Andrew v Andrew (No.3)
[2013] NSWSC 286
•04 April 2013
Supreme Court
New South Wales
Medium Neutral Citation: Andrew v Andrew (No.3) [2013] NSWSC 286 Hearing dates: 25 March 2013 Decision date: 04 April 2013 Jurisdiction: Equity Division Before: Hallen J Decision: 1. Order that the Defendant's costs of the proceedings at trial and in the Court of Appeal, calculated on the indemnity basis, be paid out of the deceased's estate and be borne, as to 62.5%, by the share of the estate passing to the Defendant, and as to 37.5% by the shares of the estate passing to the remaining three residuary beneficiaries equally.
2. Order that there be no costs of the notice of motion, to the intent that the Defendant will bear his own costs, and the remaining residuary beneficiaries will bear their own costs, out of the share of the estate that he receives, and that they receive, respectively.
Catchwords: PROCEDURE - Costs Legislation Cited: Civil Procedure Act 2005
Probate and Administration Act 1898
Succession Act 2006
Uniform Civil Procedure Rules 2005Cases Cited: Andrew v Andrew [2011] NSWSC 115
Andrew v Andrew [2012] NSWCA 308
Gonzales v Claridades [2003] NSWSC 508; (2003) 58 NSWLR 188
Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd (2010) 182 FCR 84
Luxmore Pty Ltd v Hydedale Pty Ltd (2008) 20 VR 481
Moylan v Rickard [2010] QSC 327
O'Brien v McCormick [2005] NSWSC 619Category: Costs Parties: Lynne Christine Andrew (Plaintiff)
Michael Robert Andrew (Defendant)
Other residuary BeneficiariesRepresentation: Mr L Ellison SC (Defendant)
Mr P Pellandine (Other residuary beneficiaries)
MCW Lawyers (Defendant)
Jensens Solicitors (Other residuary beneficiaries)
File Number(s): 2010/59123
JUDGMENT
HIS HONOUR: This is the fourth judgment that has been delivered in respect of the estate of Rita Melba Andrew ("the deceased"), and the second that has been delivered in respect of costs incurred in the proceedings, which were commenced by Lynne Christine Andrew, one of the deceased's children, for a family provision order.
It is also, now, just over four years since the death of the deceased; just over three years since the Plaintiff commenced the proceedings for a family provision order; and just over two years since I delivered the first reasons for judgment, which bears the medium neutral citation [2011] NSWSC 115 ("my reasons").
In my reasons, I dismissed the Plaintiff's proceedings. In the second reasons for judgment, I ordered the Defendant's costs of the proceedings, calculated on the indemnity basis, to be paid out of the deceased's estate. I did not state that it should be borne by the residuary estate alone.
Proceedings commenced by three other children of the deceased, namely Jennifer, Lisa and Tracey, were settled at mediation before the hearing of the Plaintiff's case, on the basis that each discontinued the proceedings (with certain costs orders being made by consent).
There was an appeal, by the Plaintiff, from the orders that I made in my reasons and in respect of the costs orders.
In reasons for judgment delivered by the Court of Appeal, bearing the medium neutral citation [2012] NSWCA 308, the Court of Appeal, by majority (Allsop P (as his Honour then was) and Basten JA), made the following orders:
"(1) Allow the appeal and set aside the orders made in the Equity Division on 4 and 11 March 2011.
(2) In lieu thereof -
(a) order that further provision be made for the plaintiff out of the estate of Rita Melba Andrew deceased such that the plaintiff has, in lieu of the legacy of $10,000 provided for in the will of the deceased, a legacy of $60,000, with the additional $50,000 to be provided:
(i) as to $35,000 out of moneys to which Michael Robert Andrew would otherwise be entitled under the will;
(ii) as to $5,000 out of moneys to which Jennifer Annette Smith would otherwise be entitled under the will;
(iii) as to $5,000 out of moneys to which Lisa Gae Andrew would otherwise be entitled under the will; and
(iv) as to $5,000 out of moneys to which Tracey Lee Andrew would otherwise be entitled under the will;
(b) order that the defendant pay the plaintiff's costs.
(3) Order that the respondent pay the appellant's costs in this Court.
(4) Grant liberty to the respondent to seek an order from the trial judge that his costs be recoverable out of the estate of Rita Melba Andrew deceased.
(5) Grant the respondent a certificate under the Suitors' Fund Act 1951 (NSW)."
The Court of Appeal did not determine how the Plaintiff's costs of the appeal were to be borne other than as set out above.
The Defendant exercised the liberty granted in paragraph 4 of the orders made by the Court of Appeal and filed a notice of motion on 21 February 2013, seeking the following relief:
"1. In respect of proceedings 2010/00059123 heard and determined by Hallen AsJ, the costs of Michael Robert Andrew as Respondent be paid out of the estate of the deceased on an indemnity basis.
2. In respect of proceedings 2010/00059123 heard and determined by the Court of Appeal, the costs of Michael Robert Andrew as Respondent be paid out of the estate of the deceased on the indemnity basis.
3. In respect of the Motion herein, the costs of the Applicant/ Defendant be paid by the Respondents.
4. To the extent the Applicant/ Defendant's costs are not otherwise satisfied by order 3 herein, the Applicant/ Defendant have his costs out of the estate of the deceased on an indemnity basis."
The respondents to the Defendant's notice of motion were Jennifer, Lisa and Tracey, the three remaining residuary beneficiaries named in the Will of the deceased.
The Defendant and Jennifer, Lisa and Tracey failed to arrive at a resolution of how the Defendant's costs of the hearing and of the appeal should be borne. The Defendant seeks his costs of the trial and of the appeal, calculated on the indemnity basis, to be paid out of the residuary estate, with the consequence that each of the residuary beneficiaries, (the Defendant, Jennifer, Lisa and Tracey) would bear one-quarter of those costs.
Jennifer, Lisa and Tracey seek the following orders:
(i) That the costs payable by the estate be as follows:
(a) After payment of $80,000 legacy to each of Jennifer, Lisa and Tracey.
(b) Costs of the Plaintiff.
(c) Costs of the Defendant.
(d) The balance of the estate assets, including interest accrued, to Michael.
OR in the alternative:
(ii) That the costs payable by the estate be as follows:
(a) 80% of Costs to be paid from the legacy to be received by Michael.
(b) 20% of Costs to be paid equally from the legacies to be received by Jennifer, Lisa and Tracey.
It would seem, from the above, that Jennifer, Lisa and Tracey do not oppose the Defendant receiving his costs out of the estate. Nor do they dispute the quantum of the Defendant's costs. However, as can be seen, they seek orders that the burden of the Defendant's costs should be borne by the Defendant, and by them, in different proportions, and taking into account the additional provision made for the Defendant in the deceased's Will, to which provision I shall refer later in these reasons.
The Plaintiff has played no part in the costs argument.
I was requested by the parties to deal with the application in Chambers and have done so, having received affidavits, and other documents, and an outline of submissions on behalf of each of the parties, all of which I have read.
A Brief Background
It is necessary to state some background facts. I shall use the findings made by me at the trial, since those findings were not the subject of any challenge in the appeal and, where necessary, what was said in the Court of Appeal by the majority.
The deceased's Will, in the events that happened, relevantly, provided that
(a) 40% of the market value of the property at Carnegie Circuit, Chifley ("the Chifley property") to the Defendant absolutely;
(b) a pecuniary legacy of $10,000 to the Plaintiff absolutely;
(c) the rest and residue of the estate to be equally divided between the Defendant, Jennifer, Lisa and Tracey.
Thus, there were, in effect, two legacies, one of $10,000 to the Plaintiff, and the other, of an amount equal to 40 per cent of the market value of the Chifley property, to the Defendant.
The Will, in the dispositive provisions, did not deal with the payment of debts, funeral and testamentary expenses. However, Clause 8 provided the Defendant (as executor) with power to "pay my just debts, funeral and testamentary expenses, probate and estate duty and any other debts payable as a result of or in consequence of my death". The Will did not state how the Defendant was to exercise the power, or from what source the just debts, funeral and testamentary expenses were to be paid (unlike some other Wills that provide for residue to be determined after payment of just debts, funeral and testamentary expenses).
The estate had a gross value of $925,805 of which the value of the Chifley house accounted for $920,000. There were no liabilities initially disclosed. The Chifley house was sold, in July 2010, for $905,000, yielding $886,960 after commission and expenses of sale were deducted.
In my reasons, I noted that various amounts had been paid out of the net proceeds of sale and that the fund available for distribution was $877,119 (at [11] of my reasons for judgment). However, at the date of hearing, having deducted some of the Defendant's legal costs, and $17,000 in legal costs of the three residuary beneficiaries, as other Plaintiffs who had discontinued their proceedings, and also having made an interim distribution to the four residuary beneficiaries of $15,000 each, the net distributable estate was about $799,249 (see, [12] of my reasons).
I noted, at [113] of my reasons, that:
"The Defendant submitted that the Plaintiff's claim should be dismissed, but that if I were to find that some provision ought to be made for her, then she should receive a lump sum of $40,000. If this amount were ordered to be paid, the Defendant, Jennifer, Lisa and Tracey agreed that the burden of that provision should be borne by the Defendant. If the provision were greater, then the Court should determine how the balance of that provision, above $40,000 should be borne."
In the Court of Appeal, Basten JA referred to the effect of the provisions in the Will, stating:
"58 The amount of the available provision must be far less than that sought by the appellant. As noted above, the appellant's brother received a 40% share of the estate, together with a further 15% of the residue, giving an amount of $440,000, while each of the daughters received $120,000. Taking into account their respective circumstances, as set out by the primary judge at [114]-[115], it is clear that the respondent son is best able to meet the burden of any provision."
(In fact, the Will provided for the Defendant to receive 40 per cent of the market value of the Chifley property before the residue of the estate was calculated. However, broadly speaking, his Honour's description was apt.)
Effectively, although not expressly, the order of the majority, provided for the Defendant to pay $30,000 of the additional provision for the Plaintiff from the specific legacy (40 per cent of the market value of the Chifley property) and then the balance of the additional provision made for the Plaintiff ($20,000), to be paid by the four residuary beneficiaries equally (i.e. $5,000 each). Put another way, the Defendant was to bear 70 per cent of the additional provision made for the Plaintiff and each of the three other residuary beneficiaries was to bear 10 per cent thereof.
There was no specific mention in the Court of Appeal's reasons of how the provision made for the Plaintiff ($10,000) in the Will of the deceased was to be borne. However, the parties appear to have treated that lump sum as being borne by the residuary beneficiaries equally. It had not been paid at the date of hearing: at [13] of my reasons for judgment.
Thus, it appears, following the reasons for judgment of the Court of Appeal, that the total provision from the estate, made for the Plaintiff ($60,000), was to be borne by the Defendant, as to $37,500, or 62.5 per cent, and each of the other three residuary beneficiaries as to $7,500, or 12.5 per cent.
(Based upon these calculations, the Defendant did not have to pay seven times what the other residuary beneficiaries had to pay, as submitted by the residuary beneficiaries, but five times what they had to pay.)
As stated, the conclusion of the majority of the Court of Appeal appears to have considered as relevant to the issue of how the burden of the additional provision should have been borne, the competing financial resources of all the siblings of the Plaintiff, and concluded that the Defendant was "best able to meet the burden of any provision".
The Notice of Motion
The evidence read on the Defendant's notice of motion included an affidavit of Ian Gary Connor, the solicitor acting for the Defendant on the notice of motion. In that affidavit, he disclosed that the agreed costs of the Plaintiff, calculated on the ordinary basis, in total, were $107,000, which amount had been paid. He stated that the Defendant's costs, calculated on the indemnity basis, in total, were $100,249, which amount had also been paid. (The Defendant's costs did not include the costs of the notice of motion.)
Each of Jennifer, Lisa and Tracey relied on at least one affidavit setting out her current financial resources. The Defendant did not file, or serve, any evidence of his financial resources, with the result that I do not know his current financial resources.
Principles regarding Costs
The Civil Procedure Act 2005, s 98(1), provides that subject to the rules of Court, and that, or any other, Act, costs are in the discretion of the Court. The discretion is broad but not unconfined. It is a judicial discretion to be exercised on a principled basis.
Because of the wording of s 98(1) of the Civil Procedure Act, it is necessary to consider the provisions of the Succession Act 2006. Relevantly, s 99 of that Act provides:
"(1) The Court may order that the costs of proceedings under this Chapter in relation to the estate or notional estate of a deceased person (including costs in connection with mediation) be paid out of the estate or notional estate, or both, in such manner as the Court thinks fit."
It is clear that s 99 of the Succession Act, provides for an unfettered discretion as to how the costs of the proceedings for a family provision order may be borne. It also provides an unfettered discretion as to the part, or parts, of the estate, or notional estate, that is, or are, to bear the burden of costs.
In Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd (2010) 182 FCR 84; [2010] FCAFC 5), Gray J in the Full Court said:
"[17] The overriding principle that costs are in the discretion of the Court can also be expressed in terms of the negative proposition that no rule or principle should be applied mechanically in the determination of the question where costs should lie in any particular case. Attention must always be paid to the particular circumstances of the individual case. The aim is to do substantial justice in relation to costs, based on the outcomes of the various issues in the proceeding, as between the entities that are parties to that proceeding."
Section 66(2) of the Succession Act provides that the Court may "make such additional orders as it considers necessary to adjust the interests of any person affected by a family provision order and to be just and equitable to all persons affected by the order".
Uniform Civil Procedure Rules 2005, rule 42.25 provides:
"(1) Subject to subrule (2), a person who is or has been a party to any proceedings in the capacity of trustee or mortgagee is entitled to be paid his or her costs in the proceedings, in so far as they are not paid by any other person, out of the fund held by the trustee or out of the mortgaged property, as the case may be.
(2) The court may order that the person's costs not be so paid if:
(a) the trustee or mortgagee has acted unreasonably, or
(b) in the case of a trustee, the trustee has in substance acted for his or her own benefit rather than for the benefit of the fund."
It is clear that one of the duties of administration is to deal with any claim made for a family provision order - dealing with such claims is one example of the task of administration of ascertaining the identity of the persons to whom the legal personal representative must transfer the net estate assets: Gonzales v Claridades [2003] NSWSC 508; (2003) 58 NSWLR 188, at [48].
In O'Brien v McCormick [2005] NSWSC 619, Campbell J noted:
"[28] The defence of Family Provision Act 1982 proceedings is one of the tasks an executor performs in administering the estate: Re Woodman, deceased; ex parte The Trustee (1940) 11 ABC 159 at 175; Re Linning [1995] 1 QdR 274 at 276; Re Lowe[2000] NSWSC 1180 at [5].
...
[56] It has been the law for a very long time that a trustee is entitled to be reimbursed out of the trust property in respect of all the charges and expenses properly incurred in the execution of the trust: Worrall v Harford (1802) 8 Ves Jun 4 at 8; 32 ER 250 at 252; In re Grimthorpe, deceased [1958] 1 WLR 381; Carver v Duncan (Inspector of Taxes) ; Bosanquet v Allen (Inspector of Taxes) [1983] 1 WLR 494 at 502. That principle also applies to executors. ... Whether conduct of an executor in defending Family Provision Act 1982 proceedings is reasonable is influenced by the executor's duty to place before the court all material which a beneficiary wishes to have placed before the Court, except to the extent that the executor knows that that material is false: Vasiljev v Public Trustee [1974] 2 NSWLR 497 at 503-4; Dijkhuijs (formerly Coney) v Barclay (1988) 13 NSWLR 639 at 654 per Kirby P, 655 per Hope JA."
There is no suggestion that the Defendant acted unreasonably, or that he acted for his own benefit rather than for the benefit of the residuary beneficiaries, in his defence of the proceedings commenced by the Plaintiff or in defending the appeal. (Of course, in respect of the notice of motion, the Defendant appears to be advancing his own interests.)
It is necessary to say something briefly about the legacies in the Will.
In Moylan v Rickard [2010] QSC 327, the difference between types of legacies was discussed as follows:
"[41] Mr ... of Counsel, who appeared for the respondents, made reference to Re Culbertson. That case discussed the difference between general legacies, demonstrative legacies and specific legacies. A specific legacy was identified as "a gift by will of a particular thing forming part of the testator's estate or of a specified legal or equitable interest, such being described in a sufficiently explicit manner in the will as to enable it to be identified as separated from the mass of the testator's estate inclusive of other things of the same kind, if any, and which is satisfied by the executor by delivery of the particular thing or by appropriate transfer of such interest to the legatee."
[42] A demonstrative legacy was described as "an unconditional gift of a specified amount accompanied by a reference to a particular fund or source for payment thereof". A general legacy is a legacy which is neither specific nor demonstrative."
The legacy to the Plaintiff in the Will and the additional provision made for her by the order of the Court of Appeal was thus a general legacy. The legacy of 40 per cent of the market value of the Chifley property to the Defendant in the Will was a demonstrative legacy, that is a pecuniary legacy payable out of a particular fund.
Section 46C(2) of the Probate and Administration Act 1898, provides:
"Where the estate of a deceased person is solvent the deceased person's real and personal estate shall, subject to the provisions of any Act as to charges on property of the deceased and to the provisions, if any, contained in the deceased person's will, be applicable towards the discharge of the funeral, testamentary, and administrative expenses, debts, and liabilities, payable thereout in the order mentioned in Part 2 of the Third Schedule."
The Third Schedule provides:
"Part 2 - Order of application of assets where the estate is solvent
1 Assets undisposed of by will, subject to the retention thereout of a fund sufficient to meet any pecuniary legacies.
2 Assets not specifically disposed of by will but included (either by a specific or general description) in a residuary gift, subject to the retention out of such property of a fund sufficient to meet any pecuniary legacies, so far as not provided for as aforesaid.
3 Assets specifically appropriated or disposed of by will (either by a specific or general description) for the payment of debts.
4 Assets charged with or disposed of by will (either by a specific or general description) subject to a charge for the payment of debts.
5 The fund, if any, retained to meet pecuniary legacies.
6 Assets specifically disposed of by will, rateably according to value."
Thus, in the ordinary case, the proper costs of defending an application for a family provision order, as a testamentary expense, would be paid out of assets undisposed of by will, subject to the retention thereout of a fund sufficient to meet any pecuniary legacies, that is, the residue of the estate before dividing it in accordance with the terms of the deceased's Will.
In this case, the source for the payment of the debts, funeral and testamentary expenses, as well as the pecuniary legacy to the Plaintiff, can only be the proceeds of sale of the Chifley property. There was virtually no other property of the deceased at the date of her death.
Determination
In Luxmore Pty Ltd v Hydedale Pty Ltd (2008) 20 VR 481; [2008] VSCA 212, Maxwell P and Kellam JA said, at [12]:
"In the ordinary case, it is both appropriate and desirable that a costs question be decided at the conclusion of argument. Rarely will it be necessary for a judge to give detailed reasons for decision adverting to every matter debated in argument. This court will assume, as should the parties, that every matter addressed in argument on costs has been considered. This court will set its face against any proposition which would require judges disposing of questions of costs to give elaborate reasons."
As stated, Jennifer, Lisa and Tracey has each filed evidence of her current financial resources whilst the Defendant has not. It follows that I am entitled to infer that he does not advance his current financial resources as a consideration that the Court should treat as relevant to the determination of how the burden of costs should be borne.
Taking into account all matters, including what I have read concerning the current financial resources of each of the three residuary beneficiaries, I adopt, in relation to determining the burden of the Defendant's costs, an approach similar to that adopted by the Court of Appeal. (Although the financial resources of Jennifer, Lisa and Tracey are different, each does not require the other to bear, other than an equal share of, the burden of the Defendant's costs.)
In the circumstances, I consider that the burden of the Defendant's costs should be borne in the same proportions as the burden for provision made for the Plaintiff. In other words, I consider that the Defendant should bear 62.5 per cent, and each of the other three residuary beneficiaries should bear 12.5 per cent of the Defendant's costs the subject of the notice of motion that must be paid out of the deceased's estate passing to him and them respectively.
However, the Defendant's costs should not include the costs of the notice of motion.
Neither side has been wholly successful in relation to the notice of motion. The Defendant has not succeeded in obtaining an order that the residuary estate should bear three quarters of his costs of the hearing and of the appeal; and nor have the remaining residuary beneficiaries succeeded in obtaining either alternative order that they sought.
I order that there be no order as to the costs of the notice of motion, to the intent that the Defendant will bear his, and the three residuary beneficiaries will bear their, own costs of the notice of motion, out of the share of the estate that he receives, and that they receive, respectively.
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Decision last updated: 04 April 2013
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