left under her will to each of Barbara and Helen, Barbara should receive a further legacy of $280,000 and Helen a further legacy of $80,000. Julia did not qualify as an "eligible person" for the purposes of FPA s.7 and I considered that her application under the Act was not warranted within the meaning and for the purpose of FPA s.9. 9 The legacies in favour of Barbara and Helen which were to be paid out of the estate, totalling $400,000, could not be paid except by recourse to notional estate. I indicated that I would make an order under FPA s.23 designating as notional estate the property known as the Dale Street Property, which was valued at $490,000, to the extent that the value of that property satisfied the legacies to be paid to Barbara and Helen.

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10 The trial was listed for five days. Fortunately, the hearing was conducted in exemplary fashion by very able and experienced Counsel and concluded in four days. Counsel abandoned many unnecessary issues relating to events in the family's history which had been raised in voluminous affidavits. Nevertheless, the costs which the parties incurred were enormous in light of the results achieved. 11 The same solicitor acted for all three Plaintiffs although Julia had commenced her own separate proceedings. Julia relied on a great deal of the evidentiary material adduced by Barbara and Helen. Nevertheless, by the time that the hearing commenced, the legal costs and expenses incurred by Barbara and Helen amounted to $295,261 and Julia's costs and expenses amounted to $64,095, i.e., the Plaintiffs had incurred costs and disbursements totalling $359,356. 12 In addition, the costs of the hearing itself incurred by Barbara and Helen were $71,900 and those incurred by Julia were about $20,000. 13 In all, the three Plaintiffs incurred costs and disbursements amounting, in round terms, to $450,000. Barbara and Helen received as a result of the proceedings further provision from the estate totalling $360,000. 14 Grant's legal costs and expenses of the proceedings are in the order of $205,000. The total costs and expenses of this litigation are in the order of $605,000. 15 None of the parties to this litigation can be described as wealthy. The Plaintiffs are in modest circumstances - Julia very much so - and even though Grant is comparatively asset-rich in terms of the farming properties which he has received from the deceased's estate, he does not have a large income. The legal costs which he has incurred in the proceedings must have been a very severe drain on his financial resources. 16 While this litigation is of great importance to the parties themselves, it must nevertheless be borne in mind that this is not a commercial dispute between corporations, involving millions of dollars. It is a family dispute between people of quite modest means: the amounts which all three of the Plaintiffs might reasonably have hoped to obtain by further provision from the deceased's estate could never have come anywhere near the sum of $600,000 which has been expended in this litigation. What has happened in this case is a dark stain on the administration of justice. One might wonder whether anything has changed since Dickens' Bleak House .

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(4) If, in the court's opinion, there are special reasons, and it is in the interests of justice to do so, the court may vary the specification of maximum recoverable costs ordered under subrule (1)." 23 This Rule reproduces the former SCR 52A r.35A. Neither Counsels' researches nor my own have found any case in which this rule has been discussed or applied. 24 While UCPR 42.4(1), read in isolation, would seem to empower the Court to fix a maximum sum recoverable by one party under a costs order to be made against another party, the terms of sub-rules (2) and (3) suggest that an order under sub-rule (1) may be made only in advance of a hearing, in order to set limits to what parties may ultimately expect to recover in costs at the end of the day if the proceedings are conducted with due economy and in accordance with the Court's directions. This intention emerges from the fact that a maximum costs order under sub-rule (1) is not to limit costs occasioned by breaches of the Court's directions, amendments to pleadings AND applications to extend time nor costs resulting from what may generally be described as vexatious conduct by a party in the progress of a matter to trial or during the course of a trial: sub-rule (2). 25 Further, sub-rule (3) envisages that an order under sub-rule (1) will be made at the same time as directions for the progress of the matter towards trial. Sub-rule (4) envisages that a maximum costs order may be varied by reason of circumstances which have occurred after the date that the order was first made. Such a change of circumstances could rarely, if ever, occur at the time that the Court was pronouncing a final costs order at the conclusion of the proceedings. 26 I conclude that UCPR 42.4 is intended as a means whereby the Court may, if the need arises, curb the tendency of one or all parties to engage in disproportionate expenditure on legal costs by making it clear, at an early stage of the proceedings, that beyond a certain limit the parties will have to bear their own costs - win or lose. 27 Parties to disputes which are fuelled by personal animosity - FPA applications are a prime example - are sometimes carried away by the desire to vindicate their positions publicly in a court of justice. Such parties insist on marshalling every conceivable issue in support of their case and on rebutting with unnecessary particularity every passing suggestion made by the other side. Unfortunately, legal practitioners are not always resolute enough to rein in those desires on the part of their clients. 28 The result in some FPA cases is a multitude of lengthy affidavits filed on both sides in which family members recount, usually in inadmissible form, their ancient grievances against each other. Often this evidence is largely irrelevant to the issues which will decide the case: it is relatively uncommon that the wear and tear, frailties and idiosyncrasies of family relationships will amount to what used to be called "conduct disentitling", and is now recognised in FPA s.9(3)(b). 29 It seems to me that UCPR 42.4 and its precursor, SCR Pt 52A r.35A, were designed to put into the Court's hands a brake on intemperate and disproportionately expensive conduct of proceedings. The power conferred by the Rule is not brought into play only if one of the parties invokes it: the Court itself may exercise the power on its own motion whenever it sees the need. This is because the policy of the law, enshrined in CPA s.56(1), is to facilitate the just, quick and cheap resolution of the real issues in proceedings. By s.56(2), the Court not only may, but must, give effect to that policy whenever it exercises any power conferred upon it by the Act or the Rules - indeed, even when the parties themselves do not wish to conduct the proceedings quickly or cheaply. 30 Proportionality of costs to the value of the result is central to the just and efficient conduct of civil proceedings: see e.g. Lownds v Home Office (Practice Note) [2002] 1 WLR 2450 per Lord Wolfe CJ. It is a pity that the precursor of UCPR 42.4 seems never to have been used to this end. In Jvancich v Kennedy (No 2) [2004] NSWCA 397 at para [6], the Court of Appeal pointed out that it has not been the practice in Australia for the Court to fix the amount of costs. However, the Court in that case was concerned with a costs order made at the conclusion of proceedings and was not giving consideration to the making of a capping order in the course of case management under SCR Pt 52A r.35A (UCPR 42.4). I do not read Jvancich as inhibiting the use to which I have suggested UCPR 42.4 may be put. In my opinion the Court should not be reluctant to use UCPR 42.4 to prevent extravagant expenditure of legal costs in FPA cases, such as has occurred here. The time for its use is early in case management, whenever it appears that the parties' litigious fervour may be leading them to excessive expenditure of costs. 31 However, the remedy provided by UCPR 42.4 is prophylactic: it cannot be used as a cure for excessive expenditure at the time of making a final costs order at the conclusion of proceedings: other powers of the Court must be engaged.

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(d) such proportion of the assessed costs as does not exceed a specified amount." 33 Section 98 gathers together powers formerly given in s.76 Supreme Court Act and SCR Pt 52A r.6, r.7 and r.8. The terms of SCR Pt 52A r.6(2) - now CPA s.98(4) - indicate that the Court is empowered to do a number of different things. As the opening words of s.98(4) indicate, the Court acts under this section at the time of pronouncing a costs order, whether at the conclusion of the whole of the proceedings or at the conclusion of some interlocutory stage. In this regard, the power of the Court is exercised at a different time and for a different purpose from the power conferred by UCPR 42.4: it is exercised as part of the giving or refusal of substantive relief whereas the power in UCPR 42.4 is exercised as part of case management to ensure that disputes are resolved justly and cheaply. 34 Under s.98(4)(a), the Court can deprive a successful party of the benefits of the usual order as to costs, which would mean that instead of the whole of the costs following the event, the successful party recovers costs up to a point when, for example, the successful party's further conduct of the case was no longer reasonable. 35 However, that part of the costs allowed to the successful party under s.98(4)(a) would still have to be assessed, unless otherwise agreed between the parties, and by virtue of UCPR 42.2 the assessment would be made by an assessor in accordance with s.364 Legal Profession Act . 36 Under s.98(4)(b), the Court may disallow part of the costs of an ultimately successful party if, for example, it has failed on one or more substantial issues. Again, the quantification of the proportion of costs allowed would be undertaken by an assessor in accordance with the Legal Profession Act . 37 However, when an order is made under s.98(4)(c), the assessor has no part to play: the costs order itself specifies the sum which is to be paid. Such an order is commonly made by consent of the parties when they wish to avoid the expense or delay of an assessment. But the exercise of the power under s.98(4)(c) is not confined to that circumstance. 38 The fundamental purpose of the power conferred by CPA s.98(4)(c) and its precursors is to enable the parties to avoid the expense, delay and aggravation involved in protracted litigation which may arise out of contested costs assessments, particularly where the costs have been incurred in lengthy or complex cases. The Court itself does not perform the assessment in the same way as would an assessor, but it arrives at an estimate of the proper costs to be allowed by examining, on the basis of particulars provided, whether the quantification put forward by the successful party is logical, fair and reasonable: Leary v Leary [1987] 1 WLR 72; Beach Petroleum NL & Claremont Petroleum NL v Johnson (No 2) (1995) 57 FCR 119, at 120, 123; Harrison v Schipp (2002) 54 NSWLR 738, at [22]. 39 The purpose for which Mr Lindsay seeks to use CPA s.98(4)(c) is not the purpose for which it has been used so far, according to the authorities. In the usual case in which the power is exercised it is the successful party which seeks to avail itself of the power in order to avoid the expense and delay of a costs assessment. Here, Mr Lindsay, on behalf of an unsuccessful party, seeks to use the power against the successful party - not to avoid the delay and expense of a contest before the assessor but in order to cap the costs of the trial itself. 40 There is no justification in the words of the CPA for restricting the use of s.98(4) to circumstances in which it has been used in the past: indeed, such an interpretation would be contrary to the mandate in CPA s.56(1) and (2) which obliges the Court, in interpreting any provision of the CPA or the UCPR, to give effect to the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in dispute. 41 However, large though the power given by s.98(4) is, it must be exercised judicially: i.e., the exercise of the power must have a proper factual foundation and must be explicable according to legal principle. 42 It is conceivable that the Court could exercise the power under s.98(4)(c) on the application of an unsuccessful party in making a final costs order so as to cap a successful party's recoverable costs where the Court considers that the successful party's costs are grossly excessive. In Jvancich (supra) the Court of Appeal did not rule out the making of a capping order in any circumstance: see per Giles JA at para [6]. But such a capping order would be very rare: the Court's decision would have to be an informed one, i.e. founded on a consideration of the costs actually incurred, the circumstances at the time at which they were incurred, whether they were reasonable in those circumstances, and what would have been a reasonable amount to have incurred. 43 There is a high risk that readily allowing an unsuccessful party to make a costs capping application under s.98(4)(c) will prolong the battle between the litigants at greater expense and with longer delay than if the successful party's reasonable costs were estimated by an assessor in accordance with the Legal Profession Act . 44 In my opinion, the Court should entertain a costs capping application under CPA s.98(4)(c) by an unsuccessful party only in the exceptional case in which it is satisfied that such an application can deal with the costs issues more quickly, cheaply and justly than an assessment under the Legal Profession Act . 45 In the present case, Mr Lindsay does not place before the Court any particulars of the costs claimed by Barbara and Helen sufficient to enable the Court to make any logical, fair and reasonable estimate of what would be an appropriate gross sum to incorporate in a costs order. In essence, he invites the Court to say that for Barbara and Helen to expend $367,161 on costs in order to recover total further provision from the estate of $360,000 is so manifestly disproportionate as to warrant the Court making some sort of order under CPA s.98 so as to limit the costs recoverable by Barbara and Helen to about $130,000. The only basis for fixing $130,000 as the limit is that that is the surplus available from the proceeds of the Dale Street Property, after paying out the legacies to Barbara and Helen. 46 While I agree that the costs incurred by Barbara and Helen are disproportionate to the result which they achieved, the fact remains that they were successful in their claims, they are entitled to costs in some amount, and no evidentiary basis has been put forward upon which the Court could rationally and reasonably make an estimate of the proper amount which should be inserted in a costs order under s.98(4)(c). Mr Lindsay's suggested figure of $130,000 is purely arbitrary and has regard only to what assets forming part of notional estate Grant wishes to preserve for himself rather than to what costs Barbara and Helen have properly and reasonably incurred. 47 Mr Whittle SC, who appears with Mr Townsend of Counsel for Barbara and Helen, submits that there are circumstances which, at the time, could well have justified the extent to which Barbara and Helen incurred expenses in the proceedings although with the wisdom of hindsight it is now easy for the Defendants to say that the expenditures were unnecessary. 48 Mr Whittle points to the following:

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52 By a Calderbank letter dated 20 July 2004 from the Defendants' solicitors to the solicitors for Barbara and Helen, the Defendants offered to compromise Helen's claim on terms that Helen receive, in addition to the $20,000 legacy provided in the deceased's will, a further amount of $120,000 and $50,000 on account of costs. 53 Because the further provision of $80,000 out of the estate which Helen has received in the proceedings is substantially less than the amount offered by the Defendants, Mr Lindsay submits that Helen should be ordered to pay the Defendants' costs relating to her claim from 20 July 2004 onwards on an indemnity basis. 54 The fact that a plaintiff has recovered judgment in an amount less than an offer of settlement contained in a Calderbank letter does not automatically warrant the making of an order that the plaintiff pay the defendant's costs as from the date of refusal of the offer on an indemnity basis. While that circumstance undoubtedly has weight, all of the facts and circumstances of the case must still be taken into account in the exercise of the Court's discretion as to costs: see e.g. MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (No 2) (1996) 70 FCR 236, at 238-239 per Lindgren J; John S. Hayes & Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201, at 206 per Hill J. 55 I do not think that Helen's rejection of the Defendants' Calderbank offer was so unreasonable as to justify an indemnity costs order against her, for the following reason. 56 A claim under the FPA is not quantifiable by the parties' legal advisers prior to judgment with anything like the prescience possible in a claim for a liquidated sum such as a contract debt, or even in a claim for unliquidated damages for personal injury or for future economic loss. There are statutory and judicial guidelines for the range of damages appropriate for various types of personal injury; expert accountants attempt to quantify damages for future economic loss by reference to historical financial information. 57 However, in a claim under the FPA the Court has to quantify what provision "ought to be made" for the applicant out of the deceased's estate "having regard to the circumstances at the time the order is made" : s.7. Inevitably, that question involves a large element of subjective assessment by the Judge. Inevitably, on any particular set of facts, there would be a variety of answers given by different Judges. The decided cases offer broad parameters as to what provision "ought to be made" in certain kinds of circumstances but there is no formula and there is no yardstick on which the degrees of measurement are not etched by the Judge's own experience of life. 58 There will be some FPA cases in which the applicant's claim is so unreasonable that the applicant is clearly unjustified in commencing the proceedings let alone prosecuting them to a conclusion. In such a case indemnity costs might well be ordered. There will be many cases in which an applicant only just fails to qualify for further provision before one Judge when the same applicant would have only just succeeded in qualifying for provision before another Judge. There will be cases in which the applicant obtains an order for further provision which one Judge would regard as appropriate, another would regard as generous and a third would regard as niggardly. 59 In the present case, the further provision which Helen received by the prosecution of her claim to judgment was $40,000 less than the amount offered in the Defendants' Calderbank letter. However, the further provision which Helen received was a substantial amount. I do not think that it was obviously unreasonable for Helen's legal advisers to believe that it was possible that Helen could receive further provision from the deceased's estate in an amount greater than the sum of $120,000 which she was offered in the Calderbank letter. Another Judge might have been more liberal than I have been. I do not think that it was manifestly unreasonable for Helen to pursue her claim to judgment rather than accept the Defendants' offer of settlement. 60 Accordingly, I decline the Defendants' application for an indemnity costs order against Helen.

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Judgment (48 paragraphs)

Legislation Cited (7)

Cases Cited (9)