Brady v Mikan (No 2)

[2022] NSWSC 1320

Supreme Court

New South Wales

Medium Neutral Citation:

Brady v Mikan (No 2) [2022] NSWSC 1320

Hearing dates:

Written submissions 1, 2 August and 1 September 2022; 13 September 2022

Date of orders:

29 September 2022

Decision date:

29 September 2022

Jurisdiction:

Equity - Probate List

Before:

Kunc J

Decision:

See paragraph [51]

Catchwords:

SUCCESSION – Probate and administration – Costs – Where probate issues not the only matters in dispute – Interplay of costs principles where litigation may be attributed to testator, where circumstances warranted investigation and Calderbank offers – Some allocation of costs by reference to issues

Legislation Cited:

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Aukuso v Tahan (No 2) [2018] NSWCA 302

Banks v Goodfellow (1870) LR 5 QB 549

Brady v Mikan [2022] NSWSC 956

Croghan v Blacktown City Council (2019) 100 NSWLR 757; [2019] NSWCA 248

Gray v Hart; Estate of Harris (No 2) [2012] NSWSC 1562

King v Hudson [2009] NSWSC 1500

Nominal Defendant v Hawkins [2011] NSWCA 93

Orton v Smith (1873) LR 3 P&D 23

Re Estate late Hazel Ruby Grounds; Page v Sedawie [2005] NSWSC 1311

Re Hodges; Shorter v Hodges (1988) 14 NSWLR 698

Reginald Alfred Becker v Public Trustee of New South Wales [2006] NSWSC 1146

Shorten v Shorten (No 2) [2003] NSWCA 60

Category:

Costs

Parties:

Belinda Brady (First Plaintiff/Cross-Defendant)
Vesna Crnjak (Second Plaintiff/Cross-Defendant)
Tony Ilijanic (Third Plaintiff/Cross Defendant)
John Mikan (Defendant/Cross claimant)

Representation:

Counsel:

G Smith (Plaintiffs/Cross Defendants)
S Chapple (Defendant/Cross Claimant)

Solicitors:

Shead Lawyers (Plaintiffs/Cross Defendants)
Keypoint Law (Defendant/Cross Claimant)

File Number(s):

2019/326535

Publication restriction:

Nil

Judgment

Summary

1. On 19 July 2022, the Court delivered its substantive judgment in these proceedings: Brady v Mikan [2022] NSWSC 956 (the Principal Judgment). Having found in favour of the Defendant/Cross Claimant (John), the parties were provided with an opportunity to prepare short minutes to give effect to the Court’s orders and to agree, insofar as possible, as to costs. While there was no dispute about the substantive orders to be made, they were unable to agree on costs, which are the subject of this judgment. It should be read, and assumes familiarity with, the Principal Judgment. Defined terms in the Principal Judgment have the same meaning in these reasons.

2. The Plaintiffs sought these cost orders:

“3.    The first, second and third Plaintiffs/Cross-Defendants be indemnified out of the estate of the Deceased on the indemnity basis;

4.   The Defendant/Cross-Claimant be indemnified out of the estate of the Deceased on the indemnity basis.”

3. John sought these costs orders:

“3.   The first, second and third Plaintiffs/Cross-Defendants pay the costs of the Defendant/Cross-Claimant of the proceedings as follows:-

On the ordinary basis from 8 May 2020 up to and including 29 August 2020; and

On the indemnity basis on and from 30 August 2020.

4. The Defendant/Cross-Claimant be indemnified out of the estate of the Deceased on the indemnity basis for the difference in any costs not otherwise recovered from the Plaintiffs/Cross-Defendants in accordance with order 3.”

4. The parties provided written submissions and a short, further hearing was held on 13 September 2022. On that occasion, as at the principal hearing, Mr G Smith of Counsel appeared for the Plaintiffs and Dr S Chapple of Counsel appeared for John.

Facts

5. The facts relevant to costs were not in contest and the Court finds them to be as set out in what follows.

6. The proceedings were commenced by statement of claim filed on 18 October 2019.

7. Between 5 and 8 May 2020, John served on the Plaintiffs the evidence of Mr Alexander, Ms Music, Mr Djundja and Dr Chan (the Independent Witnesses). While all of their evidence favoured John’s contentions, it was especially the evidence of Mr Alexander and Ms Music which persuaded the Court to find in favour of John on the probate aspect of the case.

8. After an unsuccessful mediation in early July 2020, Hallen J made orders on 13 July 2020 which stood the matter over to 17 August 2020, and included:

“1.   Notes that neither party should assume that the costs of these proceedings will be borne by the estate.

2.   Notes that the parties are in dispute as to the identity of and the type of expert to be appointed to provide the Court with opinion as to the medical conditions from which the deceased suffered at the relevant dates.

3.   Orders that any notice of motion filed by one or both of the parties be made returnable on 17 August 2020 for directions.”

9. On 29 July 2020, a letter was emailed to the Plaintiffs’ solicitor, Ms Kim Ireland of Shead Lawyers, from Ms Monica Ross-Maranik of Keypoint Lawyers on behalf of John (the Offer of Compromise). The letter enclosed an offer of compromise under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) offering to settle the proceedings by:

“1. A grant of Probate of the will dated 18 August 2014 of the late Kata Grguric (“the Deceased”) to the Plaintiff;

2. The costs of the Plaintiffs’/Cross-Defendants’ of the proceedings, as agreed, or assessed on the indemnity basis, be paid out of the estate of the deceased;

3. The costs of the Defendant/Cross-Claimant of the proceedings, as agreed or assessed on the indemnity basis, be paid out of the estate of the Deceased;

4. The Statement of Claim be otherwise dismissed; and

5. The Statement of Cross-Claim be otherwise dismissed.”

10. The Offer of Compromise stipulated that it would be open for acceptance “at any time before 5pm on 28 August 2020” and indicated that if it did not comply with the Rules, it was intended to operate as a Calderbank offer.

11. The letter enclosing the Offer of Compromise was itself headed “WITHOUT PREJUDICE SAVE AS TO COSTS” and included what was described as a Calderbank offer to be considered an alternative “[i]n the event that the Offer of Compromise does not comply with the Uniform Civil Procedure Rules 2005” (the first Calderbank offer).

12. The first Calderbank offer included the same terms as the Offer of Compromise with one additional term that “[t]he Estate be otherwise distributed according to [the 2014 Will]”.

13. The first Calderbank offer was also stated to expire at 5pm on 28 August 2020.

14. There is no evidence the Plaintiffs ever responded to the offers made by John.

15. On 17 August 2020, Hallen J ordered that Professor Peisah be retained as the parties’ joint expert.

16. Professor Peisah’s report was provided to the parties on or about 22 October 2020. Her report was to the effect that in August 2014, Kata’s cognitive impairment rendered her incapable of understanding the nature of her Estate and identifying, evaluating and discriminating between the strength of claims on her Estate and that there was no evidence demonstrating knowledge and approval of the 2014 Will.

17. On 10 November 2020, Ward CJ in Eq (as her Honour then was) fixed the hearing of these proceedings for 6 days before me commencing on Monday,16 August 2021.

18. On Friday, 13 August 2021, a further offer was sent to Shead Lawyers by Keypoint Law on behalf of John (the second Calderbank offer). That email also included a heading which stated “WITHOUT PREJUDICE AS TO COSTS” and included these terms:

“1. A grant of Probate of the will dated 18 August 2014 of the late Kata Grguric (“the Deceased”) in solemn form to the Defendant.

2. The costs of the Defendant/Cross-Claimant of the proceedings, calculated on the indemnity basis, be paid out of the estate of the Deceased;

3. Notwithstanding the terms of the will of 18 August 2014, payment to the Plaintiffs of a sum equivalent to 30% of the net estate of the Deceased (being the amount remaining after payment of all estate and administration expenses and liabilities, including the Defendant’s costs of these proceedings) in full and final satisfaction of all claims on the Deceased’s estate.

4. No order as to the costs of the Plaintiffs to the intent that they will bear their own costs of the proceedings.

5. The Estate be otherwise distributed according to the will dated 18 August 2014.

6. The Statement of Claim otherwise be dismissed.

7. The Statement of Cross-Claim otherwise be dismissed.”

19. The second Calderbank offer was stated to expire at 9am on 16 August 2021, being the first day the matter was scheduled for hearing.

20. On 14 August 2021, Shead Lawyers responded to the second Calderbank offer by way of a letter on behalf of the Plaintiffs. The letter unequivocally rejected the terms of the second Calderbank offer and made a counter-offer (the Plaintiffs’ Calderbank offer) in these terms:

“1. A grant of Probate of the Will dated 18 August 2014 of the late Kata Grguric (“the Deceased”) in solemn form to the Defendant.

2. The costs of the Defendant/Cross-Claimant of the proceedings, calculated on the indemnity basis, be paid out of the estate of the Deceased.

3. Notwithstanding the terms of the will of 18 August 2014, payment to each of the Plaintiffs of a sum equivalent to 10%, and payment to each of Juraj and Iva Mikan of a sum equivalent to 5%, of the net estate of the Deceased (being the amount remaining after payment of all estate and administration expenses and liabilities, including the Defendant’s costs of these proceedings) in full and final satisfaction of all claims on the Deceased’s estate.

4. No order as to the costs of the Plaintiffs to the intent that they and the other persons referred to in paragraph 3 above will bear the Plaintiffs’ costs of the proceedings, in equal shares.

5. Note the agreement of the parties that the Defendant will:

(a) Arrange for works to be completed on the Deceased’s headstone in accordance with the design and wording chosen by the Deceased, and which is sketched and handwritten on the invoice for the headstone … as well as arranging for the ceramic photo of the Deceased, which she purchased for that purpose to be attached to the headstone; and

(b) Make available for collection by the Plaintiffs, or their solicitor, 2 volumes of photo albums …

(c) The Estate be otherwise distributed according to the will dated 18 August 2014.”

21. Like the second Calderbank offer, the Plaintiffs’ Calderbank offer was set to expire at 9am on 16 August 2021.

22. That offer was not accepted by John. The parties proceeded to a hearing which culminated in the Court finding in favour of John, granting probate of the 2014 Will to him in solemn form.

The parties’ submissions

23. It was originally submitted for the Plaintiffs:

1. The general rule that costs follow the event is subject to two exceptions in probate matters, both of which apply in the present case: Re Hodges; Shorter v Hodges (1988) 14 NSWLR 698 (Hodges)).

2. The first exception to the general rule (which would result in the Plaintiffs having their costs paid from the Estate) applies because Kata, or John, was the cause of the litigation:

1. Kata represented to the Plaintiffs that they would receive an interest in the proceeds of her Estate which they subsequently did not. The evidence of Belinda, Vesna and Tony was consistent on this account and was corroborated by the account of their father, Vlado.

2. John was “instrumental” in the creation of the 2014 Will in “suspicious circumstances”.

3. The second exception to the general rule (which would result in neither party having their costs out of the Estate) applies because a reasonable case for investigation arose in relation to the 2014 Will:

1. Expert evidence of Professor Peisah, in tandem with medical records, demonstrated there was a real question as to Kata’s testamentary capacity. This evidence showed that Kata was suffering an ongoing mental decline prior to 2015. This gave rise to a “genuine doubt about the validity” of the 2014 Will (relying on White JA in Gray v Hart; Estate of Harris (No 2) [2012] NSWSC 1562 at [5]).

2. It was understandable that the Plaintiffs proceeded despite the evidence of the Independent Witnesses prior to the hearing:

1. Dr Chan’s evidence was “largely founded” on Kata’s representation that she had been made to sign documents by Belinda, which Belinda refuted. Kata’s representation to Dr Chan was the product of a “delusional” or “poisoned mind”.

2. Mr Djundja’s evidence as to Kata purchasing a villa was insufficient to establish that she had capacity.

3. Mr Alexander’s affidavit did not include any reference to the relevant elements in Banks v Goodfellow (1870) LR 5 QB 549 regarding open-ended questions.

3. Additionally, the 2014 Will “totally departed” from Kata’s previous testamentary intentions as expressed in prior wills and in contrast to the representations she had made to the Plaintiffs.

24. It was originally submitted for John:

1. The first exception to the general rule as to costs identified by the Plaintiffs, being that Kata or John were the cause of the litigation, did not arise because:

1. Kata was not prone to discussing the contents of her will with the beneficiaries. In contrast, she was found to have told John and Katy they would “find out” after Kata’s death (see the Principal Judgment at [116]).

2. It is insufficient to say that Kata was responsible because she may have lacked testamentary capacity. To bring a case within that exception requires “more than the mental frailty or incapacity of the deceased” (per Ward J (as her Honour then was) in King v Hudson [2009] NSWSC 1500 at [12]).

3. Mr Chapple also directed the Court to the judgment of Mason P in Shorten v Shorten (No 2) [2003] NSWCA 60 where the deceased’s condition following a stroke was sufficient to raise a triable issue, but not to conclude that she had caused the litigation (at [27]; Meagher and Sheller JJA agreeing).

2. To the extent that the second exception to the rule – a reasonable matter for investigation – had arisen, the Plaintiffs should only be left to bear their own costs incurred prior to 8 May 2020, by which time the evidence of the Independent Witnesses, which was crucial to the final outcome, had been served on the Plaintiffs.

3. The Plaintiffs should pay the Defendant’s costs thereafter on the ordinary basis up to and including 29 August 2020 (I assume this is an error for 28 August 2020, being the date the Offer of Compromise and first Calderbank Offer expired) and then on the indemnity basis, because:

1. John had obtained a result that was no less favourable than the terms outlined in the Offer of Compromise and the first Calderbank offer.

2. The Offer of Compromise and the first Calderbank offer comprised a genuine offer of compromise. Had the Plaintiffs accepted the offer, they would have been entitled to receive their costs on an indemnity basis.

3. The Plaintiffs had unreasonably maintained a cause of action in estoppel when their own evidence at the hearing clearly contradicted this claim (see Principal Judgment at [242]). The Court’s finding that the estoppel claim was “artificial and unrealistic” also weighed in favour of awarding costs to John, especially as he had adduced significant evidence in relation to the claim.

4. The Plaintiffs also unsuccessfully brought a claim in undue influence which, being a serious allegation, requires costs consequences: Reginald Alfred Becker v Public Trustee of New South Wales [2006] NSWSC 1146 at [13]-[14] (Becker).

4. Alternatively, the Plaintiffs should pay John’s costs calculated on an indemnity basis from 13 August 2021, being the date of the second Calderbank offer, because:

1. Had the Plaintiffs accepted the offer, they would have been in a “far superior” position given the offer was worth approximately $590,000 and their costs at that time were $270,000.

2. The Plaintiffs could not argue that the offer was unreasonable due to being made close to the hearing date and only being open for a short duration because the Plaintiffs had made their own Calderbank offer even closer to the hearing date that was also open for a short duration.

25. The Plaintiffs submitted in reply:

1. The manner in which Kata went about creating the wills which then required further inquiry meant that there was an overlap in the exceptions to the general rule as to costs and both exceptions should apply.

2. John was also part of the cause of the litigation because he was clearly involved in orchestrating Kata’s later wills.

3. It was incorrect to state that Kata did not speak to others about the contents of her wills, especially given evidence of her providing copies of her wills to others.

4. The medical evidence and testamentary evidence of the Plaintiffs weighed heavily in favour of a conclusion that Kata’s condition was more severe than mere occasional confusion.

5. It was incorrect to say that all of the critical evidence had been provided to the Plaintiffs by 8 May 2020. Of the Independent Witnesses, only Dr Chan was a medical expert and he had “reneged on his own assessment” of Kata’s capacity during cross-examination. It was perfectly reasonable for the Plaintiffs to have waited for the report of the agreed expert dated 31 October 2020. That report gave a negative assessment of Kata’s capacity.

6. It was understandable that the Plaintiffs would refuse the Offer of Compromise and first Calderbank offer since it was made prior to receipt of Professor Peisah’s report.

7. At the time the second Calderbank offer was made, the Plaintiffs were also justified in rejecting it because Professor Peisah’s report “strongly supported their position”.

8. To have accepted any of the offers made by John would have meant abandoning any investigation into the validity of the 2014 Will, which was not in the interests of themselves, their overseas relatives or the broader public interest.

9. As to the Plaintiffs’ estoppel claim, the fact that the Plaintiffs and Vlado stated their understanding that Kata could change her will ignored the overall nature of their dealings, especially the evidence of properties they had purchased together.

10. As to the Plaintiffs’ claim of undue influence, this was not baseless given John’s relationship with Kata and his role in organising the 2014 Will, which solely benefitted him to the exclusion of the Plaintiffs. Dr Chan’s evidence also supported a conclusion that a third party was exercising some influence over Kata.

11. Mr Smith of Counsel also directed the Court’s attention more generally to these matters:

1. The question of costs should not be determined on the basis of the reasonableness of the conduct of the Plaintiffs in pursuing their claim. The proper course is to determine whether it is just and fair that the Plaintiffs should pay the costs of the proceedings considering the nature of the proceedings, the circumstances in which any offer of compromise was made and its rejection, and the purpose of the offer of compromise provisions: Croghan v Blacktown City Council (2019) 100 NSWLR 757; [2019] NSWCA 248.

2. A party may not be entitled to indemnity costs from the date of an offer of compromise in circumstances where important evidence, which the party was unaware of and could not have been aware of, had not yet emerged: Nominal Defendant v Hawkins [2011] NSWCA 93.

3. The rule relating to offers contained in UCPR r 42.15 should not be departed from merely because the offeree thought it was reasonable to reject the offer, but in circumstances where there was a delay in receiving material which deprived them of any reasonable opportunity to consider the offer, this may be a proper basis to depart from the rule: Aukuso v Tahan (No 2) [2018] NSWCA 302.

26. At the further hearing on 13 September 2022, Mr Smith submitted:

1. It could not be said that the Plaintiffs’ proceedings had no real prospects of success or that they had acted unreasonably so as to cause the hearing to be unduly lengthened. It was not frivolous or vexatious litigation. The Court was referred to that was said by J C Campbell J (as his Honour then was) in Re Estate late Hazel Ruby Grounds;Page v Sedawie [2005] NSWSC 1311 at [30]-[31] (Re Estate Grounds).

2. The Offer of Compromise and the first Calderbank Offer were made before Professor Peisah’s report was available. This meant it was not unreasonable to have failed to accept those offers.

27. Dr Chapple’s submissions at the further hearing were:

1. There were really three elements of the case:

1. The 2014 Will should not be admitted to probate because of a lack of capacity and a lack of knowledge and approval on the part of Kata (the capacity/approval case);

2. The 2014 Will should not be admitted to probate because of undue influence exercised on Kata (the undue influence case); and

3. The proprietary estoppel claim (the estoppel case).

2. The probate exception in relation to costs should not apply in favour of the Plaintiffs in relation to the capacity/approval case because:

1. An honest belief on behalf of the Plaintiffs that Kata represented that they would benefit from the Estate was insufficient to say that the litigation was her fault.

2. The Court may have found that there were some suspicious circumstances. However, that did not amount to a finding of immoral or inappropriate conduct on the part of John. Insofar as it could be said that there was a reasonable case to investigate the circumstances of the making of the 2014 Will, that case only applied until the evidence of the Independent Witnesses was provided in May 2020.

3. Entirely appropriately, in my respectful opinion, Dr Chapple accepted that the first Offer of Compromise and first Calderbank offer were open to criticism because they may not have contained a sufficient element of compromise and because Professor Peisah’s report had not yet been provided.

4. However, it was unreasonable to have failed to accept the second Calderbank offer. The Plaintiffs have clearly not done as well as if they had accepted that offer. The value of the offer was approximately $590,000 and their costs at the time were $270,000. There could be no complaint concerning the timing of the offer (including for how long it was open for acceptance) given that the Plaintiffs were able to reject it and make a counter-offer of their own the next day with the same deadline for acceptance (the start of the hearing).

5. The undue influence and estoppel cases were relevant to the general exercise of the Court’s discretion. In relation to the undue influence case, Dr Chapple drew attention to what was said by Nicholas J in paragraph [14] of Becker. However, I also note and include the next paragraph of his Honour’s judgment:

“[14] It follows that the unsuccessful allegation of undue influence or fraud may result in the loser being required to pay the costs of the whole of the proceedings even if it be shown that there were reasons warranting the contemporaneous investigation of due execution, knowledge and approval, and of testamentary capacity (Bardon, Re v Florence; Shekelton v Bardon; Estate Ruah Jeanette Bardon [Unreported, NSWSC, 15 December 1983] per Holland J, p 4).

[15] However, an unsuccessful defendant may be relieved of paying costs if there were reasonable grounds for contesting the case on these issues. In Mitchell v Gard [1863] 3 Sw & Tr 275 it was said:

… if there be sufficient and reasonable ground, looking to the knowledge and means of knowledge of the opposing party, to question either the execution of the will or the capacity of the testator, or to put forward a charge of undue influence or fraud, the losing party may properly be relieved from the costs of his successful opponent.”

6. Alternatively to the immediately preceding submission, the Court could make an order that John’s costs in respect of the undue influence and estoppel cases be paid by the Plaintiffs, and that otherwise the costs of the capacity/approval case be paid on the indemnity basis from the date of the second Calderbank offer. In considering this submission, I asked Dr Chapple in the course of argument whether, rather than leaving it to a costs assessor to untangle what costs related to which case, could a percentage be allocated to the various issues? Dr Chapple responded that an allocation of 50% to the capacity/approval case and a similar allocation to the other two cases could be appropriate.

28. In reply at the further hearing, Mr Smith submitted:

1. In relation to the second Calderbank offer, it was made too late and too little time was limited for its acceptance. Furthermore, it was reasonable for the Plaintiffs to take a confident view of their prospects based on Professor Peisah’s report.

2. He accepted that, if the Court was so minded, the better course would be to allocate a percentage of costs to the various issues. He submitted that 80% of the costs should be attributed to the capacity/approval case and 20% to the other two cases.

Consideration

29. The first point to note is that notwithstanding that the vehicle of this dispute between the parties was a probate suit, it was a hard fought piece of adversarial litigation. There was clearly no love lost between the parties, and for the Plaintiffs it was a case where the outcome would determine whether they received nothing or something from the Estate.

30. It is that hard fought, adversarial character of the litigation as a whole which fortifies me in the view that this is an appropriate case for the Court to attempt to dissect or delineate the issues for the purposes of costs. Furthermore, I remain of the view that I expressed during the course of argument that, because the deep antipathy between the parties is likely to carry over through to any costs assessment, the Court should do all it can to reduce the complexity of any such assessment by making its delineation as a percentage of the total costs rather than by reference to the issues themselves. It would be contrary to the just, quick and cheap disposal of these proceedings to leave a costs assessor the task of attempting to attribute particular costs to particular issues.

31. While I was attracted during the course of argument to allocating 50% of the costs to the capacity/approval case, on further reflection, and doing the best I can, I conclude that 65% of costs should be attributed to the capacity/approval case and 35% to the other two issues. The Plaintiffs failed on the undue influence case and the estoppel case and, costs following the event, should therefore pay 35% of John’s costs of the proceedings.

32. Turning to the capacity/approval case, the Court accepts these proceedings were a case where, at least at the outset, it was reasonable to investigate the circumstances of the execution of the 2014 Will. In a colloquial sense (as to which see further [35] below), it could also be thought that, in some respects, the situation in which the parties found themselves was Kata’s fault. That fault was the product, as the Court referred to at [135] of the Principal Judgment, of Kata apparently telling different family members different things, depending on what she thought they wanted to hear.

33. J C Campbell J (as his Honour then was) in Re Estate Grounds provided this analysis of the Court’s approach where a case properly bore both characterisations (emphasis added):

“[30] In the present case, I have been taken in some detail to the evidence which was filed. Both parties took me to the leading cases concerning costs in probate litigation, In the Estate of Hodges; Shorter v Hodges (1988) 14 NSWLR 698 at 709; Perpetual Trustee v Baker [1999] NSWCA 244 at [13]–[14] and Shorten v Shorten (No 2) [2003] NSWCA 60. The focus of the passages in those cases to which I was taken was the costs order that a court should make concerning a person who had unsuccessfully opposed the making of a grant of probate. Broadly, those cases recognised that, concerning such an unsuccessful party, there was an exception to the rule that costs follow the event in that where the testator had been the cause of the litigation the costs of unsuccessfully opposing probate may be ordered to be paid out of the estate, and if the circumstances led reasonably to an investigation concerning the testator’s will, costs may be left to be borne by those who incurred them. The Court of Appeal has recognised that there is an overlap between those two exceptions. If a case for decision falls within that area of overlap, one of the exceptions suggests that the appropriate order concerning costs should be different to the order which is suggested by the other exception. In that area of overlap, the principles which are recognised by the two exceptions are insufficient to produce a result. It is a matter for the trial judge, in light of the circumstances of the particular case before him or her, to decide which costs order better achieves justice.

[31] In the present case, a significant area of contest concerned what order for costs should be made in favour of the plaintiff. The plaintiff is not a party who has unsuccessfully opposed an order for probate, so the exceptions which are recognised in In the Estate of Hodges; Shorter v Hodges (1988) 14 NSWLR 698 and the two Court of Appeal cases simply have no application to that problem.

[32] Without needing to expound in detail the way in which this has happened in the caselaw concerning probate litigation, it can safely be said that a consistent theme in the cases is that the principles concerning costs which are applied to a person who seeks probate (whether successfully or not) are not the same as the principles which apply to the costs of a person who opposes probate (whether successfully or not). In probate litigation, it is not only who succeeds in the litigation which matters — which is the only factor operating in the “costs follow the event” rule. As well, the role which a particular party has played in litigation, whether as plaintiff or defendant, is relevant. Further, facts about the knowledge available to parties, and the reasonableness of their conduct in conducting the litigation, can be taken into account.”

34. Unlike Re Estate Grounds, the case at bar is one where the issue is who should pay the costs of a party (the Plaintiffs) who unsuccessfully opposed probate being granted. However, before deciding “which costs order better achieves justice”, the Court must be satisfied that both exceptions apply.

35. The Court accepts Dr Chapple’s submission that this was not a case where Kata can be regarded as having been the cause of the litigation in the sense that is used in the context of costs in probate suits, as opposed to a more colloquial usage. I respectfully agree with and apply the authorities set out at [24(1)(b) and (c)] above.

36. For example, in Orton v Smith (1873) LR 3 P&D 23, the Court allowed costs out of the estate to the unsuccessful opponent of a will, notwithstanding that he had pleaded undue influence and fraud, because, as Sir John Hannen recorded (at 25) “it was a misfortune that the mode in which the testator executed the will certainly gave rise to the most natural and well-founded suspicion, for the signature was evidently patched and altered… It was a very great misfortune that the testator executed the will in such a manner as to give rise to very serious suspicions”.

37. That is not this case. Kata executed the 2014 Will in an entirely regular fashion with the advice, and in the presence, of an experienced solicitor. In my respectful view, this principle, which might be referred to as “the testator’s fault exception”, does not extend to cases where what has excited suspicion is a change in the testator’s testamentary dispositions. Similarly in Hodges, Powell J (as his Honour then was) determined that a case where the testator shot himself shortly after making a will and was thereby said to have called into question his testamentary capacity did not engage the testator’s fault exception. However, his Honour accepted it was a case where it was reasonable to investigate the circumstances of the will and so made no order as to costs such that they were left to those by whom they were incurred.

38. The Court has no doubt that the capacity/approval case fell within the category of a case where the circumstances reasonably called for investigation of the 2014 Will. Notwithstanding the view to which the Court ultimately came in the Principal Judgment concerning Professor Peisah’s report (see [225] to [231] of the Principal Judgement), the Court accepts that her report provided a reasonable basis for investigation of the circumstances surrounding the 2014 Will despite the evidence of the Independent Witnesses. I therefore do not accept Dr Chapple’s argument that once the evidence of the Independent Witnesses was served, the circumstances no longer led reasonably to an investigation concerning the 2014 Will.

39. The consequence of this analysis is that what might be termed the “reasonable investigation” principle applies such that, subject to John’s entitlement referred to in paragraph [51] below, the parties should bear their own costs of the capacity/approval case (strictly, in John’s case, 65% of his costs).

40. The next question is whether that position should change by reason of the various offers that were made. It is convenient first to deal with the Offer of Compromise and the first Calderbank offer.

41. As I have already noted, Dr Chapple’s reticence at the further hearing in relying on those offers was, with respect, correct. As is apparent from paragraph [8] above, on 13 July 2020 the parties were in discussion (and dispute) as to the identity of an expert. The Offer of Compromise and first Calderbank offer were sent on 29 July 2020 but expressed to be open until 28 August 2020. On 17 August 2020, that is before the expiry of those offers, Hallen J ordered the retainer of Professor Peisah. It follows that during the entirety of the period for which the Offer of Compromise and the first Calderbank offer were open, the parties were well aware that an expert report would be tendered in the litigation.

42. That such a report was pending is sufficient to negative any suggestion that the Plaintiffs acted unreasonably in not accepting either the Offer of Compromise or the first Calderbank offer. In relation to the Offer of Compromise, and assuming for the sake of the argument that it complied with the rules (no argument on that topic having been addressed to the Court), that circumstance would be sufficient for the Court to otherwise order for the purposes of the rules so that the specified consequence for failure to accept the Offer of Compromise would not apply in this case. Furthermore, the same result would follow in relation to both offers because, in my respectful view, they did not contain a sufficient element of compromise because they contained no more than a compromise as to costs.

43. Turning to the second Calderbank offer, the result which the Plaintiffs have obtained in the proceedings is less favourable to them than if they had accepted the second Calderbank offer. That being so, while a Calderbank letter does not have a determinative effect on the exercise of the Court’s discretion, the Court is entitled to consider the second Calderbank offer when exercising its discretion as to costs.

44. There is no reason why a Calderbank offer should not be taken into account in probate litigation. In proceedings such as these between family members, the public interest in encouraging settlement of litigation might even be said to have greater force because the destructive effect of litigation on family relationships is well known.

45. Turning to the reasons advanced on behalf of the Plaintiffs as to why their rejection of the second Calderbank offer was not unreasonable, the Court accepts Dr Chapple’s submission that events demonstrated that there is no substance in the Plaintiffs’ suggestion that the proximity of the second Calderbank offer to the commencement of the hearing, and the short time limited for its acceptance, meant its rejection was not unreasonable. The Plaintiffs clearly had time to consider it and formulate their own counter-offer in the Plaintiffs’ Calderbank offer, which itself assigned a deadline of 9am on the first day of the hearing for its acceptance.

46. Mr Smith, for the Plaintiffs, also placed reliance on what he described as the “comfort” the Plaintiffs drew from Professor Peisah’s report. The reasonableness of a party’s conduct of litigation may be relevant in at least two different ways.

47. The first is whether or not a party had reasonable grounds to begin or continue litigation. As I have already noted, I accept that Professor Peisah’s report, notwithstanding the evidence of the Independent Witnesses, demonstrated that the Plaintiffs’ claim was not frivolous or vexatious and had a reasonable basis, raising a reasonable case for investigation of the 2014 Will.

48. However, the second relates to whether or not a Calderbank offer should have been accepted. This involves a different type of calculus to the first which I have described. While it takes into account the offeree’s view of the respective strengths of its own and its opponent’s cases, there is the added and essential element of measuring those respective strengths against the certainty of the outcome offered by accepting a particular offer. In assessing a party’s conduct, for the purposes of exercising the Court’s discretion in the light of a Calderbank offer, the starting point is that the refusal to accept that offer is prima facie unreasonable when the offeree has not achieved as good a result as would have been the case if it had accepted the offer. It is then for the offeree to demonstrate why its refusal was not unreasonable.

49. In the present case, while Professor Peisah’s report has the effect set out in [37] above, having the benefit of Professor Peisah’s report was not in and of itself a sufficient factor to make rejection of the second Calderbank offer not unreasonable. Had there been no evidence contrary to Professor Peisah’s report the position might have been different. However, in this case, there was the evidence of the Independent Witnesses, which had the advantages of being both independent and contemporaneous, to weigh against Professor Peisah’s necessarily ex post facto diagnosis. Furthermore, as was drawn to attention in paragraph [225] of the Principal Judgment, “her essential conclusions about the 2014 Will adverse to John’s case were both narrow and nuanced”.

50. For the reasons in [45] to [49] above, it was unreasonable of the Plaintiffs to have rejected the second Calderbank offer, and the Plaintiffs have failed to demonstrate that the rejection was not unreasonable. The Court therefore finds that it should exercise its discretion as to costs to the effect that the Plaintiffs should pay John’s costs of the entirety of the proceedings (and not limited only to the capacity/approval case) on the indemnity basis on and from 14 August 2021, being the date on which the Plaintiffs rejected the second Calderbank offer.

51. Finally, irrespective of what costs the Court has concluded John is entitled to recover from the Plaintiffs, he is entitled to a complete indemnity for his costs from the Estate to the extent he does not recover them from the Plaintiffs. This indemnity applies even where the Court has applied the reasonable investigation principle and made no order as to any party’s costs: Hodges at 709G and the orders at 710.

Conclusion

52. The orders of the Court are:

1. Probate in solemn form of the Will dated 18 August 2014 of the late Kata Grguric (the Deceased) be granted to the Defendant/Cross-Claimant, John Mikan.

2. The proceedings be referred to the Registrar to complete the grant.

3. The Plaintiffs/Cross-Defendants pay 35% of the Defendant/Cross-Claimant’s costs of the proceedings up to and including 13 August 2021 on the ordinary basis.

4. The Plaintiffs/Cross-Defendants pay the Defendant/Cross-Claimants’ entire costs of the proceedings on and from 14 August 2021 on the indemnity basis.

5. The Defendant/Cross-Claimant be indemnified out of the Estate of the Deceased on the indemnity basis for his entire costs of the proceedings, including for the difference in any costs not otherwise recovered from the Plaintiffs/Cross-Defendants in accordance with orders 3 and 4.

1. The Second Amended Statement of Claim be dismissed.

2. The Amended Statement of Cross-Claim be otherwise dismissed.

3. Note the Court makes no order as to:

1. the Plaintiffs/Cross-Defendants’ costs of the proceedings; and

2. 65% of the Defendant/Cross-Claimant’s costs up to and including 13 August 2021.

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Decision last updated: 29 September 2022