Szabo v Battye

Becker v Public Trustee of NSW [2006] NSWSC 1146 Calderbank v Calderbank [1975] 3 WLR 586 Harrison v Schipp [2001] NSWCA 13 Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 CASES CITED : Leichhardt Municipal Council v Green [2004] NSWCA 341 Middlebrook v Middlebrook (1962) 36 ALJR 216 Oshlack v Richmond River Council (1998) 193 CLR 72 Re Estate of Hodges; Shorter v Hodges (1988) 14 NSWLR 698 Rosniak v Government Insurance Office (1997) 41 NSWLR 608 Shorten v Shorten (No 2) [2003] NSWCA 60

Charles Szabo (Plaintiff) PARTIES : Chris Battye (First Defendant) Arpad Szabo (Second Defendant)

COUNSEL : Mr M Bloom (Plaintiff) Mr D Williams (Defendants)

SOLICITORS : Lighthouse Law Group (Plaintiff) The Conveyancing Shop (Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

107580/04 CHARLES SZABO v CHRIS BATTYE and ARPAD (ARTHUR) SZABO JUDGMENT 1 HIS HONOUR: On 6 December 2006 I ordered that probate in solemn form of the will of Irene Szabo dated 19 August 2003 be granted to the defendants Chris Battye and Arthur Szabo. The plaintiff Charles Szabo had pleaded unsuccessfully that at the time of execution of this will and an earlier will executed in 2002 the deceased was not of sound mind, memory and understanding and lacked testamentary capacity; that she did not know and approve of their contents; and that, not being of sound mind, memory and understanding, she lacked the capacity to revoke an earlier will. This judgment is concerned with the residual issue of costs.

Submissions 2 The defendants' submissions were to the following effect. The defendants are entitled to a costs order against the plaintiff on the normal principle that costs follow the event. The defendants are entitled to indemnity costs against the plaintiff on three grounds. First, the proceedings had no real prospect of success. Secondly, the defendants made two offers of compromise, one dated 2 March 2005 and the second dated 5 September 2005, which was filed on 20 September 2005 (the defendants' written submissions actually said that the second offer was dated 26 July 2005 and served on 5 September 2005 but that does not accord with the offer before the Court). Both offered to increase the provision set out in cl 5 of the 2003 will in the plaintiff's favour from 33.33 percent of the net residue of the estate to 35 percent. The second offer included an offer to pay the plaintiff's costs; the first offer included an offer to pay one third of the plaintiff's costs. Indemnity costs ought to be ordered from the date of service of the second offer. Thirdly and alternatively, indemnity costs ought to be granted for part of the five day hearing because the plaintiff unreasonably caused the hearing to be unduly lengthened by calling numerous witnesses to prove that the deceased could not understand spoken English when this was not a significant nor credible issue. The defendants submit that to award the plaintiff any costs would only reward him and encourage others to undertake "frivolous" actions such as this. They also seek an order that their costs be paid out of the estate on an indemnity basis.

3 The plaintiff's submissions were to the following effect. In probate matters costs do not necessarily follow the event. The plaintiff's recourse to litigation was reasonable and justifiable. There was a finding by the Court that matters raised by the plaintiff raised a doubt as to testamentary capacity such that there rested upon the propounders of the 2003 will the burden of satisfying the conscience of the Court that the deceased had capacity at the relevant time. There was no relevant unreasonable conduct or misconduct in connection with the proceedings nor can it be said that the plaintiff maintained proceedings that had no real prospects of success. It was necessary to conduct a vigilant examination of the whole of the evidence in order to determine whether the deceased was of sound mind, memory and understanding. The circumstances of execution were not fully known until Mr Battye and Arthur Szabo corrected the affidavit evidence of Ms Lewis. The offers of compromise increased the plaintiff's entitlement only by a meagre 1.67 percent which was not a "genuine" or a "real element of compromise": Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375. The evidence of the plaintiff's witnesses concerning the deceased's ability to read and understand spoken English was short and the issue was not clear-cut. The plaintiff submits that the costs of both parties should be paid from the estate on a party and party basis; alternatively that the defendants' costs in part be paid from the estate on an indemnity basis and in part on a party and party basis, and that the plaintiff's costs be paid from the estate on a party and party basis.

Principles 4 Section 98(1) of the Civil Procedure Act 2005 provides that "costs are in the discretion of the court" which "may order that costs are to be awarded on the ordinary basis or on an indemnity basis". The general rule is that costs follow the event. This is now enshrined in the Uniform Civil Procedure Rules 2005 r 42.1: 42.1 General rule that costs follow the event Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.

5 Exceptions to the general rule in the field of probate litigation were identified in Re Estate of Hodges; Shorter v Hodges (1988) 14 NSWLR 698 at 709 - 710 by Powell J: Costs are, of course, in the discretion of the court, but that discretion, being a judicial, and not an unfettered, one must be exercised in accordance with established principle. The general principle to be applied in adversary litigation is that costs follow the event, those costs being taxed on a party and party basis. However, over the years, a number of exceptions to this general rule have come to be recognised. In the field of probate litigation, two such exceptions have come to be recognised, they being: 1. where the testator has, or those interested in residue have, been the cause of the litigation, the costs of unsuccessfully opposing probate may be ordered to be paid out of the estate; 2. if the circumstances led reasonably to an investigation in regard to the document propounded, the costs may be left to be borne by those who respectively incurred them: see, eg, Mitchell and Mitchell v Gard and Kingwell (1863) 3 Sw & Tr 278; 164 ER 1280; Orton v Smith (1873) LR 3 P & D 23; Wilson v Bassil [1903] P 239; Spiers v English [1907] P 122; Kenny v Wilson ; In the Estate of Holtam; Gillett v Rogers (1913) 108 LT 732. To these exceptions to the general principle should, perhaps, be added the principle that, although a legal personal representative may be entitled to recover from a party to litigation costs only on a party and party basis, he, as a fiduciary, retains the right to an indemnity from the estate, and, thus, may have recourse to the estate for any difference between his costs on a trustee basis and the costs recovered from a party.

6 This passage was approved by the Court of Appeal in Shorten v Shorten (No 2) [2003] NSWCA 60 at [15].

7 In Becker v Public Trustee of NSW [2006] NSWSC 1146 Nicholas J said: 12 The basic rule in probate actions, as in other litigation, is that, ordinarily, costs follow the event. In probate litigation there are two well recognised exceptions which, in Re Estate Late Hazel Ruby Grounds; Page v Sedawie [2005] NSWSC 1311, Campbell J explained: 30 ... Both parties took me to the leading cases concerning costs in probate litigation, In the Estate of Hodges; Shorter v Hodges (1988) 14 NSWLR 698 at 709, Perpetual Trustee v Baker [1999] NSWCA 244 at [13]-[14] and Shorten v Shorten (No 2) [2003] NSWCA 60. The focus of the passages in those cases to which I was taken was the costs order that a court should make concerning a person who had unsuccessfully opposed the making of a grant of probate. Broadly, those cases recognised that, concerning such an unsuccessful party, there was an exception to the rule that costs follow the event in that where the testator had been the cause of the litigation the costs of unsuccessfully opposing probate may be ordered to be paid out of the estate, and if the circumstances led reasonably to an investigation concerning the testator's will, costs may be left to be borne by those who incurred them. The Court of Appeal has recognised that there is an overlap between those two exceptions. If a case for decision falls within that area of overlap, one of the exceptions suggests that the appropriate order concerning costs should be different to the order which is suggested by the other exception. In that area of overlap, the principles which are recognised by the two exceptions are insufficient to produce a result. It is a matter for the trial judge, in light of the circumstances of the particular case before him or her, to decide which costs order better achieves justice. … 32 … In probate litigation, it is not only who succeeds in the litigation which matters - which is the only factor operating in the "costs follow the event" rule. As well, the role which a particular party has played in litigation, whether as plaintiff or defendant, is relevant. Further, facts about the knowledge available to parties, and the reasonableness of their conduct in conducting the litigation, can be taken into account. 13 The exceptions are rules for the guidance of the court in the exercise of its discretion with regard to the overall requirements of justice in the particular case. Accordingly, the question whether some special costs order should be made in favour of an unsuccessful defendant so as to relieve him of the burden of costs falls for determination on the basis of whether there were circumstances which afforded reasonable grounds for a defendant's opposition to the grant of probate.

8 In Middlebrook v Middlebrook (1962) 36 ALJR 216 the testator's son had unsuccessfully opposed a grant of probate. He had relied upon medical evidence that raised questions about the deceased's capacity to comprehend what he was doing at the relevant time. It was held by the primary judge that since the medical evidence adduced by the son primarily addressed the physical state of the deceased, it was insufficient to displace the contrary evidence of the solicitor who drafted the will, which touched directly upon the issue of testamentary capacity. The High Court did not disturb the grant of probate, but set aside the order of the primary judge that the son pay the costs of the probate suit, and instead ordered that there be no order as to those costs. Dixon CJ (with whom McTiernan J agreed) held at 217: I am not content, however, to uphold his Honour's order as to costs. His Honour ordered the caveator to pay the plaintiffs' costs of the suit. No doubt in probate suits the prima facie rule is that, as in other litigation, costs follow the event. But in probate suits there are considerations which more readily affect the application of this rule than in most other forms of litigation. See Re Keane , [1909] VLR 231, at p 239. An examination by Hood J of the more important English cases decided up to the date of his judgment will be found in Re Millar [1908] VLR 682. There are in the present case circumstances which would naturally lead the caveator to think that an investigation of the validity of his father's last will was justified. If this case were judged on its general circumstances only, I think that adequate reasons would be seen for entertaining some doubt as to the validity of the will. It is only as a result of investigation that the reasons for finding affirmatively in favour of the testator's testamentary capacity distinctly appear. In these circumstances the proper course is to apply the principle enunciated by Sir Gorrell Barnes P that " if the circumstances lead reasonably to an investigation of the matter then the costs may be left to be borne by those who have incurred them ". Spiers v English [1907] P 122 at p 123. I think that the order appealed from should be varied accordingly.

9 Where there has been an unaccepted offer of compromise made in accordance with UCPR 20.26, there is a prima facie entitlement to indemnity costs in the circumstances prescribed by UCPR 42.14 and 42.15. Where there has been an unaccepted offer of compromise not made in accordance with the rules (a Calderbank offer), the Court may exercise its discretion to award indemnity costs if the offer is not bettered: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [19]. These costs sanctions apply to probate litigation: Becker (above) at [52].

10 Indemnity costs may also be awarded because of the conduct of the party against whom they are awarded. Various formulations have been directed to identifying such a case. In Oshlack v Richmond River Council (1998) 193 CLR 72 at 89 Gaudron and Gummow JJ referred to "some relevant delinquency on the part of the unsuccessful party". In Harrison v Schipp [2001] NSWCA 13 at [139] Giles JA (with whom Handley and Fitzgerald JJA agreed) referred to "the need for a sufficient special or unusual feature in the case". In Rosniak v Government Insurance Office (1997) 41 NSWLR 608 at 616 Mason P (with whom Clarke JA agreed) referred to the court requiring "some evidence of unreasonable conduct, albeit that it need not rise as high as vexation".

Decision 11 In my earlier judgment I accepted that matters raised by the plaintiff raised doubt as to the deceased's testamentary capacity. Consequently, there rested upon the defendants, as the propounders of the 2003 and 2002 wills, the burden of satisfying the conscience of the court that the deceased had capacity at the relevant time, and it was necessary to conduct a vigilant examination of the whole of the evidence in order to determine whether, on the balance of probabilities, the deceased was of sound mind, memory and understanding at the time of execution of her will. Medical evidence called by the plaintiff raised questions about the deceased's testamentary capacity but I accepted competing medical and lay evidence called by the defendants. As to the deceased's knowledge and approval of the will, I accepted the evidence of the attending solicitor Chris Battye and Arthur Szabo in preference to that of Ms Lewis to the extent that there was any inconsistency. As to the deceased's English language skills I preferred the evidence called by the defendants, including from the deceased's friends and neighbours, to that called by the plaintiff. I consider that the circumstances afforded reasonable grounds for doubting testamentary capacity and opposing the grant of probate. This suggests that costs may be left to be borne by those who incurred them.

12 I do not accept the defendants' submission that the plaintiff's conduct of the litigation was such as to attract an award of indemnity costs. In particular, I do not accept the defendants' submission that the plaintiff's proceedings were frivolous or had no real prospect of success or that the plaintiff unreasonably caused the hearing to be unduly lengthened.

13 The defendants submitted that the plaintiff should be ordered to pay indemnity costs from the date of service of their unaccepted second offer of compromise. That offer was dated 5 September 2005 and filed on 20 September 2005 and was in the following terms: The Defendants make the following Offer of Compromise:

1. That the Estate be administered in accordance with the terms of the will dated 19th August 2003.
2. In lieu of the provisions of 1/3 to Charles Szabo and 2/3 to Arthur Szabo as set out in clauses 5 and 6 of the will dated 19th August 2003, the provision to Charles Szabo of 35% and to Arthur Szabo of 65% of the rest and residue both real and personal as tenants-in-common.
3. That the Plaintiff's costs of these proceedings as assessed or agreed be paid out of the Estate up to the date this offer is accepted by the Plaintiff.
4. That the Defendant's costs be paid on an indemnity basis out of the Estate.
5. This offer is made in accordance with Part 22 Rule 1A of the Supreme Court Rules.
6. This offer is open to be accepted until 28 days from the date of this Offer of Compromise.

14 An earlier offer of compromise dated 2 March 2005 was in substantially similar terms except that paragraph 3 only offered to pay one third of the plaintiff's costs.

15 UCPR 42.15 provides for indemnity costs where a defendant's offer of compromise, made in accordance with UCPR 20.26, is not accepted and the plaintiff obtains a judgment or order as or less favourable than the offer. The defendants' submissions acknowledged that this rule was inapplicable in a case such as the present where the plaintiff has wholly failed. Another reason, I think, why this rule is inapplicable (although not addressed in the parties' submissions) is that Part 22 of the Supreme Court Rules, to which the offer refers, had, as at the date of the offer, been repealed and the offer did not bear a statement to the effect that it was made in accordance with UCPR 20.26, as required by r 20.26(3)(a). Nevertheless, an unaccepted and unbettered offer of compromise which is not a formal offer of compromise under the rules - commonly called a Calderbank offer (after Calderbank v Calderbank [1975] 3 WLR 586) - or to which the indemnity costs rules do not apply, may still attract an award of indemnity costs. The question is whether indemnity costs should be ordered because the plaintiff unreasonably failed to accept an offer of compromise: Leichhardt Municipal Council v Green [2004] NSWCA 341 at [52]. In that case it was said at [47]: "It is preferable to consider applications for indemnity costs following unaccepted offers of compromise by defendants as being applications for a favourable exercise of the Court's general discretion to award indemnity costs. As far as Calderbank offers go, there is very little difference, the costs consequences of these lying entirely within the Court's general inherent discretion on costs". To that last sentence may now be added the words "or within the Court's discretion under s 98 of the Civil Procedure Act 2005".

16 The offers of compromise made by the defendants proposed only a slight increase in the plaintiff's entitlement under the will from 33.33 percent of the net residue of the estate to 35 percent. Otherwise the only element of compromise was as to costs. Having regard to the plaintiff's success in shifting the onus of proof of testamentary capacity to the defendants and in demonstrating the need for careful inquiry into whether the deceased executed the will with knowledge and approval, and having regard to the evidence discussed in paragraph 11 above, I do not consider that non-acceptance of the offers of compromise was unreasonable or warrants an indemnity costs order against the plaintiff.

17 I make the following orders: (1) The defendants' costs on an indemnity basis are to be paid out of the estate of the deceased. (2) Otherwise no order as to costs.

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