Family Provision Applications and Costs

It is a widely held misconception amongst lawyers that in estate matters, costs will always come out of the estate. It simply is not the law that whenever there is an argument about a will the estate must pay everyone’s costs.

The Usual Rule about Costs

Costs are always in the discretion of the court. However, the usual rule is that costs “follow the event.”1 This of course means that the loser usually pays the winner’s costs.2 The rationale for the general principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party.

The Probate Exception

The principles the court applies in the determining costs in contested probate claims are for the most part, like all other litigation, discretionary. The usual rule is still that costs will follow the event.

However, there are considerations in probate cases not common to other jurisdictions that result in two exceptions. These considerations include the public interest in having the court exercise the function of investigating, where there are grounds for questioning it, the execution of a Will and the deceased’s capacity to make it.

The two exceptions then to the general rule (that costs follow the event) are as follows:

• Firstly, if the person making the will or interested in the residue has by his or her conduct caused the litigation to occur, then the costs of the party unsuccessfully contesting the will should be paid out of the estate.
• Secondly, if the circumstances reasonably called for investigation to be made before the court could pronounce in favour of the will, then the contesting party who fails ought not be required to pay costs and will usually either have their costs paid out of the estate or will merely be left to bear their own costs [3] .

Exceptions in Family Provision Cases

In Singer v Berghouse (1993) 67 ALJR 708 at 709 Gaudron J had this to say about family provision applications in relation to an application before the appeal for security for costs:

“In most cases, costs follow the event in the sense that, saving special or extraordinary circumstances, costs are awarded in favour of the successful party against the unsuccessful one. … even so, decisions [in family provision matters] involve a discretionary judgment of a very broad kind made by reference to the circumstances of the particular case and not by reference to a rule or rules which direct the decision one way or the other. Family provision cases stand apart from cases in which costs follow the event … costs in family provision cases generally depend on the overall justice of the case. It is not uncommon, in the case of unsuccessful applications, for no order to be made as to costs, particularly if it would have a detrimental effect on the applicant’s financial position. And there may even be circumstances in which it is appropriate for an unsuccessful party to have his or her costs paid out of the estate.”

Debelle J sitting in the South Australian Full Court summarised the relevant principles in Bowyer v Woods [2007] SASC 327 as follows:

“In my opinion, the legislature has made it clear that in appropriate cases a costs order can be made against an Applicant, and some of the old cases must now be approached with care. The old rule which, as I say, was a common practice not to award costs against the plaintiff who failed, can no longer be accepted as a general proposition. … There is, therefore, a substantial body of consistent opinion as to the rules which ordinarily operate in relation to an unsuccessful application. The principles are that, generally speaking, there will be no order as to costs of an unsuccessful application. The court may in its discretion make an order in favour of an unsuccessful Applicant who makes a reasonable application founded on a moral claim or obligation. While it is unnecessary to decide the issue in this case, the cases also suggest that the court may in its discretion order an unsuccessful Applicant to pay costs where the claim was frivolous or vexatious or made with no reasonable prospects of success or where the applicant has been guilty of some improper conduct in the course of the proceedings.”

In Manly v The Public Trustee of Queensland4 McMeekin J, after dismissing a wife’s claim for further provision, said in relation to costs:

“I wish to say two things about the costs position. The costs are said to have amounted, if one includes all parties, to the sum of approximately $180,000. Firstly, they are out of proportion to the work and difficulty involved in this case. Secondly, there is little point to litigation in these modest estates. The executor is entitled and, save perhaps in a clear case, duty-bound to uphold the Will. Parties and their legal advisors would be well advised to bear this firmly in mind before embarking on litigation in such circumstances.”

The unsuccessful applicant sought an order that her costs be paid from the estate. The successful beneficiaries asked that she pay their costs of the action. In the costs judgment,5 it was revealed that the beneficiaries had made an offer that the applicant had failed to beat at trial.

Despite the above comments, McMeekin J did not order that the applicant pay the beneficiaries’ costs. He did however order that the beneficiaries’ costs be paid from the estate (which in effect meant the applicant was bearing 25% of those costs).

In relation to her claim for her costs to be met by the estate, his Honour said (at [14]):

“The applicant’s claim for costs seems to me to be entirely without merit. Further, in my view, the beneficiaries and the respondent have a strong case for their costs to be met by the applicant. Her failure in the application, the modest size of the estate, her rejection of an offer, which on my findings was plainly reasonable, and her lack of candour in conducting the application, all provide powerful reasons why I should consider that the overall justice of the case should result in her bearing the burden of the costs.”

However, his Honour stopped short of ordering her to pay the beneficiaries’ costs, citing the principal reasons as (at [15]):

“(a) That such an order would effectively take away the entire benefit the applicant might otherwise have received from the estate, in circumstances where she is not well off;

(b) The offer that the applicant rejected came at a stage when, I assume, a substantial amount of the costs had already been incurred;

(c) I am mindful of the difficulties in assessing and quantifying cases of this type by the parties and their legal advisers as commented on by Palmer J in Sherbourne Estate (No. 2): Vanvalen & Anor v Neaves & Anor; Gilroy v Neaves & Anor (2005) 65 NSWLR 268 at p 278;

(d) As I mentioned in my judgment I am concerned that an estate that essentially consisted of an ordinary residential dwelling and a sum of cash should incur costs totalling some $180,000 — about 40 per cent of the entire estate — to have the matter prepared and litigated. I do not think it just to expose the applicant to the whole of such a burden.”

As to the relevance of conduct of the applicant herself, McMeekin J had this to say (at [16]):

“But for the unmeritorious conduct of the applicant in her prosecution of her case there may have been reason to consider more favourably an order that the Applicant and the beneficiaries each pay their own costs, thereby preserving the applicants’ share of the residuary estate to the extent that was reasonably possible. However the principal matter debated at the trial centred on her relationship with the deceased in respect of which I found that she “set out to mislead the court”. The applicant undoubtedly caused significant costs to be needlessly incurred by the beneficiaries. It seems to me unjust that the beneficiaries bear the entirety of those costs.”

This provides a very good illustration of exactly what Gaudron J was talking about in the quote from Singer above.

On appeal, where the applicant was again unsuccessful, Daubney J said on the question of costs (at [41]):

As to the question of costs, there is, in my view, no reason why the unsuccessful appellant should not pay the respondents’ costs of the appeal. The respondents were the Public Trustee, as executor and trustee of the will, and Ronald, Dennis and Gary Manly as beneficiaries under the will. I would respectfully adopt the following observation by Thomas J (as he then was) with whom McPherson ACJ and Byrne J agreed, in Re McIntyre :

“It is in my view essential that a distinction should be maintained in the approach to costs at first instance and on appeal. Applicants and their advisors should not think that they can bring appeals confident in the knowledge that the estate will in all probability be obliged to pay for the exercise. What I have called the indulgent attitude of judges of first instance to unsuccessful applicants has no place in the appeal process. A litigant has a right under the rules of court to test a judgment by bringing an appeal, but he has no similar right to do so at the expense of the other party or estate.”

In Jee v Jee6 the deceased was the mother of eight children all of whom survived her. She left a will which appointed her eldest son Thomas as executor. By her will, she gave the share which she owned in a company, to Thomas. The company was the trustee of a family discretionary trust. She then gave certain cash in equal shares to her daughters-in-law and grandchildren and thereafter divided the rest in residue of her estate into eleven equal parts and giving two parts each to her sons Thomas and Dennis, and one part each to her son Gerald and each of her daughters Katherine, Diana, Elizabeth, Jennifer and Theresa.

A family provision application was originally commenced by Elizabeth and then joined by Diana sometime later. Elizabeth discontinued her application for provision in September 2003 and Diana was substituted as the applicant in the proceedings.

There were delays in the prosecution of Diana’s application, but in February 2009 the son Dennis filed an address for service on the basis that he elected to be separately represented.

In late 2009, the executor reached an agreement in principle with Diana as to the terms on which her application for provision could be resolved, subject to sanction. Dennis did not approve the terms of settlement and so Diana’s application for further provision proceeded to a hearing. The details of the proposed settlement were not disclosed during the hearing.

Ultimately an award was made in favour of the applicant for the transfer of a piece of real property situated at Robertson into her own name (which property was valued at approximately $400,000) as well as a lump sum payment from the estate of $170,000 for the necessary renovations to the property to make it more habitable. The judgement sum was more than the applicant would have received by way of the original settlement, which Dennis had opposed, and also more than the offer which Dennis had made shortly prior to the trial.

At the conclusion of her judgment, Justice Mullins noted:

“There will need to be an opportunity for the parties to make further submissions on the issue of costs of the proceeding, after considering these reasons. Apart from Dennis’s opposition, the proposed settlement by Thomas of Diana’s application would have been the subject of an application to the court for its approval without a contested proceeding. That is why Thomas did not proceed to challenge the applicants in this proceeding, but endeavoured to assist by providing whatever information was required by the other parties and the court, in order to deal with Diana’s application.”

Justice Mullins did not deliver reasons on the costs argument however the following orders were made:

• The applicant obtained her costs, on an indemnity basis, out of the estate, for the costs of the failed sanction, and for the trial;
• The executor did not obtain any costs on the failed sanction application. Justice Mullins was critical of the executor and the standard of the material which he had proposed to put forward on the sanction application. The executor did however obtain an order for his indemnity costs for the trial;
• The separately represented party, Dennis, obtained his costs on an indemnity basis out of the estate on the failed sanction application, the court considering it was proper for him to have opposed that application given the paucity of material which had been offered by the executor on that application. However, Dennis only obtained his indemnity costs out of the estate up to a date in November 2010 being the date at which Dennis had made an offer to settle the applicant’s application. At this point, Dennis offered to settle the applicants claim for a sum which was less than that which she would have obtained on the sanction (and less than that which she obtained on the trial) which then made Dennis’s opposition to the sanction, and therefore the trial, unreasonable. Dennis therefore obtained no order for his own costs brought about by his separate representation as his separate representation was both unnecessary, a duplication and unsuccessful.

Daley v Barton & Anor; Barton v Daley7 involved a contested probate claim, a family provision claim and an equity claim. The three interrelated proceedings were heard together during a five day trial. The deceased was a recently married 67 year old millionaire who died of a brain tumour on 23 August 2005. He had made a will only one month before, on 28 July 2005, being the day after he had been told that he had a terminal brain tumour which was inoperable. He executed a will leaving the entire estate to his new wife. The will made no provision for his 31 year old son from his first marriage.

Judgment was given pronouncing for the full force and validity of the will dated 28 July 2005. The defendant’s counterclaim (in relation to the equity claim) was dismissed and an order for further provision out of the estate for the adult son by the payment of a lump sum of $560,000 made.

Prior to the hearing, the solicitors for the estate had offered to settle the matter on the basis the of an offer to transfer ownership of an asset being real property valued at $900,000, which would also provide a further income stream for the applicant, plus forgiveness of a debt owed by the estate to the family trust which amounted to $400,000 and payment of $100,000 towards the applicants costs.

Plainly the applicant failed to beat this offer.

On the costs argument,8 Justice Ann Lyons concluded that, properly advised, the applicant for provision would have considered that reasonable investigation was initially called for in relation to the making of his fathers will. Justice Lyons concluded however that after a certain time, the applicant must have continued on with the contested probate action, not because of some ulterior motive, but with the disregard to some of the known facts. In particular Justice Lyons took into account that the applicant for provision should have had regard to the strong evidence of the testator’s close friends who had seen him at the time of making the will. Furthermore the applicant should have taken into account the fact that the GP’s evidence was as a result of a single consultation and none of the medical specialists who saw him subsequently expressed any concerns about his capacity. Her Honour therefore concluded that after the time in May 2007 the continuation of the probate action was not supported by the evidence. Accordingly were it not for the Calderbank offer, the appropriate order would have been that the estate pay the applicants costs up to and including 2 May 2007 on an indemnity basis, and thereafter that there be no order as to the defendant’s costs.

The question of the Calderbank offer however was one which also affected the costs in the probate proceedings.

Justice Lyons considered that the offer of settlement was a genuine offer of compromise and was substantially better then the applicant obtained at trial in relation to the FPA.

Her Honour concluded:

“However, I consider that in the circumstances of this case given the offer of compromise contained in the Calderbank offer together with the knowledge of the evidence even at that stage, the decision to refuse to compromise was unreasonable. In my view this must have consequences and I consider that after the rejection of the offer on 7 February 2008 the defendant should pay the plaintiffs costs. The defendant was on notice as to the cost consequences from January and still rejected the offer which was in fact far better than the judgment he received some 8 months later. There must be some disincentive to the rejection of such a generous offer and in the circumstances of this case that is not simply an order that there be no order as to the defendant’s costs after 7 February 2008.”

Her Honour however rejected the submission that the defendant should pay the plaintiff’s costs on the indemnity basis.

The equity claim was unsuccessful and the ordinary rule ought to have been that the costs would follow the event. However the Calderbank offer was of considerable relevance to the equity claim because the estate offered to forgive a debt of $400,000 owed by the family trust to the estate. Therefore from the date up to the Calderbank offer the defendant was ordered to pay the estate’s costs on a standard basis, but from the date of the Calderbank offer onwards the defendant was ordered to pay the estate’s costs on the indemnity basis.

In relation to the FPA, her Honour ordered that the applicant obtain his costs on an indemnity basis up to the date of the Calderbank offer and thereafter that the applicant pay the estate’s costs on an indemnity basis on the grounds that the offer was in fact an offer which significantly exceeded the estate’s offer to him in February 2008.

In Edgar v Public Trustee (NT)9 the deceased left a legacy of $15,000 to his son John who subsequently made an application for provision against the estate. The application was unsuccessful.

The estate had offered to settle John’s claim eight months before the hearing by paying a sum of $100,000 from the estate, inclusive of the legacy of $15,000 plus costs to be taxed on an indemnity basis and paid out of the estate. John did not accept the offer. The court ordered there be no order as to the costs of the plaintiff’s application up to the date of the offer, the plaintiff pay 80% of his costs of the trial assessed on a standard basis, and that the plaintiff pay the estate’s costs of an incidental to the proceeding (including reserved costs, from the date of the offer onwards).

In Forsyth v Sinclair10 the Court of Appeal dismissed an appeal against an order that provision be made out of the deceased’s estate for the proper maintenance and support of the deceased’s de facto wife.

On the costs argument, the wife submitted that the executor should personally pay her costs on a solicitor and client basis and should not be entitled to be reimbursed out of the estate on the basis that the executor had not acted reasonably in bringing the appeal and therefore he was not entitled to be indemnified out of the estate. The wife submitted that it was artificial to regard the executor as acting in the interests of the beneficiaries in bringing the appeal when, as the sole beneficiary under the will, the executor was really acting in his own personal interests. It was therefore submitted that the executor was in no different position to any other unsuccessful appellant before the court of appeal and costs should therefore follow the event.

The executor maintained his position that both parties should have their costs out of the estate on a solicitor and client basis. It was submitted that in accordance with general principle, the appellant should be reimbursed his costs out of the estate unless he had acted unreasonably.

The Court of Appeal concluded that the executor did not act unreasonably in bringing an appeal raising the issue of whether facts found by a trial judge in fact gave rise to a moral duty on the part of the testator to provide maintenance and support for the applicant. The court noted:

“[23] It was clearly arguable that the decision in this case had stretched the boundaries too far given the unusual aspects of the relationship between the testator and the respondent…it was a case ‘at the margin.”

The court went on to note however, that the challenge to the factual findings made by the judge at first instance was ‘hopeless’ and, without that challenge, the legitimate legal issue could have been tested at a significantly lesser cost to the parties. The court observed that the appeal book was six volumes when in fact it should have been reduced to one slim volume if the factual findings had not been challenged. The court therefore concluded that the executor ought not be fully reimbursed out of the estate. The court ordered that the executor’s costs of the appeal be taxed on a solicitor and client basis and that one half be paid out of the estate and one half be borne by the appellant personally. Otherwise, the widow’s costs of the appeal were assessed and paid on a solicitor and client basis out of the estate.

In Collett v Knox11 McMeekin J considered an application for provision by a de facto spouse of a deceased. The applicant was wheelchair bound, partially blind and deaf and aged 100 years at the time of the trial. Essentially the question litigated was whether the applicant was the de facto partner of the deceased. The estate was extremely modest comprising effectively of $1,100 in cash and otherwise a property where the deceased and her de facto had lived for about 34 years prior to the deceased’s death. The applicant was seeking only to be given a life interest in that property.

The issue of whether the applicant was the deceased’s de facto comprised a significant amount of evidence at the trial. Ultimately his Honour concluded that the applicant was a de facto.

The respondent executors to the application were the deceased’s son and his wife. The executors contended that the applicant was merely a boarder in the deceased’s home throughout the course of the 34 years.

Having found that the applicant was in fact the deceased’s de facto spouse, the court turned to consider the executors conduct in the defence of the proceedings. The legal fees incurred by the executors was said to total over $70,000 whilst the applicants own costs were estimated at between $25,000 and $30,000.

The executors maintained at the hearing that irrespective of the outcome of the proceedings, the property (being the one in which the applicants sought a life interest) would need to be sold to meet the estate’s legal costs and outlays. Underlying that position, the court concluded, was the assumption by the executors that they had the right to tie the courts hands by incurring whatever costs they desired in the defence of the litigation. In considering this position his Honour observed:

“[165] First, I observe that it has long been recognised that where executors receive notice of such a claim then they are under a duty to preserve the trust estate until the claim is resolved: Re Simpson [1950] Ch 38 at 42; Re Crowley [1949] St R Qd 189 at 192.

[166] Second, the assumption that Mr Knox makes is that the court has no power to supervise or limit the executors in their expenditure of estate funds on litigation of this type. That assumption I examine more closely below. As a general proposition I consider it accurate to assert that before embarking on expensive litigation the executors need to give careful consideration to what amounts they will expend and how best they should discharge their duties. Resort to generalisations that executors are entitled or obligated to uphold the will may provide no guidance at all in some cases. In my view this is such a case. Consistent with that view is the observation of Holmes JA in Underwood & Anor v Sheppard , a case involving family provision claims:

“The learned judge’s observation that the obligation to consider the impact of costs on the estate applied with greater force to the executors than to the beneficiaries is unimpeachable. Executors bear a fiduciary duty to which they must have regard in conducting litigation affecting the estate; beneficiaries do not.”

[167] Third, it seems to me that Mr Knox’s statement overlooks a matter of significance. The effect of s 41 of the Act is to impose on every testator or testatrix an obligation to make “adequate and proper” provision for their spouse and children. If they fail to do so the court not only has the power, but the obligation, to ensure that is done, upon application being made. Notions that an executor can effectively determine the fate of an application by vigorously contesting it, irrespective of the sense or merits in doing so, are in my view misguided and wrong. Executors cannot ignore the duty that lay on the testator. Thus when an application is made or notified the executor’s obligation is to objectively assess the evidence, impartially assess the merits of that application, and if necessary compromise the suit. That there is this obligation is consistent with the Practice Direction governing applications of this type. Paragraph 2(b) describes one of the objects of the Practice Direction as “encouraging the early consensual resolution of applications” and para 8(b) requires that the standard directions “contain a dispute resolution plan designed to exhaust the prospects of a consensual resolution of the application”.

…

[170] …the executors were not disinterested bystanders. By the terms of the will the property at Mount Ossa was left to the respondents. Thus they had a direct personal interest in opposing Mr Collett’s claims. The real issue in this case, at least so far as Mr Collett’s claim is concerned, was the determination of whose interest should take priority — the life interest that Mr Collett claims or the respondents’ interest in realising the Mt Ossa asset? Similarly in respect of Mrs Pountney’s claim. What the executors seek to do, under the guise of their upholding the will, is advance their own interest, but using the estate funds to do so. That is not an unusual feature of claims of this type. But where self interest and duty potentially conflict then there needs to be careful consideration of the options available and the wisdom of pursuing litigation regardless of the impact on the estate, and if it is to be pursued, how it is to be pursued.

…

[174] The respondents rely on the principle that ordinarily a trustee or executor is entitled as of right to be indemnified for expenses incurred before paying out the trust funds to anyone else: Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367; J A Pty Ltd v Jonco Holdings Pty Ltd (2000) 33 ACSR 691 at [50]; Nick Kritharis Holdings Pty Ltd (In Liq) v Gatsios Holdings Pty Ltd [2001] NSWSC 343 at [9] to [11]. However, there is a qualification to that rule. The true principle is that the trustee or executor is so protected where the costs have been properly and reasonably incurred.

…

[179] The complicating feature of family provision cases is that for a very long time the courts have held that it is the executor’s duty to place all relevant evidence before the court, both positive and negative: Dijkhuijs (Formerly Coney) v Barclay (1988) 13 NSWLR 639, 654 (Kirby P, Hope & Mahoney JJA agreeing). In my view that does not mean that the traditional requirement that the executors act properly and reasonably is discarded…….

[180] Here there was no impartial placing before the court of all the competing evidence. That would have required little in the way of costs. Rather the respondents were actively and aggressively advancing their own interests. By reason of the four factors that I have earlier mentioned I consider that the respondents have not acted reasonably in incurring the substantial costs that they have in unsuccessfully defending Mr Collett’s suit. I should mention that very little time at all was spent on any other aspect of the claims. I do not conceive that executors in the position of those here are entitled to hide behind their appointment and claim that they have no choice but to litigate as hard as they can, incurring whatever expense they desire, and force their opponent to do the same, in an effort to defeat his claim and preserve their own interest.”

The important principle which arises out of Collett’s case is that executors must remember that in acting as executors, they must be careful not to simply argue a case that propounds their own interests, but rather they must consider the interests of the estate as a whole. Put another way, executors who find themselves in the position of defending an application for provision which also affects their own personal interests because they are residuary beneficiaries cannot simply defend an applicant’s case on the basis that they consider he or she is receiving too much, or that their own interests will be affected. Rather they must carefully weigh an applicant’s prospect of success when considering the reasonableness of their defence to the claim.

The costs argument in Collett’s case proceeded on the papers. His Honour’s criticism of the executors’ conduct did not diminish with the passage of time. The evidence demonstrated that the applicant had made numerous offers of settlement which involved him receiving a life interest in the deceased’s property, all of which the executors rejected. The second applicant had also made a number of offers of settlement, all rejected by the executors. Ultimately his Honour ordered:

(a) That the applicant de facto have his indemnity costs out of the estate;

(b) To the extent that those costs exceed $30,000, the payment of them be deferred until the expiration of the life interest;

(c) The executors personally reimburse the estate for the moneys expended by them on litigation costs to the extent necessary to meet the cost order in favour of the applicant and to meet the administration costs;

(d) The executors recovered their costs to the extent of $10,000 (their actual costs estimated at $70,000), payment of such indemnity recoverable only after the expiration of the life interest;

(e) Otherwise the executors to bear their own costs.

His Honour was not satisfied that the executors had acted reasonably in their defence of the proceedings.

Finally, in Carey v Robson12 Palmer J said:

“Peviously, in this State, there was a view held by some practitioners advising a client contemplating a claim under the [FPA legislation] that there was little risk, and probably a lot to be gained, in making a claim, however tenuous, because even if the claim failed, the claimant would very likely get his or her costs out of the estate: the client would not be out of pocket and the solicitor would receive his or her fee in any event. That approach to family provision litigation, in effect, threw the whole burden of costs onto the beneficiaries of the estate. It promoted much wasteful litigation, it was not supported by authority … and it should be recognised, once and for all, as thoroughly discredited.”

Lawyers should be aware of possible cost orders before entering litigation in relation to estates. Advice to clients that they will probably get their costs from the estate should be entirely avoided, as costs are always in the discretion of the court.

 

Rebecca Treston

(This article is an abridged version of a paper presented by Rebecca Treston and Caite Brewer, solicitor of McInnes Wilson Lawyers, at the Queensland Law Society Symposium on 26 March 2011. Many thanks to Caite for her agreement that it be re-produced here.)

 

 

Footnotes

1. r681(1) Uniform Civil Procedure Rules

2. Oshlack v Richmond River Council (1998) 193 CLR 72 at 97

3. Shorter v Hodges (1988) 14 NSWLR 698 at 709; Singh v Singh; Estate of Hari Bhajan Singh [2008] NSWSC 715

4. [2007] QSC 388

5. Manly v The Public Trustee of Queensland (No. 2) [2008] QSC 47

6. [2010] QSC 485

7. [2008] QSC 228

8. [2008] QSC 322

9. [2011] NTSC 21

10. [2010] VSCA 147

11. [2010] QSC 132

12. Unreported, Supreme Court of New South Wales, Palmer J, 10 November 2009 (BC200910083)