Chisak v Presot (No 2)

[2021] NSWSC 754

Supreme Court

New South Wales

Medium Neutral Citation:

Chisak v Presot (No 2) [2021] NSWSC 754

Hearing dates:

17 June 2021

Date of orders:

30 June 2021

Decision date:

30 June 2021

Jurisdiction:

Equity

Before:

Hallen J

Decision:

The Court orders that:

1 The Plaintiff is to pay 40 per cent of the Defendants’ costs, calculated on the indemnity basis, of the proceedings.

2 The Plaintiff is not entitled to receive distribution of her share of the residuary estate of the deceased from the Defendants, as executors of the estate, until such time as she pays into the estate the costs that have been ordered to be paid by her.

3 In the event that the Plaintiff does not pay the costs ordered to be paid by her, the Defendants are entitled to appropriate the amount of those costs, as assessed or agreed, from the share of the residuary estate to which the Plaintiff is entitled and to then distribute the balance of that share to her.

4 Makes no order as to the Plaintiff’s costs, to the intent that she is to bear her own costs of the proceedings.

5 Orders that the balance of the Defendants’ costs of the proceedings, calculated on the indemnity basis, be paid, or retained, as the case may be, out of the estate pf the deceased.

Catchwords:

COSTS - Probate and family provision proceedings brought in one proceedings – Where Plaintiff unsuccessful in entirety of her claim – Where Defendants made two Offers of Compromise, each of which was not accepted by the Plaintiff, and the Defendants obtained orders on the claims, no less favourable than the terms of the offer – Where Defendants seek application of r 42.15A of the Uniform Civil Procedure Rules 2005 (NSW) - Whether the Court should exercise its discretion to “otherwise order”

SUCCESSION - Where Defendants seek an order that that they may deduct from the Plaintiff’s share of the residuary estate, the costs ordered to be paid by her – Where Plaintiff is unable to otherwise repay the estate

Legislation Cited:

Civil Procedure Act 2005 (NSW)

Succession Act 2006 (NSW)

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

AB v Curry (No 2) [2015] NSWSC 1209

Bates v Cooke (2015) 14 ASTLR 22; [2015] NSWCA 278

Bates v Cooke (No 2) [2014] NSWSC 1322

Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304

Bowen Investments v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107

Bruce v Greentree (No 2) [2015] NSWSC 1636

Calderbank v Calderbank [1976] Fam 93

Cherry v Boultbee (1839) 4 My & Cr 442

Chisak v Presot [2021] NSWSC 597

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

D & D Corak Investments (In Liquidation) Pty Limited (2020) 147 ACSR 99; [2020] NSWSC 1197

Eastlings Pty Ltd v Calidu Import Export Pty Ltd (No 3) [2021] NSWSC 466

Evans v Braddock (No 2) [2015] NSWSC 518

Haertsch v Whiteway (No 2) [2020] NSWCA 287

Hamod v State of New South Wales (2002) 188 ALR 659; [2002] FCAFC 97; [2002] FCA 424

Houatchanthara v Bednarczyk [1996] NSWCA 253

In re Akerman [1891] 3 Ch 212; [1891] UKLawRpCh 118

In re VGM Holdings Limited [1942] 1 Ch 235

Jeffs v Wood (1723) 2 P Wms 128

Manly Council v Bryne (No 2) [2004] NSWCA 227

Mendonca v Tonna (No 3) [2020] NSWCA 332

Middlebrook v Middlebrook (1962) 36 ALJR 216

Northern Territory v Sangare (2019) 265 CLR 164; [2019] HCA 25

Oikos Constructions Pty Ltd t/as Lars Fischer Construction v Ostin & Anor (No 2) [2021] NSWCA 98

Page v Page [No 2] [2016] NSWSC 1323

Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368

Sassoon v Rose [2013] NSWCA 220

Smith v Whittaker [2016] VSC 287

Spiers v English [1907] P 122

Starr v Miller; Starr v Miller (No 2) [2021] NSWSC 685

Turner v Turner [1911] 1 Ch 716

Walker v Harwood [2017] NSWCA 228

YWCA Australia v Chief Commissioner of State Revenue (No 2) [2021] NSWSC 102

Category:

Costs

Parties:

Ivy Hope Chisak (Plaintiff)
Emanuela Presot (first Defendant)
Adelina Presot (second Defendant)

Representation:

Counsel:
M W Sneddon (Plaintiff)
J Lucy (Defendants)

Solicitors:
Fox & Staniland Lawyers (Plaintiff)
Berala Law Group (Defendants)

File Number(s):

2018/227413

Publication restriction:

Nil

Judgment

Introduction

1. HIS HONOUR: This is my judgment on the appropriate order for costs arising out of the hearing of Probate and family provision proceedings, in which I delivered reasons for judgment on 27 May 2021, which bear the medium neutral citation Chisak v Presot [2021] NSWSC 597 (“the principal judgment”). This judgment should be read with the principal judgment. Events, matters and persons are referred to in both judgments in the same way.

2. At the request of the parties, the determination of costs could not be dealt with at the hearing: see [65] of the principal judgment.

3. In summary, in the principal judgment, I concluded that:

1. The deceased had testamentary capacity at the time she made the 2017 Will;

2. The deceased knew and approved the contents of her 2017 Will; and

3. Although Ivy was a grandchild of the deceased, she was not, at any particular time, wholly, or partly, dependent on the deceased and, therefore, was not an eligible person within the meaning of s 57(1)(e) of the Succession Act 2006 (NSW) (the Act).

4. Having reached the conclusion in (c) above, it was unnecessary for me to decide any additional issues in the claim for a family provision order. However, for completeness, I also wrote that:

1. If Ivy were found to be an eligible person within s 57(1)(e) of the Act, having regard to all the circumstances of the case (whether past or present), there were factors which would warrant the making of the application; and

2. If Ivy were found to be an eligible person, and if there were factors that warranted the making of the application, an order for additional provision out of the estate of the deceased ought not be made, because, at the time when the Court considered the application, adequate provision for her proper maintenance, education, or advancement in life had been made by the 2017 Will of the deceased.

5. Based on my conclusions above, the Court ordered that:

1. The amended Statement of Claim filed by Ivy on 11 December 2019 be dismissed;

2. Probate in solemn form of the Will dated 26 April 2017 be granted to the Defendants; and

3. The matter be remitted to the Senior Deputy Registrar in Probate to attach a copy of the final orders, as made and entered, to the original grant of Probate and, thereafter, to return that original to the Defendants.

6. Ultimately, Ivy was unsuccessful in the entirety of her claims. I adjourned the proceedings to 10 June 2021 for the determination of how the costs of the proceedings should be borne. These reasons are required because the appropriate orders are indisputably contentious and because they deal with costs, the quantum of which is significant.

7. Following the publication of the principal judgment, the parties were unable to agree upon how the costs of those proceedings should be borne. The costs hearing was then held on 17 June 2021 and the same counsel appeared. At the conclusion of these reasons, I shall make the costs orders that reflect these reasons.

Evidence in the Costs Proceedings

8. Only two affidavits, one read on behalf of each party, were relied upon in the costs proceedings.

9. One affidavit was sworn on 16 June 2021 by Mr A Cameron, the solicitor for Ivy. At the date of this affidavit, Ivy’s costs were estimated to total $164,270, comprising $114,000 in professional costs and $50,270 in counsel’s fees (I have omitted, and shall continue to omit, any reference to cents.) Mr Cameron stated that Ivy also remained liable for filing fees and hearing allocation fees which had been postponed pending finalisation of the proceedings and that his firm had received an authority, from Ivy, for these amounts to be paid out of her share of the deceased’s estate.

10. (The affidavit was unclear about whether the authority is for all of Ivy’s costs or merely the fees referred to. In view of a submission about a consequence of making the orders sought by the Defendants, suggesting a “preference” might be created (Tcpt, 17 June 2021, p 01(36)), I tend to the view that it is likely to be an authority for all of her costs.)

11. According to Mr Cameron, Ivy’s only source of funds to pay her legal costs is her entitlement under the 2017 Will. I had noted in the principal judgment that Clause 6 of the 2017 Will gave the whole of the deceased’s estate, both real and personal, of whatsoever kind and nature and wheresoever the same may be situated, to Emanuela, Adelina, Linda, Anna, and Ivy, for her own use and benefit absolutely, in equal shares, as tenants in common. Therefore, Ivy is entitled to 20 per cent of the net residuary estate of the deceased.

12. Ivy had received some funds, by way of an interim distribution, from the deceased’s estate, in order to pay the expert witness fees, totalling $19,002 as well as a further amount of $5,000, on account of her professional costs and disbursements. The Defendants seek reimbursement of these amounts from her share also.

13. There was no evidence to suggest any conduct on the part of the Defendants, whether by unreasonable delay, or a want of the cooperation, to ensure the just resolution of the real issues in dispute with minimum delay and expense, that might have been taken into account to justify refusing the Defendants an order for their costs.

14. The other affidavit read at the hearing, was one, also sworn on 16 June 2021, of Mr J Shahrouk, the solicitor for the Defendants. As at 2 June 2021, the Defendants’ costs, calculated on the indemnity basis, of the proceedings, were estimated to total $180,897, comprising $94,616 in professional costs and $86,281 in disbursements.

15. Relevantly, on the issue of costs, Mr Shahrouk annexed to his affidavit, a copy of a number of different Offers of Compromise served in the course of the proceedings. What orders flow from the rejection of two of these Offers of Compromise, served by the Defendants, and not accepted by Ivy, was not really in dispute. The real dispute related to whether the Court should depart from the costs consequences stated in the Uniform Civil Procedure Rules 2005 (NSW) (“the UCPR”) and should “otherwise order”. I shall return to the provision of the UCPR later in these reasons.

16. Importantly, there was no evidence, in reply, by Ivy, read to demonstrate that it was not unreasonable for her to have rejected each offer.

The Offers of Compromise

17. On 29 May 2019, Mr Shahrouk sent a letter to Mr Cameron, enclosing an Offer of Compromise. The letter provided detailed contentions explaining why Ivy would be unsuccessful in the proceedings.

18. In summary, in the letter, the Defendants contended that:

1. There was little evidence to support Ivy’s claim that the deceased’s 2017 Will was invalid and, as such, the claim for revocation of the grant of Probate would likely be dismissed;

2. Ivy was also unlikely to succeed in her claim for a family provision order, as she was not an eligible person; there were no factors warranting the making of her application; and she had, in any event, received adequate and proper provision out of the estate of the deceased;

3. If an order were to be made in Ivy’s favour, it would likely result in only a small amount, by way of provision, additional to her entitlement under the deceased’s 2017 Will; and

4. If Ivy were unsuccessful in the proceedings, she may face an adverse costs order.

19. This Offer of Compromise (to which I shall refer as “the first Offer of Compromise”) was in the following terms:

“1. Order that in lieu of the benefits she receives in the will of the late Lily Savransky dated 26 April 2017 (“the deceased”), the plaintiff receive provision in the form of 25% of the deceased’s estate, pursuant to s 59 of the Succession Act 2006 (NSW).

2. Order that in lieu of the benefits each other beneficiary receives in the will of the late Lily Savransky, Emanuela Presot, Adelina Presot, Linda Presot and Anna Savateev each receive 18.75% of the deceased’s estate.

3. The registrar is to return the grant of probate made on 15 November 2017 to the defendants.

4. Order that the plaintiff’s costs as agreed or assessed on the ordinary basis be paid out of the deceased’s estate.

5. Order that the defendants’ costs of the proceedings, calculated on the indemnity basis, be paid out of the deceased’s estate.

6. Order that the proceedings otherwise be dismissed.

7. In the event that this offer is held to be ineffective as a valid offer of compromise it is to be treated as an offer on the same terms and conditions made pursuant to the principles in Calderbank v Calderbank (1975) 3 WLR 586. In the event that the Defendants obtain a result more favourable to them than that made in the offer they reserve the right to tender the offer in support of an application that the Plaintiff pay the costs of the proceedings calculated on the indemnity basis.

8. This offer shall remain open until 30 days after the date on which this offer is made.”

20. It is unclear whether the offer made in the first Offer of Compromise was rejected or whether it lapsed through effluxion of time. In the circumstances, it does not matter.

21. An effect of the offer made in the first Offer of Compromise was that the Probate proceedings would be dismissed, but Ivy would receive, by way of a family provision order, an additional 5 per cent of the residue of the deceased’s estate and her costs, calculated on the ordinary basis.

22. On 25 July 2019, Mr Cameron sent a letter to Mr Shahrouk, enclosing an Offer of Compromise made on behalf of Ivy. In summary, Mr Cameron’s letter included the following:

“We advise that if the Court, for any reason, finds that the enclosed Offer of Compromise does not constitute a complying offer of compromise under the provisions of the Uniform Civil Procedure Rules 2005 (“UCPR”), in the event that our client achieves a better result than the offer at the conclusion of the hearing of the proceedings, our client intends to rely upon the terms of the offer and this letter in support of an application for the defendants to pay her costs of the proceedings on the indemnity basis from the date of expiration of the time for acceptance of the offer, up to the conclusion of the hearing; in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333.

In relation to the position with payment of the defendants’ costs of the proceedings upon them accepting the offer of compromise, we refer you to Part 26 Rule 20.26(2)(c) and Part 42 Rule 42.13A of the UCPR.”

23. Ivy’s Offer of Compromise was in the following terms:

“1. That the grant of probate made in favour of the first and second defendants on 15 November 2017 be revoked.

2. That letters of administration with the will annexed be granted to the plaintiff over the deceased’s will made on 3 June 2009.

3. That the proceedings be referred to the Registrar to complete the grant.

4. The Plaintiff to pay to the first and second defendants and the other beneficiaries named in the purported will signed by the deceased on 26 April 2017, the following respective amounts from the assets of the deceased’s estate in satisfaction of their respective entitlements from the estate:

a) First defendant - $22,500.00;

b) Second defendant - $22,500.00;

c) Linda Presot - $7,500.00; and

d) Anna Savateev - $7,500.00.

5. This offer will remain open for acceptance for a period of forty-five (45) days from the date of this offer.

6. This offer is made in accordance with the provisions of the Uniform Civil Procedure Rules 2005 including Part 20 Rule 20.26 of the UCPR.”

24. It is unclear whether the offer was rejected or lapsed through effluxion of time. However, it is unnecessary to refer to Ivy’s Offer of Compromise further as it is not relevant to the costs issue and was not relied upon by her on the application for costs. It has been referred to for completeness.

25. On 28 April 2020, Mr Shahrouk sent another letter to Mr Cameron, enclosing an Offer of Compromise (to which I shall refer as “the second Offer of Compromise”). The letter referred to the same contentions as those set out in the letter accompanying the first Offer of Compromise.

26. The Offer of Compromise was in the following terms:

“1. Order that in lieu of the benefits she receives in the will of the late Lily Savransky dated 26 April 2017 (“the deceased”), the plaintiff receive provision in the form of 30% of the deceased’s estate, pursuant to s59 of the Succession Act 2006 (NSW).

2. Order that in lieu of the benefits each other beneficiary receives in the will of the late Lily Savransky, Emanuela Presot, Adelina Presot, Linda Presot and Anna Savateev each receive 17.5% of the deceased’s estate.

3. The registrar is to return the grant of probate made on 15 November 2017 to the defendants.

4. Order that the plaintiff’s costs as agreed or assessed on the ordinary basis be paid out of the deceased’s estate.

5. Order that the defendants’ costs of the proceedings, calculated on the indemnity basis, be paid out of the deceased’s estate.

6. Order that the proceedings otherwise be dismissed.

7. This offer shall remain open until 30 days after the date on which this offer is made.

8. In the event that this offer is held to be ineffective as a valid offer of compromise it is to be treated as an offer on the same terms and conditions made pursuant to the principles in Calderbank v Calderbank (1975) 3 WLR 586. In the event that the defendants obtain a result more favourable to them than that made in the offer they reserve the right to tender the offer in support of an application that the plaintiff pay the costs of the proceedings calculated on the indemnity basis.”

27. An effect of the offer made in the second Offer of Compromise was that the Probate proceedings would be dismissed, but Ivy would receive, by way of a family provision order, an additional 10 per cent of the residue of the deceased’s estate and her costs, calculated on the ordinary basis.

28. It is unclear whether the offer was rejected or lapsed through effluxion of time. Again, in the circumstances, it does not matter.

29. On 16 March 2021, Mr Shahrouk sent another letter to Mr Cameron in which he stated:

“The defendants consider that the plaintiff is likely to be unsuccessful in her applications for revocation of probate and for a family provision order… If that occurs, your client is likely to be exposed to an adverse costs order…

On any application for costs at the conclusion of these proceedings, the defendants will rely upon their offer of compromise, made on 29 May 2019. If the Court’s judgment is no more favourable to the plaintiff, or no less favourable to the defendant, than the terms of the defendants’ offer, the defendants will seek an order for costs on the ordinary basis up to 29 May 2019 and costs on the indemnity basis thereafter (UCPR, r 42.15, 42.15A)…

The defendants will apply to the Court to set off any costs award in their favour against the amount payable to the plaintiff out of the deceased’s estate…

If the defendants are awarded their costs, the outcome could be that the plaintiff receives little or nothing under the 2017 will and she may become indebted to the defendants in respect of costs. That could ultimately lead to her bankruptcy.”

30. It is beyond argument that this letter, sent shortly before the commencement of the substantive hearing, made the Defendants’ position, in regard to costs, abundantly clear, if it was not otherwise obvious. Ivy and her legal representatives could not have been left in any doubt as to the potential costs consequences, as sought by the Defendants, if she proceeded with her claim and if she were unsuccessful. It is hard to see what more the legal representatives of the Defendants could have done to warn her and them of their intentions in the event that Ivy did not succeed.

31. There was evidence that the Defendants’ position was set out, again, in a letter, sent on 16 June 2021, the day before the costs hearing, by Mr Shahrouk to Mr Cameron, which included the following:

“As you are aware, on 29 May 2019, the defendants made the plaintiff an offer of compromise, pursuant to r20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and a further offer of compromise, pursuant to r 20.26 of the UCPR on 28 April 2020. His Honour’s judgment was no less favourable to the defendants than the terms of their offer.

In accordance with r 42.15A of the UCPR, unless the Court orders otherwise, the defendants are entitled to:

i. an order against the plaintiff for their costs, to be assessed on the ordinary basis, up to and including 29 May 2019; and

ii. an order against the plaintiff for their costs, assessed on an indemnity basis as from 30 May 2019…

The defendants will therefore seek orders in the above terms at the hearing on 17 June 2021.

The defendants will also seek an order that any costs award in their favour be set off against the amount payable to the plaintiff out of the deceased’s estate…”

32. There is no evidence of any response to this letter.

Submissions

33. Ivy provided no written submissions on the costs application. On 17 June 2021, the day of the costs hearing, the Court received an email from Mr Sneddon, counsel for Ivy, stating:

“In relation to the costs argument… there is only one authority I will be referring to, his Honour’s decision in Starr v Miller; Starr v Miller (No 2) [2021] NSWSC 685.”

34. The Plaintiff sought the following costs orders:

1. Ivy should bear her own costs of the Probate proceedings and family provision proceedings; and

2. The Defendants’ costs, on the indemnity basis, of the proceedings be paid out of the estate (such that Ivy would bear 20% of the Defendants’ costs).

35. At the hearing of the costs application, there was no dispute that each of the Offers of Compromise made by the Defendants was one made in accordance with Part 20 Division 4, in particular, rule 20.26, of the UCPR; that it complied with that rule; and that it related to the whole of Ivy’s claim. Nor was there any dispute that the offer made in each Offer of Compromise represented a genuine compromise, or that it was, respectively, an offer made by the Defendants, but not accepted by Ivy, and the Defendants obtained orders on the claims no less favourable to them than the terms of the offer: Tcpt, 17 June 2021, p 04(29-33).

36. At the costs hearing, counsel for Ivy also accepted that:

1. Had Ivy not bought proceedings, the value of her interest in the estate would have been approximately $253,407 (Tcpt, 17 June 2021, p 04(01-06));

2. The letters accompanying each of the Defendants’ Offers of Compromise ultimately proved to be accurate in most respects (Tcpt, 17 June 2021, p 04(24)-(26) and p 05(28)-(50)); and

3. If an Offer of Compromise is made in accordance with UCPR rule 20.26 then the prima facie rule applies (Tcpt, 17 June 2021, p 04(35)-05(10)).

37. The concessions made by counsel for Ivy were reasonable and appropriate.

38. The Defendants sought the following costs orders:

1. Ivy pay the Defendants’ costs, to be assessed on the ordinary basis, up to 29 May 2019;

2. Ivy pay the Defendants’ costs, to be assessed on the indemnity basis, from 30 May 2019;

3. The Defendants’ costs, otherwise, calculated on the indemnity basis, be paid out of the estate of the deceased;

4. Ivy reimburse the Defendants the amount of $24,002, being the amount paid out of the estate in respect of her costs; and

5. The Defendants’ costs, which are ordered to be paid by Ivy, as agreed or assessed, and Ivy’s debt to the estate of $24,002, be set off against Ivy’s entitlement under the deceased’s estate.

39. The Defendants submitted that the presumption that Ivy, being unsuccessful, should pay the Defendants’ costs is applicable in these proceedings: UCPR r 42.1. Further, this presumption was made stronger by the service of each Offer of Compromise, which contained a real and genuine element of compromise. They contended that it was unreasonable for Ivy to reject the first Offer of Compromise. According to counsel, the affidavit evidence supported the Defendants’ position that Ivy’s whole claim would be likely to be dismissed.

40. It was put that at the date of the commencement of the proceedings, Ivy did not have any evidence to support her claim that the deceased did not know and approve of the contents of the 2017 Will. Given that she had not spoken to the deceased, at any time, after 2008, and in circumstances where she only became aware that the deceased had a stroke after reading the medical records, she could not properly be described as having been reasonably led into the litigation by a bona fide belief in her case, such as to come within the exception to the usual costs rule.

41. The Defendants conceded that the deceased’s hospital records, considered alone, may have raised some concerns about the deceased’s capacity or language ability. However, when read in the context of the affidavit evidence, it was plain that the deceased’s language ability and cognitive functioning had improved significantly by the time she gave instructions for the 2017 Will.

42. It was accepted that at the time the first Offer of Compromise was served, no orders had been made for the filing and service of expert evidence and there was no certainty that any such orders would be made. However, the affidavit evidence was complete, excepting updating evidence in respect of the family provision claim, such that Ivy was, then, in a position to assess the likelihood of success of her claim on the whole of that evidence.

43. The Defendants also submitted that it was unreasonable for Ivy to have failed to accept the second Offer of Compromise, made after the expert evidence had been obtained. Counsel for the Defendants made this submission on the following basis (Tcpt, 17 June 2021, p 12(18-32)):

“Professor Wijeratne filed his first report at the end of 2019. Then Associate Professor Rosenfeld filed a report I think in about January or February 2020. Then Professor Wijeratne had filed a reply report. The parties have had those for some time…

And there was the joint report. I think the parties had access to that perhaps a short time before it was signed and then the offer was made so even if your Honour finds as your Honour has indicated that it was reasonable to investigate the validity of the will that doesn’t necessarily mean that indemnity costs shouldn’t flow from the date of the second offer because by that time all the evidence was in and really the very purpose of the offer of compromise is to… abbreviate the proceedings and save costs in a situation even when they might be still locked out.”

44. In regard to the claim for a family provision order, the Defendants submitted that the overall justice of the case required that Ivy’s costs be borne by her, rather than by the estate. It was submitted that the assertion that she was an eligible person was always tenuous, even if the Court accepted her evidence. The Defendants referred to the Court’s finding, in the principal judgment, that “[a]s a matter of fact, on any version given by her, Ivy cannot be said to have been wholly or partly dependent upon the deceased”: see [328] of the principal judgment.

45. It was also submitted that the provision made for Ivy under the deceased’s 2017 Will was adequate, as the Court had also stated. Counsel contended that Ivy’s family provision claim was not reasonable, meritorious, or even borderline.

46. It was further put that given the size of the estate, it should have been plain to Ivy that pursuing the proceedings would substantially diminish the size of the residuary estate, and consequently, her share of 20 per cent thereof provided to her under the 2017 Will.

47. The Defendants also sought an order setting off any costs order in their favour against Ivy’s entitlement under the 2017 Will. They relied upon the evidence of Mr Cameron that Ivy is impecunious, and that the only source of funds she has to satisfy her own legal costs is the entitlement that she will receive out of the deceased’s estate. If a costs order were not able to be set off against that entitlement, Ivy may choose to satisfy other debts first, frustrating the purpose of any order for costs. A setting off order would be just, in this case, to ensure that the estate was reimbursed for the costs which the Court orders that Ivy should bear.

48. (The Defendants’ counsel, Dr Lucy, did not advance any alternative claim for indemnity costs based on the principles in Calderbank v Calderbank [1976] Fam 93, as it was unnecessary to do so.)

The Law - Probate Proceedings

49. In Probate proceedings, and otherwise, the Court starts by treating the success or failure of the relevant party as being the starting point in consideration of the question of costs. Ordinarily, the successful party may reasonably expect to receive her or his costs, whether that outcome be described as costs following the “event” or otherwise. However, the question of costs is always within the Court’s unfettered discretion which must be exercised judicially and by reference only to considerations relevant to its exercise and upon facts connected with, or leading up to, the litigation: Northern Territory v Sangare (2019) 265 CLR 164; [2019] HCA 25 at [24].

50. I have recently set out the principles relating to the determination of costs, in Probate proceedings, in Starr v Miller; Starr v Miller(No 2) [2021] NSWSC 685 at [51] – [86]. It is unnecessary to repeat the principles because of the recency of that decision but, naturally, I have borne them in mind. What follows, therefore, is merely by way of emphasis and elaboration.

51. The essence of what I wrote was that, in probate suits, there are considerations that more readily affect the application of the Civil Procedure Act2005 (NSW) and the UCPR than in most other forms of litigation. These considerations act as guides to the exercise of discretion, but they are not inflexible. I repeated that, in light of all of the circumstances of the particular case, the Court must decide which costs order best achieves justice between the parties.

52. At [108], I wrote:

“In my judgment, the proper course is to apply the principle enunciated by Sir Gorrell Barnes P that ‘if the circumstances lead reasonably to an investigation of the matter, then the costs may be left to be borne by those who have incurred them’: Spiers v English [1907] P 122 at 123; Middlebrook v Middlebrook (1962) 36 ALJR 216 at [217. I, too, am reluctant to do anything to create the idea that an unsuccessful litigant might get her, or his, costs out of the estate, without making a very strong case on facts. The lure of ‘costs out of the estate’ is responsible for much unnecessary litigation: Re: Plant dec'd [1926] P. 139 at 152 (Scrutton L.J.). Whilst doubtful wills should not pass easily into proof by reasons of their costs, parties should not be tempted into fruitless litigation by the belief that their costs will be defrayed by others. This is not to say that a party should be punished for making such an application for invoking this Court’s supervisory jurisdiction in probate.”

53. In the present case, there are various factors to be considered. One, of course, relates to the effect of the two Offers of Compromise (which was a matter not relevant in Starr v Miller; Starr v Miller (No 2)).

54. Rule 42.15A of the UCPR provides:

42.15A Where offer not accepted and judgment no less favourable to defendant

(1) This rule applies if the offer is made by the defendant, but not accepted by the plaintiff, and the defendant obtains an order or judgment on the claim no less favourable to the defendant than the terms of the offer.

(2) Unless the court orders otherwise—

(a) the defendant is entitled to an order against the plaintiff for the defendant’s costs in respect of the claim, to be assessed on the ordinary basis, up to the time from which the defendant becomes entitled to costs under paragraph (b), and

(b) the defendant is entitled to an order against the plaintiff for the defendant’s costs in respect of the claim, assessed on an indemnity basis—

(i) if the offer was made before the first day of the trial, as from the beginning of the day following the day on which the offer was made, and

(ii) if the offer was made on or after the first day of the trial, as from 11 am on the day following the day on which the offer was made.

55. In Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368, Spigelman CJ, Beazley and McColl JJA, wrote, at [15]:

“... Rules 42.14, 42.15 and 42.15A ... provide that, when the relevant costs rule is engaged, a party is entitled to indemnity costs from a specified time (usually one day after an offer of compromise is made), ‘unless the court orders otherwise’....”

56. From the authorities, it appears the question for determination regarding the effect of what is said to be an Offer of Compromise involves a two-stage process. The first stage is to enquire whether the offer made is an Offer of Compromise at all, within the meaning of the UCPR. This will depend, in part, on whether it satisfies the formal requirements laid down by UCPR rule 20.26. It also depends, in part, on whether the offer made is one that can truly be called a “compromise”.

57. If the Court concludes that the offer which is made is an Offer of Compromise within the meaning of the Rules, and that the offer made is one that can truly be called a compromise, then UCPR r 42.15A(2) operates to establish a “default” position, relevantly that, if the defendant obtains a judgment no less favourable than that which the defendant had offered to accept, then indemnity costs would follow. It is then that the second stage of the process arises, in that the Court can “otherwise order”. The Court will “otherwise order” if it is persuaded that is appropriate, in the interests of justice, that the “default” position ought not to apply: Manly Council v Bryne (No 2) [2004] NSWCA 227, per Campbell JA, at [10]; Evans v Braddock (No 2) [2015] NSWSC 518, at [52].

58. In Croghan v Blacktown City Council (2019) 100 NSWLR 757; [2019] NSWCA 248 the approach to be adopted by the Court was set out as follows at [11] and [13]:

“It is convenient to start with the statement of those principles by Mason P in Morgan v Johnson (1998) 44 NSWLR 578 at 581–582:

‘(1) The purpose of the rule is to encourage the proper compromise of litigation, in the private interests of individual litigants and the public interest of the prompt and economical disposal of litigation: Maitland Hospital [(1992) 27 NSWLR 721] (at 725–726); Hillier [(1995) 36 NSWLR 414] (at 421, 431).

(2) The aim is to oblige the offeree to give serious thought to the risk involved in non-acceptance: Maitland Hospital (at 724).

(3) The prima facie consequence of non-acceptance will be that the rule will be enforced against the non-accepting party: NSW Insurance Ministerial Corporation v Reeve [(1993) 42 NSWLR 100] (at 102); Hillier (at 422). This is because, from the time of non-acceptance ‘notionally the real cause and occasion of the litigation is the attitude adopted by [the party] which has rejected the compromise’: Maitland Hospital (at 724); see also Hillier (at 420).

(4) Lying behind the rule is the common knowledge that ‘litigation is inescapably chancy’: Maitland Hospital (at 725). For this reason, the ordinary provision is expected to apply in the ordinary case: ibid NSW Insurance Ministerial Corporation v Reeve (at 102–103). The mere fact that it was reasonable for the litigant to take the view that he or she did in rejecting the offer is not enough to displace the rule: NSW Insurance Ministerial Corporation v Reeve (at 102).

…

(5) The discretion to displace the rule is a judicial one, requiring the private and public purposes of the rule to be borne in mind: Maitland Hospital (at 725–726). Reasons must be given for ‘otherwise ordering’: Hillier (at 419); Quach [(Court of Appeal, 15 June 1995, unreported)].’

…

In Fairall v Hobbs (No 2) [2017] NSWCA 133, where it was accepted that the presumption in r 42.15 might be displaced ‘by demonstrating that rejection of the offer was reasonable’, the court described the matters relevant to such an assessment as including:

‘[15] … where the full parameters of the dispute are still uncertain at the time of the offer: Equity 8 Pty Limited v Shaw Stockbroking Limited [2007] NSWSC 503 at [42]; or where the offeror’s case changes after the offer: South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [85]; or where all relevant evidence has not been served before the offer: Vale v Eggins (No.2) [2007] NSWCA 12 at [22].’

59. The judgment in Croghan v Blacktown City Council was referred to in Mendonca v Tonna (No 3) [2020] NSWCA 332, in which the Court of Appeal (Bell P, Meagher JA, and Payne JA), wrote, at [24]:

“As this Court said in Croghan v Blacktown City Council (2019) 100 NSWLR 757; [2019] NSWCA 248 at [12] - [14], a significant (but not necessarily determinative) factor that may justify the Court ordering ‘otherwise’ is where the rejection of the offer was reasonable. Whether that is so depends on the facts and circumstances specific to the case, including whether the nature of the dispute was uncertain at the time of the offer; whether the offeror’s case changed after the offer was made; or whether all the relevant material had been served before the offer was made. Furthermore, an offer made pursuant to the UCPR will generally not attract indemnity costs where no significant compromise is made by the offeror: Mega-Top Cargo Pty Ltd v Moneytech Services Pty Ltd [2016] NSWCA 3 at [5].”

60. The recent judgment of Payne JA in YWCA Australia v Chief Commissioner of State Revenue (No 2) [2021] NSWSC 102 demonstrates that there remains a difference in the authorities as to whether exceptional circumstances are required for the Court to “otherwise order”. Although his Honour was referring to UCPR r 42.14, what his Honour wrote, at [23], applies equally to UCPR r 42.15A:

“There is a difference in the authorities about whether r 42.14(2) requires exceptional circumstances for the court to ‘otherwise order’: see Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [15] (Spigelman CJ, Beazley JA and McColl JA); Barakat v Bazdarova [2012] NSWCA 140 at [42] – [49] (Tobias AJA, with whom Bathurst CJ and Whealy JA agreed). It is not possible to state the circumstances in which the court’s discretion to ‘otherwise order’ might be exercised: Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391 at [48] (McColl JA, with whom Gleeson JA and Sackville AJA agreed). It is not necessary to determine whether a court’s discretion to ‘order otherwise’ under r 42.14(2) is confined to ‘exceptional circumstances’: see Barakat v Bazdarova at [48]; Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) at [46] –[48]; Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 at [32] –[38] (Gleeson JA and Tobias AJA). To the extent that such circumstances are required, they are present here.”

61. In Walker v Harwood [2017] NSWCA 228, Basten JA had written at [22]:

“There is a further consideration to be taken into account in determining how willing the court should be to depart from the ordinary rule. Satellite litigation in relation to costs imposes a significant drain on both public and private resources and should be discouraged so far as justice permits. Access to the appellate jurisdiction to challenge costs orders is inconsistent with the obligations of the courts and the parties under Pt 6, Div 1 of the Civil Procedure Act 2005 (NSW) ‘to facilitate the just, quick and cheap resolution of the real issues in the proceedings’. The ‘real issues’ should be understood as the substantive issues and not ancillary issues, such as those relating to costs. That purpose of facilitation will best be achieved by maintaining a tight leash on the circumstances in which the court should otherwise order, thereby promoting certainty in the operation of the provisions relating to offers of compromise and discouraging offerees from seeking to ‘game the system’.”

62. Perhaps, a useful summary of what the Court ought to do in determining whether to “otherwise order” was provided by Kunc J in Bates v Cooke (No 2) [2014] NSWSC 1322 (which was cited, with approval, by White J in AB v Curry (No 2) [2015] NSWSC 1209 at [4], and by the Supreme Court of Victoria in Briggs v Mantz (No 2) [2014] VSC 487 at [33]- [35], and Smith v Whittaker [2016] VSC 287 at [36]). Kunc J wrote at [33]:

“Taking into account the language of r 42.15A, a party seeking to persuade the Court to order otherwise must identify some feature or features of one or more of the proceedings, the claim, the offer (including, for example, when it was made) and the order or judgment obtained by the successful party which provide a rational basis for the Court to displace what the rule specifies is the costs order to which ‘the defendant is entitled’.”

63. (An appeal from the substantive judgment of Kunc J was dismissed in Bates v Cooke (2015) 14 ASTLR 22; [2015] NSWCA 278. Nothing was written by the Court of Appeal about the costs judgment.)

64. Because it is relevant to the submissions made on behalf of Ivy, I should note that the fact that an adverse costs order will cause hardship to the unsuccessful party will not be sufficient, on its own, to resist the usual order. In this regard, I refer to Houatchanthara v Bednarczyk [1996] NSWCA 253, in which Clarke JA (Handley JA and Santow AJA agreeing) expressed that:

“[i]t is clear that if the rule operates, the plaintiff will be significantly disadvantaged, but that disadvantage flows naturally from the risks of litigation. The idea behind the rule is to encourage settlement or compromise of proceedings, and more specifically, to encourage litigants to give serious consideration to the settlement of proceedings. Where an offer is made by a defendant to a plaintiff, the latter is put on notice that unless he or she accepts that offer, there is a significant risk that the order provided for by the rule may follow. In declining to accept the offer, the plaintiff undertakes the risk and the consequences that flow naturally from that risk.”

65. Furthermore, the impecuniosity of a party is not a ground for refusing to make an order for costs against that party: Sassoon v Rose [2013] NSWCA 220 at [10] (Meagher JA, Gleeson JA agreeing). As was written there, “[T]he fact that an unsuccessful party is, or may, not be able to meet an order for costs is not a good reason to deprive the successful party of the opportunity to enforce or attempt to enforce such an order”.

66. I also remember what Gray J (Carr and Goldberg JJ agreeing) wrote in Hamod v State of New South Wales (2002) 188 ALR 659; [2002] FCAFC 97; [2002] FCA 424 at [20]:

“Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs.”

Determination – Probate Proceedings

67. There are, in these proceedings, a number of factors which, in my view, warrant departure from the usual costs order set out in UCPR r 42.15A, in relation to the Probate issue to which I now turn.

68. Firstly, at the date of the first Offer of Compromise, being 29 May 2019, the medical evidence was incomplete. Ivy’s medical expert, Dr Wijeratne, provided two reports dated, 8 October 2019 and 12 March 2020, both of which were made after the date of the first Offer of Compromise. The Defendants’ medical expert, Associate Professor Rosenfeld, also provided a report, dated 31 January 2020, well after the making of the first Offer of Compromise. The opinions of each of the experts were conflicting.

69. Secondly, although the Defendants’ second Offer of Compromise, dated 28 April 2020, was made after the medical evidence was complete, there remained the competing opinion given by each of the two medical experts engaged in the proceedings, as to the nature, extent and timing of the medical conditions suffered by the deceased. These reports demonstrated that there was significant disagreement about the medical conditions from which the deceased suffered on the date the instructions for the 2017 Will were given and on which it was signed.

70. Both experts were engaged for the purpose of providing an expert opinion on the testamentary capacity of the deceased at the time of the 2017 Will. Dr Wijeratne was of the opinion that it was more likely than not that the deceased lacked testamentary capacity when she made her 2017 Will. He expressed the opinion that the deceased suffered at least moderate dementia at the time of the 2017 Will.

71. In contrast, Associate Professor Rosenfeld was of the opinion that it was more likely than not that the deceased’s medical condition did not affect her capacity when she gave the instructions for and signed the 2017 Will.

72. Following a conclave of the two experts, there remained significant disagreement between them, including the extent to which the stroke suffered by her, affected the deceased’s cognition, in particular her executive function; the extent of residual damage to her speech and cognition at the time the Will was made; the extent to which anxiety and depression were significant factors in her decision making; whether she had apportioned her estate equally amongst her five beneficiaries in a rational manner; and whether the deceased retained testamentary capacity: see [278] of the principal judgment.

73. Of course, as I pointed out at [74] of the principal judgment, it was not for the experts to determine whether the will-maker has testamentary capacity. That is a matter solely for the Court's determination.

74. Thirdly, although, ultimately, the Court accepted the evidence given by Mr Shahrouk in relation to the circumstances surrounding the execution of the 2017 Will, his evidence was limited. Importantly:

1. He could not recall whether, at the meeting held with the deceased to execute her 2017 Will, he had specifically discussed with the deceased what property she owned;

2. The file note that he made of the meeting with the deceased was concise and suffered from “oversights”, such as not including the percentage of each gift made by the deceased in her 2017 Will;

3. He did not ask the deceased any questions concerning the reasons why she had recently been in hospital; and

4. He did not ask the deceased the reasons for making some of the changes or advise her as to the potential for any claims to be made under the Act.

75. Fourthly, the only lay witnesses who gave evidence going to the deceased’s condition, following her stroke in March 2017, were persons with a financial interest in the outcome of the proceedings, being the other beneficiaries named in the 2017 Will. In some respects, the evidence given was different from the contents of some of the contemporaneous medical records.

76. This is a case in which the available material could have reasonably led Ivy to the belief that the Court could find that the 2017 Will was not a valid Will. Her doubts, based on the later available evidence, in relation to the validity of the 2017 Will, may be considered to have been reasonably held.

77. In my judgment, the principle enunciated by Sir Gorrell Barnes P that “if the circumstances lead reasonably to an investigation of the matter, then the costs may be left to be borne by those who have incurred them”: Spiers v English [1907] P 122 at 123; Middlebrook v Middlebrook (1962) 36 ALJR 216 at [217], is a matter that goes to the question whether the Court should “otherwise order”, at least so far as the Probate issue is concerned.

78. Of course, I have also remembered, as countervailing matters, the views expressed by Basten JA in Walker v Harwood quoted above and also that the litigation here was brought by Ivy to vindicate her private interest in obtaining greater provision out of the deceased’s estate.

The Law – Family Provision Proceedings

79. I now turn to the principles of law relating to costs in the family provision proceedings.

80. The Act expressly provides that the Court may order that the costs of proceedings under Chapter 3, dealing with family provision claims, be paid out of the estate of the deceased in such manner as the Court thinks fit: s 99.

81. Rule 42.15A of the UCPR, which I have referred to above, is applicable in family provision proceedings: Page v Page [No 2] [2016] NSWSC 1323, at [51]-[52].

82. In Harkness v Harkness (No. 2) [2012] NSWSC 35, at [18]-[19], I set out the principles that relate to determining the issue of costs in family provision proceedings:

“(a) In Singer v Berghouse [1993] HCA 35; (1993) 114 ALR 521, Gaudron J, said, at 522:

‘Family provision cases stand apart from cases in which costs follow the event. Leaving aside cases under the Act which, in s.33, makes special provision in that regard, 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.’

(b) Despite the above statement, which, of course, was written in the context of a security for costs application, and in respect of proceedings under the Family Provision Act, s 99 of the Succession Act provides a wide discretion in relation to costs (‘in such manner as the Court thinks fit’).

(c) The view of some practitioners advising a potential applicant contemplating a claim for a family provision order, that there is little risk, and probably much to be gained, in making a claim, however tenuous, because even if the claim fails the applicant will, very likely, get his, or her, costs out of the estate and that he, or she, will not be significantly out of pocket, and the legal practitioner will receive his, or her, costs and disbursements in any event, has been thoroughly discredited.

(d) Parties should not assume that this type of litigation can be pursued, safe in the belief that costs will be paid out of the estate: Carey v Robson (No 2) [2009] NSWSC 1199; Forsyth v Sinclair (No 2) [2010] VSCA 195. It is now much more common than it previously was for an unsuccessful applicant to be ordered to pay the defendant's costs of the proceedings ( Lillis v Lillis [2010] NSWSC 359 at [23]) and be disallowed his, or her, own costs.

(e) Where, as here, the issue is whether the unsuccessful applicant should bear the costs of the successful Defendant, s 98 of the Civil Procedure Act, and the rules quoted above, will apply, and, in the absence of some good reason to the contrary, there should be an order that the costs of the successful defendant be paid by the unsuccessful plaintiff: Moussa v Moussa [2006] NSWSC 509 at [5].

(f) An unsuccessful plaintiff will, usually, be ordered to pay costs where the claim was frivolous, vexatious, made with no reasonable prospects of success, or where she, or he, has been guilty of some improper conduct in the course of the proceedings: Re Sitch (No 2) [2005] VSC 383.

(g) In small estates particularly, the court should be careful not to foster the proposition that obstinacy and unreasonableness will not result in an order for costs: Dobb v Hacket (1993) 10 WAR 532, at 540.

(h) Proceedings for a family provision order involve elements of judgment and discretion beyond those at work in most inter partes litigation: Jvancich v Kennedy (No 2) [2004] NSWCA 397; Re Sherborne Estate (No 2); Vanvalen v Neaves [2005] NSWSC 1003.

(i) In exercising its discretion in relation to costs, the court will have regard to ‘the overall justice of the case’: Jvancich v Kennedy (No 2) . The ‘overall justice of the case’ is ‘not remote from costs following the event’. However, the court may be more willing to depart from the general principle in proceedings for a family provision order than in other types of case: Moussa v Moussa; Carey v Robson (No 2); Bartkus v Bartkus [2010] NSWSC 889 at [24].

(j) As proceedings for a family provision order are essentially for maintenance, a court may properly decide to make no order for costs, even though it were otherwise justified, against an unsuccessful applicant, if it would adversely affect the financial position which had been taken into account in dismissing the application: Morse v Morse (No 2) [2003] TASSC 145; McDougall v Rogers; Estate of James Rogers [2006] NSWSC 484; McCusker v Rutter [2010] NSWCA 318 at [34].

(k) There are also other circumstances that may lead the court to order payment out of the estate of the costs of an unsuccessful Plaintiff. The court may allow an unsuccessful plaintiff costs out of the estate, if in all the circumstances the case was meritorious, reasonable or "borderline": McDougall v Rogers; Estate of James Rogers ; Re Bodman [1972] Qd R 281; Shearer v The Public Trustee (NSWSC, Young J, 21 April 1998, unreported).

Finally, what I said in Smith v Smith (No 2 ) at [77], is also applicable to the facts of the present case:

‘I commend to parties involved in proceedings in which a family provision order is sought, that every effort, particularly in a relatively small estate, as this one is, to conduct negotiations frankly and openly, to try to resolve the proceedings, and if there are issues or concerns about an offer that has been made, to raise any issues at the first convenient opportunity with the offeror's solicitors, so that any ambiguities, or other concerns, can be resolved. The Court should be able to see that the parties have considered what is being offered in a sensible, practical, and commercial way.’

83. In Bruce v Greentree (No 2) [2015] NSWSC 1636 at [43], I wrote:

“…I should note that the usual costs rule in an unsuccessful family provision application ‘reflects the policy embodied in s 56 Civil Procedure Act that litigation must be conducted responsibly and should only be commenced by a plaintiff after careful evaluation of the costs consequences likely to attend to failure’: Carey v Robson; Nicolls v Robson (No 2) [2009] NSWSC 1199, per Palmer J, at [20], and that ‘[t]here is a public policy in the usual practice as well as the element of justice reflected in the rule that costs follow the event’: Friend v Brien (No 2) [2014] NSWSC 614, per White J, at [20].”

84. The principles in respect of costs orders in family provision matters were summarised by the Court of Appeal in Haertsch v Whiteway (No 2) [2020] NSWCA 287 at [4] - [11] (Macfarlan, Meagher and Leeming JJA).

85. I have borne these principles in mind.

Determination – Family Provision Proceedings

86. It was not in dispute, in the family provision proceedings, that the contact between Ivy and the deceased for the last 14 years of the deceased’s life was minimal. Ivy accepted, by way of example, that she did not see the deceased after 2003 and that she made no attempt to contact the deceased in the last five years of the deceased’s life, despite no longer being a minor.

87. In fact, ultimately, the family provision proceedings were decided consistently with the correspondence sent from Mr Shahrouk to Mr Cameron, referred to earlier in these reasons. The Court found that Ivy was not an eligible person under the Act and, even if she had been, she had already received adequate and proper provision from the estate of the deceased. (However, contrary to the contentions advanced, the Court did say that there were factors warranting the making of the application: see [51] of the principal judgment.)

88. Furthermore, in relation to each Offer of Compromise, the additional provision (5 per cent in the first Offer of Compromise, increased to 10 per cent in the second Offer of Compromise) would have resulted in an additional lump sum, which was reasonably large, being offered to Ivy.

89. Had she not commenced these proceedings, Ivy would have received a substantial lump sum, which amount would have provided for the exigencies of life. As it is, by commencing proceedings she took the risk that she would not receive an order for her costs out of the estate or that she would have to bear the burden of the Defendants’ costs.

90. In my judgment, this is a case in which the available material could not have reasonably led Ivy to the belief that the Court would find that inadequate provision for her proper maintenance, education or advancement in life had been made in the 2017 Will. Any doubts, based on the available evidence, in relation to whether adequate and proper provision had been made for her, should not be considered to have been reasonably held.

91. As such, in relation to the costs of the family provision proceedings, I consider the two Offers of Compromise made by the Defendants, to Ivy, to be relevant and no sufficient reasons have been advanced going to why an “otherwise order” should be made. I am unable to see any good reason to make an “otherwise order” in relation to the family provision proceedings.

Method of calculating costs

92. Although not the subject of written submissions, I raised the matter of the possibility of the two issues, being the probate issue and the family provision issue, resulting in different costs consequences, with counsel at the costs hearing: Tcpt, 16 June 2021, p 11(47)-12(02). I considered the possibility even though Ivy had been unsuccessful on both issues.

93. Some general principles that assist were stated in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] (Beazley, Ipp and Basten JJA):

“…

• Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: State of New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed).

• A separable issue can relate to ‘any disputed question of fact or law’ before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34].

• Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272.”

94. More recently, in Eastlings Pty Ltd v Calidu Import Export Pty Ltd (No 3) [2021] NSWSC 466, although in the context of an order for costs based on UCPR r 42.1, Ward CJ in Eq wrote, at [40]:

“Ordinarily, where there are multiple issues in proceedings, one does not differentiate between the issues on which a party succeeded and those in which the party did not succeed, unless a particular issue or group of issues is clearly dominant or separable …The apportionment of costs between different issues in proceedings may be appropriate, for example, where: there is a separate issue involving a disputed question of fact or law and the determination of that issue takes additional time in preparation and in argument …” (Omitting citations)

95. In Bowen Investments v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107, Finkelstein and Gordon JJ wrote, at [5], that if an issue by issue approach produces a result that is fairer than giving the successful party all of his, her, or their, costs, notwithstanding the failure on particular issues, then the issue by issue approach should be adopted. (The passage was referred to in Oikos Constructions Pty Ltd t/as Lars Fischer Construction v Ostin & Anor (No 2) [2021] NSWCA 98 at [16]).

96. When the Court raised the possibility that it could conclude that the determination of the question whether to “otherwise order” were different in respect of each of the Probate issue and the family provision issue, there was no dispute as to the possibility, and that how costs would be borne could be determined in a way that reflected the nature of the different issues even though Ivy had failed in both. I also raised the possibility, if that occurred, that there would be a significant difficulty that could occur in the assessment of costs attributable solely to the Probate proceedings, costs attributable solely to the family provision proceedings, and the costs attributable to both sets of proceedings: Tcpt, 17 June 2021, p 11(01-04).

95. I suggested that a method to circumvent this difficulty was as set out in s98(4)(b) of the Civil Procedure Act, which states:

(4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to:

…

(b)  a specified proportion of the assessed costs.

98. Both counsel agreed, during the costs hearing, that this would be a sensible approach to adopt in order to avoid the parties incurring further costs in relation to assessment and also in the delay to the completion of the administration of the deceased’s estate: Tcpt, 17 June 2021, p 12(04-14) and p 22(01-02).

99. Bearing in mind what I have written, and considering the overriding objectives provided for in ss 56 to 60 of the Civil Procedure Act, in the interests of justice, I am satisfied that I should adopt the approach referred to above. I also remember that Ivy, as one of the beneficiaries named in the Will of the deceased, will be bearing a share of any costs payable out of the deceased’s estate.

100. Doing the best that I can, and adopting an holistic approach based on impression and remembering that evaluation as mathematical precision is illusory, I am of the view that Ivy should pay 40 per cent of the Defendants’ costs, calculated on the indemnity basis, of the proceedings. As to the balance, the Defendants’ costs, calculated on the indemnity basis, should be paid out of the estate of the deceased. No order will be made for Ivy’s costs, to the intent that she should bear her own costs of the proceedings. Naturally, the amount advanced to her should be taken into account.

101. The order for costs payable by Ivy creates a debt due to the estate. The Defendants sought an order setting off any costs ordered to be paid by her against Ivy’s entitlement under the 2017 Will. As stated, Ivy has an entitlement to receive 20 per cent of the residue of the estate. They submitted that the principle that informs the making of such an order is one expressed in Cherry v Boultbee (1839) 4 My & Cr 442, that a person cannot receive a distribution from a fund to which she, or he, is bound to contribute. (They, of course, have a duty as executors to properly administer the estate in the interests of all the residuary beneficiaries.)

102. An even earlier case in which such a principle was applied is Jeffs v Wood (1723) 2 P Wms 128. Jeffs senior made a will appointing his son, Jeffs junior, as his executor and left a legacy of £500 to his nephew, Wood, who was indebted to Jeffs senior in a smaller sum. Wood was made bankrupt after Jeffs senior's death, but before the legacy had been paid. Sir Joseph Jekyll MR directed the executor to pay Wood the balance of the legacy after retention by the executor of the full amount of Wood's debt to Jeffs senior.

103. The rule was described as follows by Kekewich J in In re Akerman [1891] 3 Ch 212 at 219; [1891] UKLawRpCh 118:

"The principle is to be found laid down in Cherry v Boultbee in the passage to which I have just referred, and also in Courtenay v Williams, and no doubt, if search were made, it would be found to have been laid down in many other cases. It is this. A person who owes an estate money, that is to say, who is bound to increase the general mass of the estate by a contribution of his own, cannot claim an aliquot share given to him out of that mass without first making the contribution which completes it. Nothing is in truth retained by the representative of the estate; nothing is in strict language set off; but the contributor is paid by holding in his own hand a part of the mass, which, if the mass were completed, he would receive back. That is expanding what the Lord Chancellor calls in Cherry v Boultbee 'a right to pay out of the fund in hand,' rather than a set-off."

104. The issue in In re Akerman was whether, in the division of the will-maker’s residuary estate, three of the will-maker’s seven children had to bring into account statute-barred debts due to the estate. It was held that they were bound to bring them into account.

105. In Turner v Turner [1911] 1 Ch 716 at 719, Cozens Hardy MR wrote:

“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.”

106. In In re VGM Holdings Limited [1942] 1 Ch 235, Ungoed-Thomas J, at 12, summarised the principle as follows:

“A holder on trust of a trust fund, who establishes his claim against a defendant beneficiary, entitled to a share in the trust fund, to recover a sum for which the defendant is liable to the trust fund and obtain an order for party and party costs against that defendant, should plainly not make distribution to the beneficiary without retaining enough to satisfy the amount of these costs as well as of that sum.”

107. Rees J, albeit in another context, in In the matter ofD & D Corak Investments (In Liquidation) Pty Limited (2020) 147 ACSR 99; [2020] NSWSC 1197, wrote, relevantly, regarding the principle, at [18]:

“It is not a complex rule, being a simple netting off of monetary obligations.

It is a rule in equity whereby if a person entitled to participate in a fund is also bound to contribute to it, the person cannot participate unless and until the person has fulfilled the duty to contribute to it.

It is an illustration of the fundamental principle in equity that a person who seeks equity must first do equity.

However, it is a rule whereby the court in effect says to the person seeking payment ‘you have in your own hands that which is applicable to the payment – pay yourself out of that’.

The rule is best described as a right to appropriate a particular asset as payment, as opposed to a right of set-off or a right of retainer

...” (Omitting citations)

108. As applied to the administration of estates, the principle can be seen as providing a mechanism to ensure that a beneficiary who owes money to the estate does not receive more than her, or his, fair share of the distribution of the estate. (Any question going to whether the principle can be applied in respect of a specific gift of property or chattels does not apply because Ivy is entitled to an equal share of the residue of the deceased’s estate into, and from, which, any costs of the proceedings would be paid.)

109. The application of the principle set out above is straightforward. It is of general application where an estate is being administered, a beneficiary cannot receive anything out of the estate until she or he has made good what is owed to the estate. It is immaterial whether the amount owed is actually ascertained or not. If it is not actually ascertained, it must be ascertained in order that the rights of the beneficiaries may be adjusted. Here, Ivy is entitled to share in the residue of the estate. At the same time, as a consequence of the Court making a costs order in respect of the proceedings, she is a debtor of the estate for an amount of those costs, the quantum of which is yet to be determined. It is appropriate that the Defendants, as executors, should be entitled to not distribute so much of Ivy’s share of the estate, pending the assessment of the quantum of costs owing to the estate, as is necessary to satisfy the order for costs. Ivy is directed to satisfy those costs from a particular source (her share of the estate).

110. The principle could be described as a right to appropriate a particular asset as payment of those costs, as opposed to a right of set-off or a right of retainer. The Defendants will simply make a distribution to Ivy which takes account of the existence of an obligation to the estate by her.

111. The evidence of Mr Cameron on the costs application makes clear that Ivy does not appear to have any significant assets and that she will be unable to meet any costs that she must pay. It is basic justice that the Defendants should be compensated for costs incurred because they have been obliged to litigate because of the proceedings brought by Ivy.

112. It would also be unjust to hold that in distributing the residuary estate, that Ivy is entitled to be paid all of her share, and subsequently find, after the quantum of costs is ascertained, that the amount of those costs could not be recovered from her.

113. Counsel for Ivy submitted that an order as sought by the Defendants could result in the Defendants obtaining a preference. That may, or may not, be so. However, the costs as between Ivy and her solicitors should not detrimentally affect the value of the residuary estate of the deceased. Relevantly, her solicitors have been acting for her at all relevant times. The advice given by them to her, in relation to the acceptance or rejection of each Offer of Compromise, naturally, was not the subject of evidence. Only Ivy and her legal representatives currently know of the nature of that advice.

114. Obviously, it would be in the parties’ interest to attempt to reach agreement on the quantum of the costs to be paid by Ivy in order to avoid the delay that will be likely in the event that assessment is required.

115. The Court orders that:

1. The Plaintiff is to pay 40 per cent of the Defendants’ costs, calculated on the indemnity basis, of the proceedings.

2. The Plaintiff is not entitled to receive distribution of her share of the residuary estate of the deceased from the Defendants as executors of the estate, until such time as she pays the costs that have been ordered to be paid by her.

3. In the event that the Plaintiff does not pay the costs ordered to be paid by her, the Defendants are entitled to appropriate the amount of those costs, as assessed or agreed, from the share of the residuary estate to which the Plaintiff is entitled and to then distribute the balance to her.

4. Makes no order as to the Plaintiff’s costs, to the intent that she is to bear her own costs of the proceedings.

5. Orders that the balance of the Defendants’ costs of the proceedings, calculated on the indemnity basis, be paid, or retained, as the case may be, out of the estate of the deceased.

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Decision last updated: 30 June 2021