Solicitors:
Hancock Alldis & Roskov (Plaintiff)
One Group Legal (Defendant)
File Number(s): 2015/00198353
[2]
Judgment
On 19 March 2020, I gave judgment in relation to the will of the late Milan Zlatevski: The Estate of Milan Zlatevski; Geroska v Zlatevski [2020] NSWSC 250.
In the judgment, I held that the deceased had testamentary capacity at the time he made his will and rejected the contention that the will was vitiated by a false representation made by the plaintiff, the deceased's daughter and executor (executor). Accordingly, I granted probate of the will in solemn form to the executor and dismissed the cross-claim brought by the deceased's son (defendant).
These reasons deal with the issue of costs. In the judgment, I ordered the defendant to pay the costs of the proceedings but noted that either party may approach chambers to seek a variation to the costs order if they considered that some other costs order should be made. On 20 March 2020, the defendant notified my chambers that he seeks a variation to the order that he pay the costs of the proceedings.
The defendant contends that his costs should be paid out of the deceased's estate or, alternatively, that each party should bear their own costs. The defendant argues that he challenged testamentary capacity because of the deceased's conduct and it was reasonable for him to have investigated the deceased's will.
The executor submits that the cost order made by the Court on 19 March 2020 is appropriate and should be maintained because this was not a case where the circumstances led reasonably to an investigation of the deceased's will.
In accordance with an agreed timetable, the parties have provided written submissions on the issue of costs. They are content for me to determine the issue on the papers. The background facts are set out in the judgment and these reasons assume familiarity with them.
The general rules applicable to the award of costs apply to probate litigation, as they do to other contested litigation. This means that the Court has a broad discretion to award costs and, ordinarily, orders for costs should "follow the event", with the consequence that the unsuccessful party is ordered to pay the successful party's costs: Civil Procedure Act 2005 (NSW), s 98; Uniform Civil Procedure Rules 2005 (NSW), r 42.1; Walker v Harwood [2017] NSWCA 228 at [52] per Macfarlan JA.
Two exceptions to the general rule that costs follow the event have been recognised to apply in probate litigation, being:
1. where the testator has, or those interested in the residue have, been the cause of litigation, the costs of the party who unsuccessfully challenged the will may be paid out of the estate; and
2. if the circumstances reasonably called for an investigation of the will, the costs may be left to be borne by those who incurred them.
See: Re the Estate of Hodges; Shorter v Hodges (1988) 14 NSWLR 698 at 709; Perpetual Trustee Co Ltd v Baker [1999] NSWCA 244 at [13]-[14]; Shorten v Shorten (No 2) [2003] NSWCA 60 at [14]-[15].
A case does not fall within the first exceptional category merely because a party raises a triable issue as to a deceased's testamentary capacity: Shorten v Shorten (No 2) [2003] NSWCA 60 at [27]. In cases where a challenge is made to testamentary capacity, more than mental frailty or the incapacity of the deceased is required to say that the testator caused the litigation and that the case falls within the first exception: King v Hudson (No 2) [2009] NSWSC 1500 at [12].
While the two exceptional categories tend to overlap, they are not conterminous. They remain conceptually distinct, although the Court has a discretion as to the award of costs which might result in an unsuccessful party recovering its costs from a deceased's estate in situations where the conduct, habits and mode of life of a testator have given ground for questioning testamentary capacity or a testator's irrational actions gave rise to such doubts: Shorten v Shorten (No 2) [2003] NSWCA 60 at [19]-[20]; Perpetual Trustee Co Ltd v Baker [1999] NSWCA 244 at [14].
The defendant submits that, in this case, he was challenging testamentary capacity "because of the conduct of the deceased". In particular, the defendant relies on the deceased's instructions and the three statements he made to his solicitor which the defendant argued at the hearing gave rise to doubts about the deceased's testamentary capacity as they were delusions, and which the Court acknowledged in the judgment may have been based on mistaken beliefs and may have involved inaccuracies or exaggerations.
The defendant also relies on allegedly irrational actions giving rise to reasonable doubts about testamentary capacity, referring to the deceased's conduct of excluding the defendant, his only son, from his estate and with whom the deceased lived with for 25 years.
I am not persuaded that the matters raised by the defendant could be said to mean that the deceased was the cause of the litigation. Nor do I accept that the deceased's conduct gave ground for questioning testamentary capacity which warrants the exercise of my discretion to make an order that the defendant's costs should be paid out of the estate.
In this case, there was no evidence that the deceased conducted his life in such a way which would naturally lead others to suppose that he was of unsound mind, such as by acting strangely or engaging in threatening or violent behaviour: Perpetual Trustee Co Ltd v Baker [1999] NSWCA 244 at [14]; Davies v Gregory (1873) LR 3 P&D 28. As noted in the judgment at [94], there was no lay or medical evidence that raised doubts as to the deceased's mental capacity.
Nor was there evidence of suspicious circumstances surrounding the execution of the deceased's will or evidence that raised doubts as to testamentary capacity because of the manner in which the deceased went about making his will and keeping it: cf Gray v Hart; Estate of Harris (No 2) [2012] NSWSC 1562 at [28]; In the Will of Millar (1908) VLR 682 at 684.
The evidence disclosed that the solicitor who prepared the deceased's will had acted for him previously. There was no evidence that the executor, who was also the sole beneficiary, played any part in procuring the execution of the will. The deceased provided clear instructions to the solicitor as to his testamentary intentions and the reasons for them, which were recorded in the solicitor's contemporaneous file note. There was also no dispute that the will accurately reflected the deceased's intentions.
While some of the deceased's statements to the solicitor as recorded in the file note may have been based on exaggeration, mistaken beliefs or inaccuracies, they were not delusions of the type that demonstrated any irrationality on the part of the deceased. I also concluded that they did not raise any doubt about the deceased's capacity to understand and reflect on the claims to which he ought to have given effect when making his testamentary dispositions: judgment at [170].
Rather than creating doubts about testamentary capacity or evidencing irrational actions, the contents of the file note evidenced that the deceased was able to recall and reflect on the competing claims to his estate and had the capacity to weigh and assess those claims. The file note also explained the exclusion of the defendant from the deceased's estate based on rational and cogent grounds: judgment at [101], [102] and [169].
Even accepting that the deceased's exclusion of the defendant may have been based on reasoning that others might consider to be unfair or result in an outcome that could be considered harsh does not, in my view, lead to the conclusion that the deceased's conduct gave rise to reasonable doubt about testamentary capacity that justifies a cost order as sought by the defendant. If that were so, then it might be said in any case where a testator excluded a child for reasons that some might consider unfair or give rise to a harsh outcome that the testator caused litigation in relation to their testamentary capacity. Similar to the approach taken by Ward CJ in Eq in King v Hudson (No 2) [2009] NSWSC 1500 at [12], in my opinion, something more than exclusion of a child for cogent reasons stated in a contemporaneous solicitor's file note was needed before it could be said that the deceased's conduct caused the litigation by grounding doubts about his testamentary capacity.
The defendant also submits that he falls within the second exceptional category because it was reasonable for him to have investigated the deceased's will.
He submits that his claim falls within Dixon CJ's comments in Middlebrook v Middlebrook (1962) 36 ALJR 216 at 217 that there were adequate reasons for entertaining some doubt as to the validity of the will and it was only as a result of investigation that the reasons for finding affirmatively in favour of the deceased's testamentary capacity distinctly appear.
He argues that it was reasonable to have investigated the deceased's will because the solicitor's affidavit indicated that he had little independent recollection of the deceased's instructions and was reliant on a file note which did not confirm that the solicitor had specifically addressed the Banks v Goodfellow criteria or comply with best legal practice for taking instructions from the deceased. The defendant also points to the lack of direct evidence that the deceased acknowledged the Rockdale property was his principal and substantial asset and that he knew its value on the day the 2013 will was made.
In Middlebrook v Middlebrook (Supreme Court (NSW), Myers J, 22 November 1961, unrep), there was conflicting evidence as to the capacity of the testator around the time he made the will and evidence of a prior competing will. The evidence from the medical staff caring for the testator was that he was sedated and semi-comatose the day before he made his will, whereas the evidence from the solicitor and other witnesses was that the testator appeared to be of full mental capacity on the day he made the will. There was also evidence that the testator had made another will only three months prior and that the new and disputed will changed the dispositions by excluding one of his sons from receiving part of a property.
On appeal, the High Court did not disturb the grant of probate, but concluded that the circumstances would naturally lead the unsuccessful party to think that an investigation of the validity of his father's last will was justified. On that basis, the trial Judge's order that the unsuccessful party pay the costs of the proceedings was set aside and the High Court ordered that there be no order as to the costs of the probate suit.
Similarly, in Shorten v Shorten [2001] NSWSC 100, there was evidence that created real doubt as to the deceased's testamentary capacity. The deceased suffered from afflictions resulting from brain damage caused by a stroke. Her ability to communicate was severely impaired and her condition raised doubts as to the degree in which she could understand spoken words.
In the costs judgment, Shorten v Shorten (No 2) [2001] NSWSC 363, the Court noted that the case was a difficult and complex one, which required the evaluation of conflicting lay evidence and disputed medical evidence. The Court also noted that there could be no doubt that, at the outset, there was concern as to whether the deceased had testamentary capacity: at [6]. With some hesitation, the Court accepted that the unsuccessful defendant had reasonable grounds to investigate the will and should "be relieved of the burden of costs" on the claim for probate, but held that they should pay the plaintiff's costs of the cross-claim which propounded the earlier will: Shorten v Shorten (No 2) [2001] NSWSC 363 at [8] and [9]. The costs orders were affirmed on appeal: Shorten v Shorten (No 2) [2003] NSWCA 60.
Unlike the position in Middlebrook and Shorten, in this case, there was no medical or lay evidence which raised doubt as to the deceased's cognitive capacity. Nor was there any evidence of any prior competing will or issue raised as to the deceased's capacity to understand the nature of the act of making his will. While the deceased was 82 when he made his will, contrary to the defendant's submission, he did not, at that time, live in a nursing home.
If there had been some medical or other lay evidence which raised doubt as to the cognitive capacity of the deceased, then the lack of reference in the file note to matters which clearly addressed the Banks v Goodfellow criteria might have been of significance and, together, may have given rise to reasonable grounds to investigate the deceased will. But, in my opinion, the lack of the solicitor's independent recollection and reliance on the file note and the contents of the file note do not raise clear doubts as to the deceased's capacity. To the contrary, given the detailed and cogent way it explained the reasons for the deceased's testamentary dispositions, the file note demonstrated the deceased's testamentary capacity, rather than providing a reason for investigation of the will on that basis.
The file note was also part of the evidence which enabled the Court to conclude that the deceased had capacity to call to mind the property that formed his estate at the time he made the 2013 will, the vast bulk of which was the Rockdale property, given the references to that property in the file note. The defendant's own evidence also referred to three conversations with the deceased in which the Rockdale property, as the substantial asset of his estate, was discussed. In those circumstances, I am not persuaded that a lack of direct evidence that the deceased acknowledged the Rockdale property was his principal and substantial asset on the day he made his will was a reasonable basis for investigating the deceased's testamentary capacity and his will.
The defendant also argues it was reasonable for him to have investigated the deceased's will as the Court said that the case was approached on the basis that, having been raised by the defendant, the doubts as to the deceased's testamentary capacity "had to be resolved" and the Court "had to be satisfied" of the deceased's testamentary capacity: judgment at [165].
I do not accept that approaching this case on that basis means that the doubts raised by the defendant provided a reasonable basis or legitimate grounds for investigating the will. This was not a case where the Court concluded that the matters relied on by the defendant raised significant doubts about the deceased's testamentary capacity. To the contrary and as the Court noted, there was "considerable force to [the executor's] submission that the question of capacity does not arise in this case and that the Court is entitled to presume from due execution that the deceased had testamentary capacity". The simple form of the deceased's will, the measured rationality of the file note explaining the exclusion of his son and the absence of evidence of any concerns about the deceased's mental state or capacity supported the view that the issue of testamentary capacity did not arise: judgment at [163] and [164].
In essence, this case involved a challenge to the deceased's testamentary capacity based on the deceased's decision to exclude the defendant from his will and three of the reasons for doing so as recorded in the file note. Those reasons related to the extent of provision given to the executor, the lack of non-financial assistance given to the deceased by the defendant and his family, and the payment of the mortgage over the Kogarah property. The assertions by the defendant that those reasons were delusions and raised doubts as to the deceased's capacity required the Court to consider evidence relating to the knowledge of the defendant and his conduct vis-a-vis the deceased. I concluded that the deceased's reasons were not delusions, were not irrational and had some basis in fact. To my mind, those reasons were not matters which could be said to naturally lead the defendant to consider there were grounds for alleging the deceased lacked testamentary capacity and reasonably called for investigating his will.
As the executor submits, there was nothing in the circumstances in which the will was prepared that raised a doubt about the deceased's capacity. There was no medical or lay evidence as to a lack of capacity and the file note itself raised no real doubts and did not demonstrate any delusional or irrational beliefs.
In all of these circumstances, I am not satisfied that the defendant has demonstrated that there was reasonable cause for investigation of the deceased's will on the basis of testamentary capacity in this case, as contemplated by the second exceptional category.
It is also relevant to the exercise of my discretion on the issue of costs that, in addition to challenging the will based on testamentary capacity, the defendant sought to challenge the will on three other bases.
At the hearing, the defendant abandoned two of those claims, namely that the deceased did not know and approve of the will and the deceased was subject to undue influence by the executor. I infer from the abandonment of those claims that the defendant had no reasonable grounds for bringing them.
The third claim was the contention that the deceased was induced into executing the will by reason of a fraudulent misrepresentation made by the executor. At the hearing, the defendant provided no evidence in support of the pleaded representation and relied solely on the evidence given by the executor during cross-examination. In those circumstances, I accept the executor's submission that it can be inferred that the defendant had no knowledge of the pleaded representation being made and reject the defendant's submission that his investigations and evidence directly addressed that issue. I also consider that it is open to conclude that there was no reasonable cause to investigate the will on the basis of that claim.
The defendant pleaded matters which were abandoned at the hearing and unsuccessfully pursued an affirmative claim without, apparently, sufficient ground. There seems to me to be no basis on which to exercise my discretion that the costs incurred in respect of those matters should be paid by anyone other than the defendant.
It follows that I am not persuaded that I should exercise my discretion to vary the costs order I made on 19 March 2020. I am satisfied that this is a case where it is appropriate for the usual rule that costs follow the event to apply and for the defendant/cross-claimant to pay the executor's costs of the proceedings on an ordinary basis.
[3]
Amendments
14 April 2020 - Extra space on coversheet removed.
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Decision last updated: 14 April 2020