Antonacci v Antonacci (No 2) - [2016] SASC 142

SUPREME COURT OF SOUTH AUSTRALIA
(Testamentary Causes Jurisdiction)
ANTONACCI v ANTONACCI & ORS (No 2)
[2016] SASC 142
Judgment of Judge Dart a Master of the Supreme Court
31 August 2016
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS
Application to admit will and codicil to probate - application opposed by the third defendant - third defendant also objected to plaintiff being the executor in the deceased estate - will and codicil admitted to probate - no basis to pass over plaintiff as executor - plaintiff sought costs on an indemnity basis against the third defendant.
Held:
1. The third defendant is to pay the plaintiff’s costs of action on a party/party basis up to and including 2 July 2015.
2. The third defendant is to pay the plaintiff’s costs of action on an indemnity basis in respect of costs incurred after 2 July 2015.
3. The third defendant is not entitled to receive distribution of her share of the residuary estate of Lucia Emma Antonacci (deceased) from the plaintiff as executor of the estate until such time as the third defendant pays into the estate, by payment to the plaintiff as executor of the estate, the legal costs of proceedings which have been ordered to be paid by her.
4. In lieu of the third defendant paying into the estate by payment to the plaintiff executor of the estate the sum referred to in paragraph 3 above, the plaintiff is at liberty to calculate the third defendant’s share of the residuary estate and distribute the residuary estate to the other residuary beneficiaries on the footing that the sums referred to in paragraph 3 above are set off against the share of the residuary estate that the third defendant otherwise would be entitled to receive.
Supreme Court Act 1935 (SA) s 40; Supreme Court Civil Rules 2006 (SA) r 263(3), referred to.
Antonacci v Antonacci & Ors [2016] SASC 101; Cherry v Boultbee [1839] 2 Keen 319 [1839] 41 ER 171; Twist v Tye [1902] P 92, applied.
BHP Billiton v Parker [2012] SASCFC 73; Oshlack v Richmond River Council (1998) 193 CLR 72; Ponder v Burmeister [1909] SALR 99; Public Trustee v Hall [1937] SASR 252; Re Peruvian Railway Construction Co Ltd [1915] 2 Ch 144; Solowij and Ors v Parish of St Michael & Ors (No 2) [2003] SASC 48; Turner v Turner [1911] 1 Ch 716, considered.

ANTONACCI v ANTONACCI & ORS (No 2)
[2016] SASC 142
JUDGE DART:

The reasons for judgment in respect of the trial of this matter were delivered last month.[1]
[1] Antonacci v Antonacci & Ors [2016] SASC 101.
Since that time a costs order has been made in favour of the plaintiff, in his capacity as executor of the deceased’s estate, permitting him to be paid his costs on an indemnity basis from the assets of the estate. That is the usual form of order in respect of an executor’s costs.
All that remains to be determined is whether the third defendant, who was the contradictor at trial, should be ordered to pay any of the costs of the action. These reasons deal with that question.
The plaintiff sought a number of orders against the third defendant. They were that:
1. The third defendant pay the plaintiff’s costs of action.
2. The costs of action be paid on an indemnity basis.
3.The third defendant not be entitled to receive her interest, as a beneficiary of the estate, without first paying such costs as may be ordered by the Court.
4.The plaintiff as executor be entitled to set off against the third defendant’s interest in the estate any amount of costs that she is ordered to pay.
The third defendant opposes the making of a costs order against her and says that the orders sought by the plaintiff are punitive in nature and ought not be made.
Background
The trial was in respect of admitting to probate a will and a codicil. There was also a contest as to whether the plaintiff should be passed over as executor of the estate in the event the codicil was admitted to probate. It was the codicil which made the plaintiff the executor. In the result, the will and codicil were admitted to probate and it was found that there was no basis to pass over the plaintiff as executor. The third defendant was the contradictor on all issues. She was unrepresented at trial, but had been represented at an earlier time.
After the commencement of trial, the third defendant conceded the validity of the will. The balance of the trial proceeded on the question of whether the codicil should be admitted to probate and on the passing over issue.
One curious aspect of the matter was that the issues in dispute had little impact on the ultimate distribution of the estate. Apart from a number of small bequests, the testatrix left her estate equally to her three children. The plaintiff and third defendant are brother and sister. If the will had failed, the estate would have been dealt with as an intestacy. In an intestacy the three siblings would also have taken an equal share in the residue of the estate.
The dispute proceeded primarily because the third defendant was of the belief that the plaintiff was not a suitable executor.
Costs in testamentary matters
The Court has an unfettered discretion in respect of costs subject only to the discretion being exercised judicially.[2] The usual order after a trial is that costs follow the event, thus the unsuccessful party is ordered to pay the costs of the successful party. However, as was said by Williams J in Solowij and Ors v Parish of St Michael & Ors (No 2), [3] there is only one immutable rule in relation to costs, and that is that there are no immutable rules.
[2] Supreme Court Act 1935 (SA) s 40.
[3] [2003] SASC 48 at [15].
The principles underlying the usual order that costs follow the event were explained by McHugh J in Oshlack v Richmond River Council where his Honour said: [4]
The expression the "usual order as to costs" embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The 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 (104). If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.
[4] (1998) 193 CLR 72 at [67].
In testamentary matters the usual rule that costs follow the event is subject to some well-established exceptions. In speaking of the rule as to costs in testamentary litigation Gorell Barnes J in Twist v Tye said: [5]
The general rule is, of course, that costs, after a trial of this character, should follow the event unless, according to the principles which are in force in this Court, there should be adequate reason for an order of a different character. Speaking generally, there are in this division two classes of cases in which there should be, and generally is, a departure from the ordinary rule: the first is where the litigation has been brought about through the conduct of the testator or testatrix; and the second is where the parties who have failed have reasonably been led into the litigation by a bona fide belief in their case, and have, therefore, felt it desirable to inquire into the testamentary dispositions of the testator or testatrix. In order to determine this question of costs, the Court must look at the facts, and view them as they were presented to the unsuccessful parties.
[5] [1902] P 92 at p 93.
The approach stated by Gorell Barnes J has been adopted and applied by this Court.[6] Thus, to avoid the usual order that costs follow the event, the third defendant must fall within one of the two classes of cases referred to in the authority above. This is not a matter where any conduct of the testatrix brought about the litigation. The will and the codicil were completely orthodox, prepared by solicitors, and there were no significant issues surrounding their execution.
[6] Ponder v Burmeister [1909] SALR 99 at 100 and Public Trustee v Hall [1937] SASR 252.
That leaves the second class which requires the third defendant to have reasonably been led into litigation by a bona fide belief in her case. There is no doubt that she has a bona fide belief in the merits of the propositions she put forward. The more relevant question is whether her conduct in opposing the admission of the will and codicil to probate and seeking to have the plaintiff passed over as executor was reasonable. That needs to be determined objectively.
Of particular assistance is the fact that the evidence-in-chief was largely given by way of affidavit. The parties had most of the affidavits ahead of trial. The question of reasonableness of the approach of the third defendant can more easily be determined because she had most of the evidence prior to trial. There were no surprises at the trial.
The fact of the matter is that there was never any proper basis to challenge the will. Likewise, there was no proper basis to reject the codicil. At its highest, the position of the third defendant was that the testatrix would not have wanted the plaintiff to have been the executor. That position was completely at odds with the evidence as to how the codicil came to be prepared and executed.
The uncontradicted evidence of the plaintiff was that his mother rang and advised that she wanted him to be the executor and asked him to make arrangements for that to occur. The plaintiff at that time was residing in Western Australia and his mother lived in Whyalla.
The plaintiff contacted a solicitor in Whyalla who attended to the preparation of the codicil and attended on the testatrix with someone able to interpret the document into the Italian language. Before the Court were two affidavits of the solicitor as to the circumstances in relation to the execution of the codicil. The solicitor died prior to the trial, but the affidavits were admitted without objection.
The affidavits provided a clear and concise explanation of the preparation and execution of the codicil and the fact that the testatrix made clear her intentions as to wanting the plaintiff as her executor. There was no reasonable basis to oppose the admission of the will and codicil to probate.
I take the same view in respect of the application to pass over the plaintiff as executor. It might be the issue is not quite as clear-cut, but the matters complained of by the third defendant had been investigated by the Guardianship Board and also the Public Trustee. There has been no finding by either of those bodies of any misconduct by the plaintiff.
In respect of the considerable investigation by other bodies in relation to the issues complained of by the third defendant it cannot, in my opinion, be said to be reasonable to re-litigate those matters with a view to attempting to obtain a different outcome. More so where the distribution under the will would not be affected whatever the outcome.
Further, the facts disclosed in the affidavits answered the queries of the third defendant. The position of the third defendant was she did not accept any of the findings of other bodies that failed to find wrongdoing on behalf of the plaintiff. She was determined to continue the litigation with a view to establishing wrongdoing by the plaintiff.
In my opinion, the third defendant has not brought herself within the two exceptions to the usual rule that costs follow the event. It was not reasonable to defend the action. Therefore it is appropriate that at least the usual costs order be made against the third defendant. As the authorities show, a costs order is not a penalty but compensation to a party unnecessarily put to expense.
Costs other than on a party/party basis
The plaintiff says that the third defendant acted unreasonably in opposing the application and, in particular, said there were no reasonable grounds for disputing the validity of the testamentary documents. The plaintiff advances a number of bases on which he argues that any costs order against the third defendant should be on an indemnity basis.
The first basis is that the unreasonable conduct of the third defendant will impact on the other beneficiaries and they should not be financially disadvantaged as a result of the third defendant’s opposition in these proceedings. That is a relevant consideration but not, in itself, sufficient to require other than a party/party order.
The second basis relates to offers before the proceedings were issued. While the third defendant was unrepresented at trial she had, at earlier stages of the dispute, been represented. An exchange of letters took place between solicitors in late December 2013 and in early 2014. The matter came very close to a resolution. These proceedings had not been commenced at that time.
In my opinion, the fact that both parties were putting forward bona fide offers to resolve the matter means that it is a neutral consideration on the question of costs. Each offer varied slightly and each party felt themselves unable to accept the offer made by the other on its terms. It should be a matter of great regret for all that the matter did not settle at that earlier time, but neither party was more at fault than the other.
The third basis relates to a further written offer of settlement. The plaintiff’s solicitor wrote to the third defendant on 4 June 2015 making an offer of settlement. The letter allowed the third defendant 28 days within which to accept the offer, that is, by 2 July 2015. Relevantly the offer had three aspects, which were that:
1.The third defendant withdraw her opposition to the grant of probate for the will and codicil, thus avoiding the need for a trial.
2.The third defendant consent to an order that the plaintiff’s costs be paid from the estate on an indemnity basis.
3.The third defendant’s reasonable costs to date including any additional costs to obtain advice in respect of a letter of offer would be paid from the estate.
The offer was not accepted. The plaintiff obtained at trial the orders that he had sought. The position of the third defendant after trial is inferior to what was offered to her in the letter. It was an informal offer to settle. The Rules of Court permit a judge to have regard to attempts to settle an action.[7]
[7] Supreme Court rule 263(3).
In the matter of BHP Billiton v Parker[8] the Full Court was, inter alia, considering an appeal on the question of costs. There had been an informal offer of settlement and the Court was considering whether it should have been accepted. In the joint judgment of Doyle CJ and White J, their Honours were considering some aspects of informal offers. The Court identified the considerations relevant to determine a party’s response to an offer in the following paragraph:[9]
When one bears in mind the issues, dealt with earlier in these reasons, the knowledge that BHP had about the case, the modest offer made by the solicitors for Mr Parker, and the likely costs of a trial, it was imprudent of BHP not to accept the offer made. We do not say that BHP did not have a fairly arguable defence. Rather, that in the circumstances mentioned it was imprudent not to settle for the amount offered, and on the basis of paying costs as claimed in whichever of the three offers was accepted. In its written submissions BHP argues that it had “a serious defence”. That may be so, and we do not deny that, as we have already said. The point is that there were risks either way, and BHP knew or should have known enough to appreciate that the settlement offer was a sensible one that should be accepted. BHP might have decided to contest the case in the hope that the outcome would be one that it could use to its advantage in negotiations over other cases. There is nothing to be criticised in that. But if that was its process of reasoning, and we do not know whether it was or not, that would not deny the conclusion that in relation to Mr Parker’s claim its decision to reject settlement was imprudent.
[8] [2012] SASCFC 73.
[9] BHP Billiton v Parker [2012] SASCFC 73 at [274].
It is fair to categorise the failure of the third defendant to resolve the matter on the basis set out in the letter of 4 June 2015 as an imprudent refusal to settle. As mentioned above, that position is reinforced by the fact that the issues at trial had no relevant or significant impact on the distribution of the estate. Apart from the small bequests, the estate was always to be, whether by the will or by an intestacy, divided equally amongst the three children of the deceased.
The informal offer was made at a time after the Second Statement of Claim had been filed and the issues being pursued by the plaintiff had crystallised. The third defendant was in a position to make an informed decision at that time on the risks and costs involved in litigation, and whether her opposition to the plaintiff’s position should be continued. There was no response to the offer.
In my opinion, the appropriate order to make in respect of costs is that the third defendant pay the plaintiff’s costs of action up and until 2 July 2015 on a party/party basis and thereafter the costs should be paid on an indemnity basis.
Set-off against third defendant’s entitlement
The third defendant has an entitlement to receive one third of the residue of the estate. The position of the plaintiff is that he should be entitled to set-off any costs order against the third defendant’s entitlement under the estate. The plaintiff advanced that proposition based on what is described as the rule in Cherry v Boultbee.[10]
[10] [1839] 2 Keen 319 [1839] 41 ER 171.
The effect of the rule was articulated by Sargant J in Re Peruvian Railway Construction Co Ltd where he said:[11]
Where a person entitled to participate in a fund is also bound to make a contribution in aid of that fund, he cannot be allowed so to participate unless and until he has fulfilled his duty to contribute.
[11] Re Peruvian Railway Construction Co Ltd [1915] 2 Ch 144 at [150].
Perhaps more relevantly for this matter, Cozens-Hardy MR said in Turner v Turner as follows: [12]
When a legatee is also a debtor of the testator the executors have a right of set off or retainer I do not care for the moment what word you use, but the principle is that the legacy shall not be paid except out of the debt which is owing by the legatee to the testator. I do not doubt that principle. I think that the more logical and correct mode of explaining the doctrine is this: you, the debtor, have in your hands part of the assets of the testator and you cannot claim any part of the assets of the testator, out of which of course your legacy must be paid, without bringing into the estate that portion which is now in your pocket; or, in other words, your legacy must be treated as paid pro tanto out of the assets of the testator which you have in your pocket.
[12] [1911] 1 Ch 716 at 719.
The application of the principles set out above is straightforward. Here, the third defendant is entitled to share in the residue of the estate. At the same time, as a consequence of the making of a costs order in respect of the trial of the action, she becomes a debtor of the estate for an amount yet to be determined.

It is appropriate that the executor be entitled to retain the third defendant’s share of the estate pending a resolution of the amount of the costs owing to the estate and the payment of the same or, alternatively, an agreement between the parties to set off the costs owing against the entitlement of the third defendant to share in the residue of the estate.
I make the following orders:
1The third defendant is to pay the plaintiff’s costs of action on a party/party basis up to and including 2 July 2015.
2The third defendant is to pay the plaintiff’s costs of action on an indemnity basis in respect of costs incurred after 2 July 2015.
3The third defendant is not entitled to receive distribution of her share of the residuary estate of Lucia Emma Antonacci (deceased) from the plaintiff as executor of the estate until such time as the third defendant pays into the estate, by payment to the plaintiff as executor of the estate, the legal costs of proceedings which have been ordered to be paid by her.
4In lieu of the third defendant paying into the estate by payment to the plaintiff executor of the estate the sum referred to in paragraph 3 above, the plaintiff is at liberty to calculate the third defendant’s share of the residuary estate and distribute the residuary estate to the other residuary beneficiaries on the footing that the sums referred to in paragraph 3 above are set off against the share of the residuary estate that the third defendant otherwise would be entitled to receive.