Danielsen v Waldowski - [2008] SASC 27

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
DANIELSEN v WALDOWSKI
[2008] SASC 27
Reasons of Judge Withers a Master of the Supreme Court
14 February 2008
PROCEDURE - COSTS
Costs on a discontinuance.
Re the Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622, applied.
Pentroth Pty Ltd v Kirschild Pty Ltd [2006] SASC 356; Australian Securities Commission v Aust-Home Investments Ltd (1993) 116 ALR 523; Boscaini Investments Pty Ltd & Ors v The Corporation of the City of Kensington & Norwood [1999] SASC 327, considered.

DANIELSEN v WALDOWSKI
[2008] SASC 27

JUDGE WITHERS. This action relates to a dispute between two sisters arising out of the administration of the estate of their deceased father by one of those sisters.
In a summons issued on 22 August 2007 the plaintiff sought the following relief:
1.That the Defendant produce all records of and in respect of the administration of the Will of Peter Heilmair late of Section 757, Hundred of Dalkey, County of Gawler near Owen in the State of South Australia deceased (“the Trust”).
2.Pursuant to Section 84(c) of the Trustee Act 1936 an inspector be appointed to investigate the administration of the Trust.
3.Pursuant to Section 36 of the Trustee Act 1936 the Defendant Gabriele Waldowski be removed as trustee of the Trust and Public Trustee be appointed as trustee in her place.
4.In the alternative, an order pursuant to Section 9 of the Public Trustee Act 1995 granting administration of the estate to the Public Trustee.
5.A declaration that payment in the sum of $10,000.00 to Wilhelmina Dickson was made in breach of trust.
6.Equitable compensation.
7.Costs including indemnity costs.
On the same day an interlocutory application was issued seeking all of those orders. This interlocutory application was returnable on 7 September 2007. The summons and the application were supported by an affidavit of the plaintiff filed on 22 August 2007. The proceedings were served on the defendant on 30 August 2007.
Apart from a bequest of $10,000.00 the balance of the estate after payment of the usual expenses was left equally to the testator’s five daughters including the plaintiff and defendant. The net value of the estate for probate purposes is disclosed as being $132,400.85. The defendant was one of two executors appointed by the testator, the other being another of his daughters who renounced probate. The defendant administered the estate essentially without the assistance of lawyers save and except for one consultation.
Reference was made in submissions to a letter from the plaintiff to the defendant pre-dating those letters before the Court by way of exhibits to affidavits or by way of annexures to a chronology prepared by the solicitors for the defendant. At the hearing it was agreed that if the plaintiff wished to rely on that letter then it could so do by firstly obtaining the agreement of the defendant’s solicitors (who had also not seen the letter) and by then forwarding it to the Court. A copy of a letter from the plaintiff to the defendant of 27 July 2005 and a response from the defendant to the plaintiff dated 28 July 2005 was received on 16 January 2008. I have considered both letters as part of the evidence on this application.
After the proceedings were served on the defendant on 30 August 2007 a Notice of Address for Service was filed on 5 September 2007 along with a defence and responding affidavit. This affidavit was filed two days before the time fixed for the hearing of the plaintiff’s interlocutory application. In essence the defendant denied any mal-administration in her management of the estate and asserted that conducting the administration in the way that she had resulted in the estate saving many thousands of dollars – see paragraph 10 of her affidavit (FDN 6). The defendant denied that the plaintiff was entitled to any of the orders that she sought.
The defendant exhibited to her affidavit copies of balance sheets for the estate that had been prepared by Adelaide Computer Tax Service dated 1 August 2006 and an earlier balance sheet prepared by the same organization in February 2006. That earlier document, which is dated 22 February 2006, starts with the following paragraph:
We have been approached by the administrator of the estate to audit the accounts as per receipts receivable & payable and found they are all in order. A copy of the balance sheet is attached for your benefit and explanation of distribution and other amounts paid on behalf of the estate by the administrator.
A copy of each document had been sent to all beneficiaries shortly after their preparation.
The matter first came before the Court on 7 September 2007 when it was recorded that the plaintiff sought some time to consider the affidavit of the defendant filed on 5 September 2007. Costs were ordered to be in the cause and the matter was adjourned to 21 September 2007.
On 21 September 2007 the Court was advised that the defendant had supplied some documents to the plaintiff (apparently on 11 September 2007) and that the plaintiff was seeking some further documents. The parties jointly asked that the matter be adjourned to enable that material to be considered. Again costs were ordered to be in the cause and the matter was adjourned to 2 November 2007.
On 2 November 2007 the Court was advised by the plaintiff’s counsel that all issues had been resolved from the plaintiff’s point of view save and except the payment of the legacy of $10,000.00 to the daughter who had renounced probate and the issue of costs. The defendant’s counsel advised that he was able to write to the plaintiff’s solicitors setting out the defendant’s assertions in relation to the $10,000.00 payment which might well resolve that outstanding issue. It was foreshadowed that there might need to be an argument as to costs. Again the Court ordered costs in the cause, gave a direction about the defendant’s solicitors advising the plaintiff’s solicitors in relation to the $10,000.00 payment and the matter was adjourned to 30 November 2007.
On 30 November 2007 the Court was advised that all issues had been resolved save as to costs. The parties wished to argue that issue. The argument was set for 20 December 2007. As I understand it none of the relief sought by the plaintiff has been obtained beyond provision of the source documents from which the Adelaide Computer Tax Service accounts had been prepared.
At the argument on 20 December 2007 I was advised that the plaintiff intended to discontinue the action and that she was seeking to obtain an order in relation to costs that would not ordinarily apply on a discontinuance. I directed that a Notice of Discontinuance be filed and that happened on 2 January 2008. The plaintiff sought an order for costs against the defendant and further an order that the defendant not be entitled to reimburse herself or have those costs paid from the estate. I note the estate had been distributed finally on 1 August 2006. Accordingly, the plaintiff was seeking an order under 6R 107(4) in relation to costs that was different from the costs consequences that would ordinarily follow on a discontinuance. The issue of the liability to pay costs on a discontinuance has been considered at length in the authorities and I shall only refer to several.
It was argued by the defendant’s counsel that on a discontinuance the Court had no power to order costs in favour of the plaintiff as the party discontinuing. With respect I reject that submission. I respectfully adopt the reasoning of White J in the matter of Pentroth Pty Ltd v Kirschild Pty Ltd [2006] SASC 356 where in considering the predecessor to 6R 107(4), namely 87R 52.03, his Honour said at par 22:
An alternative construction of r 52.03 is to construe it as simply establishing a position with respect to costs which is to apply in the absence of any order of the court, but without impinging at all on the court’s discretion when it is required to exercise it. Construed in this way, r 52.03 does not establish a norm, in the sense of a position which is to apply unless displaced in special circumstances. All it does is to establish the position which applies in the absence of any court order to the contrary.
His Honour found in par 27 that:
… r 52.03 does not confine the court’s discretion by creating a presumptive entitlement.
In the case of Pentroth this Court accepted that the proper approach to the exercise of the discretion as to costs on a discontinuance was that suggested by McHugh J in Re the Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622. McHugh J said:
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. …
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. …
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases. [Citations omitted].
In an earlier case of Australian Securities Commission v Aust-Home Investments Ltd (1993) 116 ALR 523, Hill J reviewed the authorities on costs on a discontinuance and extracted five principles. These were considered by Debelle J in the matter of Boscaini Investments Pty Ltd & Ors v The Corporation of the City of Kensington & Norwood [1999] SASC 327. His Honour expressed the view that principle three should be expressed in a different form and added a principle six. Combining those two approaches results in the following principles or guidelines:
(1)Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order.
(2)It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial. This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.
(3)Depending on circumstances, where the applicant has acted reasonably in commencing proceedings, has an arguable case, and it is reasonable to conclude that the respondent has acted in consequence of the commencement of proceedings, the Court may be prepared to make a costs order in favour of the applicant.
(4)In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation.
(5)Where the proceedings terminate after interlocutory relief has been granted the Court may take into account the fact that that interlocutory relief has been granted. However the grant of interlocutory relief is not conclusive and will be of no force in cases where it is not possible to assess the prospects of success.
(6)The Court will not make an order where the subject matter of the action has ceased to exist through the lawful action of a person who is not a party to the proceedings.
In my view the conduct of the plaintiff prior to the issue of proceedings may also be a relevant consideration in an appropriate case. These matters go to the reasonableness of the parties in commencing, continuing and defending the proceedings.
The key argument advanced on behalf of the plaintiff for a costs order being made in her favour was that her solicitors had requested the defendant to produce the records kept by her and to permit them to make copies in a letter of 29 September 2006. Yet the defendant had not produced those records until 11 September 2007, some two to three weeks after the plaintiff instituted these proceedings and 11 days after they were served upon her.
On the material before the Court the formal initiating letter seems to be one from the plaintiff’s solicitors of 3 February 2006. I note the earlier correspondence directly between the parties in mid-2005. That formal initiating letter of 3 February 2006 sought a “full estate accounting”. The defendant’s response to that was to arrange the provision of the accounting by Adelaide Computer Tax Service dated 22 February 2006.
The next letter from the plaintiff’s solicitors is dated 12 May 2006 and seeks a copy of the appraisal of plant and equipment and details of the amount received for each item from an auction of estate goods and chattels. The response to that was a letter from the defendant to those solicitors of 13 June 2006 advising that the plaintiff had received a first distribution on 1 March 2006 together with a statement explaining all of the income and expenses in relation to the estate. As to the appraisal the defendant asserted that a copy of that had been provided some time before the auction on 15 September 2005 and that it too had been distributed to all beneficiaries.
Some four months later on 29 September 2006, approximately two months after the apparent final distribution of the estate, the plaintiff’s solicitor wrote to the defendant setting out in the letter the provisions of ss 84B and 84C and regulation 6 of the Trustee Act. The plaintiff’s solicitor advised that if the defendant did not contact him within 21 days to arrange for him to inspect those documents then an application would be made to the Supreme Court and an order for costs sought against her. By letter of 3 October 2006 a response was sent by the defendant to the plaintiff’s solicitors advising that the estate had been finalized in full on 1 August 2006 and that all beneficiaries had received their proceeds from the estate together with a further and final statement outlining all payments and expenses.
There appears to have been no response to this letter from the plaintiff’s solicitors nor any other pre-action communication. Some 11 months later proceedings were initiated in this Court.
The defendant failed to provide access to all of the vouchers and receipts supporting the payments in and payments out in her administration of the estate until after these proceedings had been issued and served, albeit that access was provided within a very short time thereafter. The plaintiff says that this is a major factor in her entitlement to recover her costs from the defendant.
On the defendant’s behalf it was argued that this aspect of the plaintiff’s claim was only one of seven separate areas of relief sought against the defendant, that there had been no response to the defendant’s letter to the plaintiff’s solicitors of 3 October 2006, that the defendant was a lay person administering the estate, that the proceedings could have been avoided by ongoing correspondence pointing out to the defendant her obligation to provide the vouchers in support of the material even though those vouchers had apparently been perused by the accountant providing the administration report, and even though that accountant had said that all documents appeared to be in order and supported the account.
It is apparent that once the defendant received the proceedings she immediately sought legal advice and the documents were very shortly thereafter provided. In the meantime the plaintiff had applied for interlocutory relief in respect of all of the matters contained in the summons and this application was first listed for hearing on 7 September 2007. The defendant therefore was under some pressure to respond in detail in relation to each of the seven claims. The plaintiff now does not wish to further pursue those claims save as to costs.
Defendant’s counsel argued that the provision of the documents on 11 September 2007 did not add anything to the management of the estate and that they did nothing more than confirm that which appeared in the accounts earlier provided to the plaintiff and the other beneficiaries. In light of the size of this particular estate he referred to “the economic lunacy of bringing this whole application” – see transcript p 28. There is some force in that comment.
While it is unfortunate that the defendant did not provide access to the accounts and vouchers prior to the proceedings being issued, it is equally unfortunate that the plaintiff instituted proceedings seeking a broad range of relief both in the original summons and by way of interlocutory application. This approach broadened the issues substantially. It was taken before the plaintiff had examined documents produced under the Trustee Act which examination apparently allayed sufficiently the plaintiff’s concerns such that she decided to pursue this action no further.
A large portion of the plaintiff’s supporting affidavit (FDN 3) addresses matters that are not relevant to the issue of production of documents but rather go to the other areas in respect of which relief was sought. Similarly the defendant’s responding affidavit has had to address all of those allegations.
In my view the failure by the defendant to produce the accounts and vouchers sought to support the administration accounts of the estate is balanced by the plaintiff’s decision to seek a broad range of relief from the Court requiring responses from the defendant far beyond those that would have been necessary to address a simple application for an order pursuant to the Trustee Act for production of documents. I do not accept the submissions of plaintiff’s counsel that it was appropriate to include within the proceedings all relief which might be sought in case the inspection of documents provided the justification for such relief to be granted. This balancing of aspects of unreasonableness on the part of plaintiff and defendant is such that applying the principles to which I have already made reference justice will be achieved by an order that each party bear their own costs of these proceedings. No costs are to be met from the estate.
The parties have asked that they be provided with an opportunity to be heard on the costs of the application in respect of costs. My present view is that each party should bear their own costs of that application. The plaintiff in determining to discontinue the proceedings would have been obliged under R 107(4) to pay the defendant’s costs in the absence of the Court otherwise ordering. The Court has so ordered albeit that the order made is not that which the plaintiff was seeking. In my view the application for an alternate order was necessary and having regard to the matters to which I have earlier referred an appropriate order on the application for a determination as to costs would be that each party bear their own costs. However, I will afford the parties an opportunity to be heard on that issue if they so request after they have had the opportunity to consider these reasons.