Dybac v Czerwaniw; The Estate of the Late Apolonia Czerwaniw (No. 2)

[2022] NSWSC 1484

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Dybac v Czerwaniw; The Estate of the Late Apolonia Czerwaniw (No. 2) [2022] NSWSC 1484

Hearing dates:

24 October 2022

Date of orders:

1 November 2022

Decision date:

01 November 2022

Jurisdiction:

Equity

Before:

Slattery J

Decision:

Order that the plaintiff’s and the defendant’s costs be paid out of the estate up to 1 April 2021, the defendant’s costs being on the ordinary basis. The defendant shall pay the plaintiff’s costs of the proceedings on and from 10 August 2021 on the ordinary basis. The defendant will bear his own costs between 1 April and 10 August 2021. Order that the plaintiff’s costs of the proceedings, including for any costs not otherwise recovered from the defendant be paid out of the estate of the deceased on the indemnity basis.

Catchwords:

COSTS – deceased estate – contest as to the probate of a will – the plaintiff propounds a 2005 will and a 2009 codicil thereto – defendant propounds a testamentary instrument executed in January 2020 – issues as to the testator’s capacity at the time of making the January 2020 testamentary instrument – issues of knowledge and approval of the January 2020 testamentary instrument – proceedings heard in February 2022 – plaintiff offers on 31 March 2021 to compromise the proceedings on the basis that probate of the 2005 will and the 2009 codicil be granted in solemn form to the plaintiff – the defendant cross-claims for probate of a January 2020 testamentary instrument – court’s final judgment grants probate of the 2005 will and the 2009 codicil to the plaintiff – proper order as to costs in probate proceedings – whether the outcome of the proceedings was no less favourable to the defendant/cross-claimant in the offer of compromise – whether it was reasonable for the defendant not to accept the offer of compromise.

Legislation Cited:

Uniform Civil Procedure Rules 2005, rr 20.26, 31.50, 31.52, 42.14

Cases Cited:

BE Australia WD Pty Ltd (subject to a Deed of Company Arrangement) v Sutton [2011] NSWCA 414

Benette v Cohen (No. 2) [2009] NSWCA 162

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

Colegrove v Dullaghan (No 2) [2016] NSWSC 1236

Dybac v Czerwaniw; The Estate of the Late Apolonia Czerwaniw [2022] NSWSC 1279

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

In the Estate of Moyle; Moyle v Moyle (Supreme Court (NSW), 18 June 1998, unreported)

In theEstate of Stanislaw Budniak; NSW Trustee & Guardian v Budniak (No 2) [2015] NSWSC 1317

King v Hudson [2009] NSWSC 1500

Leichardt Municipal Council v Green [2004] NSWCA 341

Maitland Hospital v Fisher(No 2) (1992) 27 NSWLR 721

Mitchell v Gard (1863) 3 Sw & Tr 275

Owners of Strata plan 58577 v Banmore Development Finance Pty Ltd [2006] NSWSC 174

Pates v Craig; Estate of the late Joyce Jean Cole (Supreme Court (NSW), Santow J, 5 September 1995, unreported)

Perpetual Trustee Company Ltd v Baker [1999] NSWCA 244

Petrovski v Nasev; The Estate of Janakievska (No 2) [2011] NSWSC 1474

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

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

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

Walker v Harwood [2017] NSWCA 228

Category:

Costs

Parties:

Plaintiff: Zina Dybac
Defendant: Basil Czerwaniw
Estate of the late Apolonia Czerwaniw, late of Schofields

Representation:

Counsel:
Plaintiff: N. Kirby
Defendant: M. Evans

Solicitors:
Plaintiff: Anthea McIntyre, McIntyre Legal
Defendant: Eva Lee-Gabriel, ELG Legal

File Number(s):

2020/137800

Publication restriction:

No

Judgment

1. This is the Court’s second judgment in these proceedings. It should be read with the Court’s first judgment: Dybac v Czerwaniw; The Estate of the Late Apolonia Czerwaniw [2022] NSWSC 1279. Events, matters and persons are referred to in both judgments in the same way.

2. In the Court’s first judgment the Court concluded that it was not satisfied that the testator, Apolonia Czerwaniw, had testamentary capacity in January 2020 when she executed the testamentary instrument, referred to in the first judgment as the Change of Will document. The Court consequently granted probate of Apolonia’s 2005 will and 2009 codicil to the plaintiff, Zina Dybac, and dismissed the defendant’s, Basil Czerwaniw’s cross-claim that sought the admission to probate of the Change of Will document.

3. The Court directed that if the parties could not agree upon appropriate orders for the costs of the proceedings, then they should file concise costs submissions. Agreement was not reached. Submissions were filed. An oral hearing was held on 24 October 2022, when the Court reserved judgment.

4. Mr N Kirby of counsel instructed by McIntyre Legal appeared for the plaintiff/cross-defendant. Mr M Evans of counsel instructed by ELG Legal appeared for the defendant/cross-claimant, who began acting after delivery of the final judgment.

The Offers and the Positions of the Parties on Costs

5. In early 2021 Zina, through her solicitors, McIntyre Legal, made an Offer of Compromise and shortly afterwards issued another letter of offer, which invoked Calderbank principles. These offers were made to Basil through his then solicitors, Terry A Kolomyjec & Associates. He accepted neither offer.

6. On 31 March 2021 Zina made an offer of compromise under Uniform Civil Procedure Rules 2005, r 20.26. She offered to compromise the proceedings on the basis that probate of the 2005 will and the 2009 codicil be granted in solemn form to her, that the defendant’s cross-claim be dismissed, that the plaintiff’s costs of the proceedings be paid out of the Apolonia’s estate on the indemnity basis and that the defendant’s costs of the proceedings be paid out of the estate on the indemnity basis. Basil did not accept this offer of compromise, which was served in parallel with an open letter inviting Basil to immediately withdraw his cross-claim in light of Dr Deacon’s expert report of 28 March 2021, which had just been a made available to the parties.

7. The offer of compromise was accompanied by an open letter that referred to Dr Deacon’s expert opinion which was recorded in the Court’s first judgment at [160] to the effect that it was unlikely that Apolonia’s “cerebration could be considered adequate to write a will”. The letter declared that in light of Dr Deacon’s report, Basil could no longer properly propound the change of Will document as a valid codicil. The open letter invited Basil to withdraw his cross-claim and consent to the orders sought in the statement of claim.

8. Then on 22 April 2021 McIntrye Legal sent a Calderbank letter to Basil’s solicitors. The Calderbank letter clearly invoked Calderbank principles and was structured slightly differently to the terms of the offer of compromise. The Calderbank letter offered to settle the proceedings on the basis that probate of the 2005 will and the 2009 codicil would be granted to Zina in solemn form; no occupation fee would be paid by the defendant for his occupation of Apolonia’s house after her death; each party would pay their own costs of the proceedings (excluding the costs of obtaining the grant of probate and the sale of Apolonia’s property); and Zina would receive 48% of the net value of Apolonia’s estate and Basil would receive 52% of the net value of Apolonia’s estate. The offer was open for acceptance until 4 pm on 21 May 2021 and warned that if not accepted that Zina would ask for her costs to be paid on the indemnity basis without recourse to the estate from the date of the letter.

9. The Calderbank letter was crafted to explain the cost efficiency considerations and legal reasoning that justified why Basil should accept the offer being made. It gave an estimate of the current net value of Apolonia’s estate ($1,019,200) and the estimated net value of the estate after the conclusion of a contested five-day probate hearing ($560,585). The calculation set out in the letter could be debated in places but was reasonable. The open letter noted that the occupation fee claimed from Basil, on account of his occupation of Apolonia’s property after her death, was continuing to accrue.

10. The Calderbank letter placed the financial choices facing Basil in stark terms. Based on reasonable grounds it calculated that Basil would receive $473,278 from Apolonia’s estate if he accepted the Calderbank offer, which would be $192,985.50 more than he was likely to receive, if the matter were to proceed to final hearing.

11. Zina now submits that Basil should be ordered to pay her costs of the proceedings on and from 1 April 2021 (the day after the offer of compromise), or alternatively from 22 April 2021 (the day of the Calderbank letter), on the indemnity basis.

12. She submits that to the extent that her costs are not met by Basil that she should have an indemnity from the estate for the difference. Otherwise, she submits that there should be no order as to the defendant’s costs of the proceedings to the intent that he bears his own costs.

13. Basil submits that all his costs of the proceedings should be paid out of the estate.

Applicable Legal Principles

14. The applicable law is not in contest. In probate proceedings the general rule that costs follow the event is subject to two exceptions: Re Hodges; Shorter v Hodges (1988) 14 NSWLR 698 at 709 per Powell J (“Hodges”), Shorten v Shorten (No 2) [2003] NSWCA 60 (“Shorten”) and Perpetual Trustee Company Ltd v Baker [1999] NSWCA 244 (“Baker”). The first exception arises when it is established that the testator was the cause of the litigation. The second exception arises when it is established that there is a reasonable case for investigation in relation to the document being propounded. In Hodges, Powell J said (at 709) summarised the exceptions in the following way:

“Costs are, of course, in the discretion of the court, but that discretion, being a judicial, and not an unfettered, one must be exercised in accordance with established principle.

The general principle to be applied in adversary litigation is that costs follow the event, those costs being taxed on a party and party basis. However, over the years, a number of exceptions to this general rule have come to be recognised. In the field of probate litigation, two such exceptions have come to be recognised, they being:

1.   where the testator has, or those interested in residue have, been the cause of the litigation, the costs of unsuccessfully opposing probate may be ordered to be paid out of the estate;

2.   if the circumstances led reasonably to an investigation in regard to the document propounded, the costs may be left to be borne by those who respectively incurred them: see, eg, Mitchell and Mitchell v Gard and Kingwell (1863) 3 Sw & Tr 278; 164 ER 1280; Orton v Smith (1873) LR 3 P&D 23; Wilson v Bassil [1903] P239; Spiers v English [1907] P 122; Kenny v Wilson; In the Estate of Holtam; Gillett v Rogers (1913) 108 LT 732.

To these exceptions to the general principle should, perhaps, be added the principle that, although a legal personal representative may be entitled to recover from a party to litigation costs only on a party and party basis, he, as a fiduciary, retains the right to an indemnity from the estate, and, thus, may have recourse to the estate for any difference between his costs on a trustee basis and the costs recovered from a party.”

15. The application of one or other exception may lead to different costs outcomes. The application of the first exception leads to an order that costs come out of the estate. Where the second exception applies, the unsuccessful party is left to bear his or her own costs: Brady v Mikan (No 2) [2022] NSWSC 1320 at [37] and [39] (“Brady”). The onus of establishing that one of the probate exceptions applies, lies upon the party alleging that the exception applies: Pates v Craig; Estate of the late Joyce Jean Cole (Supreme Court (NSW), Santow J, 5 September 1995, unreported) at 5–6. There is no general rule in probate proceedings that costs are borne out of the estate: Petrovski v Nasev; The Estate of Janakievska (No 2) [2011] NSWSC 1474 at [10] per Hallen J.

16. The two exceptions tend to overlap. This is explained in Baker (at [14]) where Giles JA and Brownie AJA cite an unreported decision of Santow J in In the Estate of Moyle; Moyle v Moyle (Supreme Court (NSW), 18 June 1998, unreported) to the following effect:

“… if a testator is by his mental frailty and other circumstances in a position where the circumstances reasonably call for investigation of the validity of the will "in one sense the testator, though usually with no sense of blameworthy fault, has by his or her conduct caused the litigation to occur". A party reasonably but unsuccessfully propounding or challenging the will, and so bringing about the necessary investigation, should no more have to bear his own costs than pay the costs of the other party. So it has been said that where the conduct and habits and mode of life of a testator have given ground for questioning his testamentary capacity the costs of the unsuccessful party should be paid out of the estate, as distinct from being left to be borne by that party”

17. The overlapping nature of the two exceptions was affirmed in Shorten (at [19] – [20]).

18. What may fall within the first exception has produced more legal analysis than what may fall within the second exception. In Shorten the Court of Appeal rejected a submission that a case must fall within the first exception merely because the deceased’s condition raises triable issues as to her testamentary capacity. But Shorten (at [19] – [20]) explains the width of the first exception in a formulation which is binding in the present circumstances:

“[19] There are many statements to the effect that where the conduct, habits and mode of life of a testator have given ground for questioning testamentary capacity, the costs of the unsuccessful opponents of the will will be ordered to be paid out of the estate (see generally Williams, Mortimer and Sunnucks, Executors Administrators and Probate 18th ed, 2000 p448). Early cases involved testators who left their testamentary papers 'in confusion' but the 'conduct of the testator' could include irrational actions giving rise to reasonable doubts about testamentary capacity provided they were genuinely held by those opposing the grant (see Davies v Gregory (1873) LR 3 P & D 28 at 31; Clarke v Clarke (1901) 1 SR(NSW) B & P 25; Johnston v Public Trustee (1929) 24 Tas LR 71).

[20] These and other cases provide support for the proposition in Moyle and Baker (adopting the remarks of Santow J in Moyle) that the two exceptional categories stated in Hodges tend to overlap. But the categories are not coterminous. They remain conceptually distinct, although the court's ultimate discretion as to costs may result in an opponent's costs being met by the estate in situations such as mentioned in the previous paragraph."

19. The issue of the application of these exceptions not uncommonly arises in circumstances such as the present, where an argument is taking place about whether it was reasonable for a pre-judgment offer to have been rejected. For example, in In theEstate of Stanislaw Budniak; NSW Trustee & Guardian v Budniak (No 2) [2015] NSWSC 1317, Hallen J found that a party was entitled not to accept offers of settlement made where that party was propounding a “tenable” case to be propounded on behalf of beneficiaries, including a minor.

20. In the ultimate exercise of the Court’s discretion much may depend upon whether the proceedings can in substance be characterised as adversarial. Campbell JA explained this in BE Australia WD Pty Ltd (subject to a Deed of Company Arrangement) v Sutton [2011] NSWCA 414; 82 NSWLR 336 at [213], where his Honour said:

“The form of the proceedings, as inter partes litigation, is not decisive of how the costs of that litigation should be dealt with. Courts exercising equity jurisdiction encounter a variety of situations where a fund is being administered subject to the control of the court, and a question arises about the proper manner in which that fund should be administered. Such a situation can arise concerning administration of deceased estates, concerning administration of trusts, … In those situations, whether the costs of the court deciding the question that has arisen should be treated as costs of administration of the fund is significantly influenced by whether the proceedings are in substance adversarial ones.”

21. Behind these exceptions are two competing policy considerations: “that doubtful wills should not pass easily into proof by reason of the cost of opposing them” and of equal importance, that “party should not be tempted into a fruitless litigation by the knowledge that their costs will be defrayed by others”: Gray v Hart; Estate of Harris (No. 2) [2012] NSWSC 1562 at [10] citing Sir J P Wilde in Mitchell v Gard (1863) 3 Sw & Tr 275 at 277; 164 ER 1280, at 1281.

22. The principles that govern the Court’s exercise of discretion in relation to costs where an offer of compromise is not accepted are well-known and are not repeated here. They have been summarised in authorities such as Benette v Cohen (No. 2) [2009] NSWCA 162 and Walker v Harwood [2017] NSWCA 228. One important matter of emphasis here is that prima facie the consequence of non-acceptance of an offer of compromise will be that the rule will be enforced against the non-accepting party, because from the time of the 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 v Fisher(No. 2) (1992) 27 NSWLR 721 at 724. The rationale for the rule is to encourage compromise of litigation to advance both the private and public interests and to oblige the offeree to give serious thought to the risk involved in non-acceptance: Maitland Hospital at 724.

23. Similarly, the principles concerning Calderbank letters are well-established. Indemnity costs do not flow as a matter of course from a Calderbank offer, which is better than the result but it must be demonstrated that rejection of the offer was unreasonable in all the circumstances: Leichardt Municipal Council v Green [2004] NSWCA 341 at [19].

The Parties’ Submissions

24. The parties’ written submissions set out their cases comprehensively.

25. Zina’s submissions emphasise there are limits on the width of the first exception, that the deceased was the cause of the litigation. Zina submitted that it is insufficient to say that the deceased was responsible for the litigation, merely because she lacked the requisite capacity to make the “Change of Will” document. To fall within this exception requires “more than the mental frailty or incapacity of the deceased”: King v Hudson [2009] NSWSC 1500 at [10] and [12] per Ward J (as her Honour then was); Starr v Miller (No 2) [2021] NSWSC 685 at [67] per Hallen J; Brady v Mikan (No 2) [2022] NSWSC 1320 at [24] and [35] per Kunc J; Shorten v Shorten (No 2) [2003] NSWCA 60 at [27]. Zina submitted that this not a case where the deceased can be regarded as having been the cause of the litigation in the sense that phrase is understood in the context of costs in probate suits.

26. Zina’s submissions made a concession in relation to the second exception. She conceded that there was a reasonable case to investigate the circumstances surrounding the making of the “Change of Will” document for the period up to 28 March 2021. By that time, the lay evidence had been filed and the parties had received the report of the Court-appointed expert, Dr Deacon. Zina submitted that after this date, the second exception should not apply, and the defendant should be ordered to pay the plaintiff’s costs in accordance with the general rule.

27. In her written submissions under the heading, “the true character the litigation”, Zina submitted that this was “hard fought adversarial litigation”. She put the point as follows:

“13   These proceedings bore the features of hard-fought adversarial litigation. The defendant has not conducted these proceedings in a disinterested manner. The defendant did not merely propound the “Change of Will” document to the extent it offered a reasonable subject of investigation. Rather, the defendant propounded it as an assertion of his personal right to receive the whole of the deceased’s estate. The defendant also filed extensive and skewed affidavit evidence smearing the plaintiff’s relationship with her mother to, in the Court’s words, “propound his own version of family history and to show why he was more deserving of the testator’s testamentary bounty than was his sister” (Reasons at [31]).

14   The defendant’s self-interested conduct has substantially increased the plaintiff’s costs in these proceedings. The plaintiff relies on the annexed letter dated 29 November 2021 sent by her solicitor to the defendant’s solicitor during the proceedings which details some of the defendant’s inappropriate conduct (Annexure A). The letter states that the plaintiff would be relying on the letter on the question of costs.

15   The Court is alive to the increased costs incurred by the parties as a result of the defendant’s insistence that two additional expert witnesses be instructed (Reasons at [144]). The parties had already incurred significant costs jointly instructing a single Court-appointed expert, Dr Deacon, whose expert opinion was wholly accepted by the Court at the final hearing (Reasons at [187]-[224]).

16   There are good reasons to order that the defendant pay the plaintiff’s costs associated with his litigious conduct outlined in Annexure A. The plaintiff, however, is content for the usual costs consequences for reasonable investigation to follow (namely, that the defendant bear his own costs).”

28. Finally, Zina submitted that both the offer of compromise and the Calderbank letter should have been accepted, which has cost consequences under UCPR, r 42.14 and the Calderbank principles. Zina submitted as follows:

“20   The plaintiff has obtained a result in the proceedings which is no less favourable than both of the offers made by her, in that:

a.   had the defendant accepted the Offer of Compromise, he would have been entitled to receive his costs out of the estate on the indemnity basis for the entire duration of the proceedings. This was a genuine compromise on the plaintiff’s part as the defendant was never entitled to an indemnity out of the estate even if the “Change of Will” document was valid: the plaintiff’s appointment as executor remained unaffected by this document; and

b.   had the defendant accepted the Calderbank Offer, he would have been entitled to receive 52% of the net value of estate, rather than 50% as he is entitled to receive under the deceased’s Will and Codicil.

21 Rule 42.14 of the Uniform Civil Procedure Rules 2005 (NSW) is engaged with the prima facie effect that the defendant should pay the plaintiff’s costs on the indemnity basis from 1 April 2021.

22 In relation to the Calderbank letter, an offeree’s refusal is prima facie unreasonable where the offeree has not achieved as good a result as was contained in the offer; it is for the defendant to demonstrate why his refusal to accept the Calderbank Offer was not unreasonable: Brady v Mikan (No 2) [2022] NSWSC 1320 at [48].”

29. Basil’s written submissions set out the legal principles which have been explained earlier in these reasons and claimed the benefit of both exceptions through the following reasoning:

7.   In this case the defendant/cross-claimant falls within both exceptions, into the area of overlap, and should be entitled to his costs out of the estate, both in the sense that he challenged the earlier will and first codicil propounded by the plaintiff, on the basis that those documents had been materially altered by the Change of Will document which the deceased caused to be brought into existence and which she signed in that:

(a)   By her conduct in insisting that she change her will before consenting to surgery the deceased testatrix caused the litigation by creating the document and the defendant/cross-claimant was doing no more than seeking to give effect to her expressed wishes and thus the defendant’s costs of unsuccessfully propounding the Change of Will document should be ordered to be paid out of the estate; and,

(b)   The circumstances in which the document was created, a testamentary document witnessed by three doctors, making a significant change to the testatrix’s testamentary intentions and documents, led reasonably to an investigation in regard to the document propounded, with the result that the costs may be left to be borne by those who respectively incurred them.

8.   The plaintiff seeks to rely on an offer of compromise made on 22 April 2021 and an offer of compromise made on 31 March 2021. In making those offers the plaintiff relied on Dr Deacon’s Report of 28 March 2021, in particular Dr Deacon’s opinion, as quoted in the letter from the plaintiff’s solicitor of 22 April 2021:

“Given [the deceased’s] age, frailty, pain and period of hospitalisation combined with the fentanyl, oxycodone and midazolam she had received in the hours before re-writing her will, I believe her judgment was highly likely to have been impaired and that she was not mentally fit to write a new will at that time”.

8.   The relevant question in the circumstances, as was noted by Robb J in Colegrove v Dullaghan (No 2) [2016] NSWSC 1236, was it reasonable, in the circumstances, for the defendant/cross claimant to continue to propound the Change of Will document after 22 April 2021. The defendant/cross claimant submits that it was reasonable for him to continue to propound the Change of Will document in those circumstances for the following reasons:

(a)   As was underlined in the judgment the question as to whether the deceased had sufficient legal capacity to make a valid testamentary instrument as at 7.30-7.50 on 9 January 2020 is a matter to be decided by the Court not by expert reports;

(b)   While the instructions given to Dr Deacon set out the legal test for capacity to make a will his report and, in particular, his conclusions do not refer to the legal standard and his conclusions are not expressed in terms of the legal test for will-making capacity;

(c)   While Dr Deacon was supplied with the affidavits of Drs Perera, Dinh and Mendis, he makes no reference to their evidence or their observations of the deceased in his report;

(d)   Dr Deacon, as an anaesthetist, is not qualified to give an expert opinion on a person’s cognitive function, in particular by reference to that person’s age or state of health otherwise;

(e)   The affidavit evidence of Drs Perera, Dinh, Mendis and Tejas showed that, to their observation, the deceased was not exhibiting any signs or symptoms of loss of cognitive function in that critical time period;

(f)   Dr Sanders in his report came to a different conclusion than that stated by Dr Deacon:

At page 7 of his report:

“However, in the supplied materials I am unable to identify any objective evidence that the deceased’s cognitive ability was impaired at the time she gave instructions for and then signed the Handwritten Document prior to 7.53 pm on 9 January 2020.”

At page 9 of his report:

“With respect to the evidence provided by Drs Perera, Dinh, Mendis and Tejas, I have found no evidence that would contravene their version of events. While, with retrospect, it would have been ideal if the patient had undergone a formal delirium screen and capacity review, I have no information to suggest that between 7.00 pm and 7.53 pm the patient lacked capacity. I note Dr. Tejas commented the deceased appeared orientated and answered their questions on preoperative consult. Dr. Perera's affidavit suggests they usually confirm orientation to time, place and person and confirmed they understood the risks of the operation, if this did happen, this would again suggest that the deceased did not lack capacity when making the decision to change their will. As Dr Perera suggests, if the team considered the patient lacked capacity, they could not have got informed consent from the patient. Hence, this information is consistent with the attending physicians considering the deceased had capacity to make this decision. I found nothing in Dr. Dinh's or Dr. Mendls' affidavit to confirm or refute that the patient had testamentary capacity.”

9.   In the circumstances it was reasonable for the defendant/cross-claimant to propound the Change of Will document in these proceedings and it was also reasonable for him to maintain those proceedings after receiving the plaintiff’s offer of compromise on 31 March 2021 and the plaintiff’s Calderbank offer on 22 April 2022.

10.   In the circumstances it is appropriate that the defendant/cross-claimant’s costs be paid out of the estate.”

30. Zina’s written submissions in reply and the submissions put during the oral hearing are dealt with in the Court’s consideration of its reasons below.

Consideration

31. The parties are at issue as to whether the first exception applies and from when it applies. Even though Zina concedes the second exception applies, the parties differ as to the consequences of its application. And the parties are at issue about the proper exercise of the Court’s discretion based on the unaccepted offer of compromise and the Calderbank letter.

32. Does the first exception apply and if so until when? Apolonia’s conduct as testator can be said to be the initial cause of the litigation such that the first costs exception applies. But her conduct was not the cause of the significant costs of the long-running contest in this matter after 1 April 2021.

33. The unusual circumstances in which Apolonia suddenly initiated the Change of Will document represented something more than the mere “mental frailty or incapacity” of the testator. As Shorten explained (at [19]) the conduct of the testator that might attract the first exception could include “irrational actions giving rise to reasonable doubts about testamentary capacity provided they [the doubts] were genuinely held by those opposing the grant”. The Court’s findings in the first judgment about the execution of the “Change of Will” document show more than mere frailty. They show positive conduct that needed to be explained. The Court’s findings show that the Change of Will document was an unplanned, spontaneous and uncharacteristic act of Apolonia, leading to irrational testamentary gifts, given the quality of her relationships with her children. The Court does not accept Zina’s submission that this was just an unremarkable situation of “mental frailty or incapacity” of a testator.

34. It was reasonable for Basil to propound the Change of Will document until 1 April 2021. Thus the Court will order that Basil’s costs up to that date be paid out of the estate.

35. But this was only the position up to the time that report of the Court-appointed expert, Dr Deacon became available to the parties on or about 28 March 2021. From that time on the parties had a clear indication from a Court-appointed expert that Apolonia was significantly affected by anaesthetic agents and was unlikely to have had testamentary capacity when she made the Change of Will document. The first judgment shows the clarity with which Dr Deacon first expressed this opinion in writing: first judgment at [160]. His opinion was reaffirmed orally during the hearing and accepted by the Court.

36. Zina’s lawyers had collected and served by October 2020 the evidence of the three doctors who witnessed Apolonia’s signature on the Change of Will document. Dr Deacon had been provided with that material. There is no reason to believe he had not taken it into account in expressing his opinion. The Court’s reasoning in the first judgment shows that Dr Deacon well appreciated that the doctors who witnessed the Change of Will document may not have seen signs of her incapacity even though in his opinion it was present: first judgment at [174] to [183]. To anyone in Basil’s position a simple formal enquiry of Dr Deacon seeking clarification under UCPR, r 31.50 would have immediately shown there was no real inconsistency on the issue of capacity between Dr Deacon’s opinion and those of the doctors who witnessed the will.

37. Basil’s decision soon afterwards to engage his own expert evidence to attempt to gainsay the evidence of the Court expert, rather than make further enquiries to clarify the opinion of the expert, demonstrated that Basil was thereafter conducting this case as self-interested adversarial litigation, rather than pursuing genuine concerns about the validity of the Change of Will document. Then on Basil’s application, the Court’s decision on 10 August 2021 to allow the expert supplementary evidence beyond that of Dr Deacon, created a vigorous contest, which placed Basil, the party initiating that contest, at risk as to costs if that course were unsuccessful.

38. The Court effectively gave leave to Basil on 10 August 2021 to overcome the prohibition in UCPR, r 31.52 against adducing evidence from another expert on any issue already the subject of a report from the Court-appointed expert. The Court did not impose express terms upon the grant of leave to adduce other expert evidence, as it could have done, but was mindful of the fact that not to allow the additional expert evidence over Basil’s objection may have disadvantaged Basil: see Owners of Strata Plan 58577 v Banmore Development Finance Pty Ltd [2006] NSWSC 174. But the prohibition on other expert evidence, and the extra contest that would involve, is the normal result of the Court exercising its power to order a Court-appointed expert, as Hallen J did in this case in November 2020.

39. The contest that resulted was overtly adversarial and significantly lengthened the hearing and increased the costs both of trial preparation and submissions on both sides. The policy behind UCPR, r 31.52 is to reduce the costs of litigation by the Court appointing a single expert.

40. In addition to the information available to Basil from Dr Deacon’s report when it was served on him, Basil made a considered decision to seek to be excepted from that general policy behind UCPR, r 31.52. From that time, it can also be said that Apolonia was the cause of at least the expert contest in this litigation.

41. But when the available content of Dr Deacon’s report is taken into account in the circumstances then known to Basil, Apolonia cannot be considered after 1 April 2021 to be the cause of the wider contest, beyond the expert contest. This is not a finding based on mere hindsight. The Court’s findings show what Basil must have known on 1 April 2021, when he decided to continue this litigation after the receipt of Dr Deacon’s report.

42. Basil submits that applying Robb J’s observations in Colegrove v Dullaghan (No 2) [2016] NSWSC 1236, it was reasonable for him to continue to propound the Change of Will document after April 2021, because Apolonia was the cause of the contest that has resulted in this litigation. But the reasons Basil advances for this submission are not persuasive.

43. First, Basil submits that the question whether Apolonia had capacity was always to be decided by the Court by considering many matters other than expert reports and that there were many other evidentiary issues which it was reasonable for him to contest.

44. This argument is not persuasive. The expert anaesthetic evidence was the core of the case and occupied a very considerable part of the first judgment: from [143] to [221]. But the other matters that the Court had regard to in its final consideration of the issues of Apolonia’s testamentary capacity and knowledge and approval of the Change of Will document (first judgment at [241] to [269]) were well within Basil’s knowledge, either from the time of the Change of Will document itself, or from the affidavit evidence adduced before the making of the offer of compromise. Prominent examples of these in relation to the Change of Will document that featured in the first judgment were the following: the absence of legal advice for the Change of Will document, Apolonia’s lack of preplanning, the anomalies in the Change of Will document, the speed of Apolonia’s decision, Apolonia’s existing affectionate and close relationship with Zina, and Apolonia’s lack of memory of the change of Will document. The last two of these were matters which Basil refused to recognise throughout the trial and on which he adduced contrary evidence. But the Court can assess the reasonableness of Basil’s conduct of the proceedings now by judging Basil as always having been aware of the true facts that the Court has found must have been within his knowledge before April 2021.

45. Second, Basil submits that Dr Deacon was supplied with the affidavits of Drs Perera, Dinh and Mendis, but he made no reference to their evidence or to their observations of the Apolonia in his report.

46. This argument is not persuasive. Dr Deacon omitting to refer to some of the evidence does not justify an all-issues contest on the facts. A mechanism exists in UCPR, r 31.50 for this kind of problem to be resolved in a conciliatory non-adversarial way.

47. UCPR, r 31.50 answers another of Basil’s submissions. Basil contends that although the instructions given to Dr Deacon set out the legal test for capacity to make a will, his report does not refer to that legal standard and his conclusions are not expressed in terms of the legal test for will-making capacity. If this really was Basil’s issue with the court-appointed expert’s report he could easily have made an application under UCPR, r 31.50, rather than contesting the expert evidence by adducing countervailing expert evidence requiring three experts to be called.

48. Third, Basil submits that Dr Deacon, as an anaesthetist, is not qualified to give an expert opinion on a person’s cognitive function, whether by reference to that person’s age or state of health otherwise. But that is not persuasive. Dr Deacon’s expertise is judging the effects of anaesthetic agents on persons of different ages and in different states of health.

49. Fourth, Basil submits that the affidavit evidence of Drs Perera, Dinh, Mendis and Tejas showed that, to their observation, the deceased was not exhibiting any signs or symptoms of loss of cognitive function in the critical time when the Change of Will document was executed. But the Court found in the first judgment (at [183]) on the evidence of those doctors that they did not attempt to make any positive enquiries about Apolonia’s mental state and were ill-equipped to do so. This was obvious on the evidence and did not require to be resolved at a contested hearing. Moreover, had Basil sought to ask Dr Deacon under UCPR, r 31.50, about the consistency between the observations of Drs Perera, Dinh, Mendis and Tejas and Dr Deacon’s opinion, he is likely to have said to the Court, as he did in evidence, that it could be inferred that Apolonia had impaired cognition without positive evidence of her behaviour that pointed to that conclusion: first judgment at [178].

50. Fifth, Basil argues that Dr Sanders in his report came to a different conclusion than that stated by Dr Deacon. But this argument is circular. It already assumes that it was a reasonable course to open an adversarial hearing by adducing further expert evidence from Dr Sanders, rather than limiting the contest to clarification of Dr Deacon’s report under UCPR, r 31.50.

51. Sixth, Basil’s submissions criticise Dr Deacon for offering an opinion about the ultimate question of testamentary capacity, leaving aside the question of whether he applied the right test. But as the Court’s principal judgment shows, Dr Deacon had answered the fundamental questions within his expertise which asked him about the effect of various anaesthetic agents upon Apolonia. He offered some opinions about Apolonia’s actual testamentary capacity, perhaps giving a view about the ultimate issue in this case. But it was clear from his report overall that such opinions were really observations about the effect of various anaesthetic agents upon Apolonia’s capacity. But even if they are to be characterised as opinions about the ultimate issue, it should have been quite clear to both sides in these proceedings that such opinions would never have been binding on the Court and that his report would always have been used for the limited purpose of assessing the effects of the various anaesthetic agents on Apolonia at the relevant time, not to decide the ultimate issue. Once again if this was a troubling issue UCPR, r 31.50 was available.

31. The correct inference in all the circumstances here is that despite receiving Dr Deacon’s comprehensive report Basil wanted to keep maintaining the validity of the Change of Will document, and he judged that he would have had a better chance of success with another expert. He wanted to get another opinion so he could continue to advance that case in the face of the evidence. The situation that resulted from this decision was not caused in any way by Apolonia but by Basil himself. The first exception does not apply after 1 April 2021.

32. The Application of the Second Exception. Zina’s case concedes the application of the second exception and that there was a reasonable case to investigate the circumstances surrounding the making of the Change of Will document and that Basil should bear his own costs but only up until 28 March 2021 when Dr Deacon’s report become available, and her case maintains the normal rule that costs follow the event would apply thereafter.

33. But the Court’s reasoning on the first exception shows that it applies up to 1 April 2021, not the second exception. After that date it was perhaps arguable by Basil that he should pay his own costs based on the second exception.

34. But Zina’s argument is somewhat more persuasive as to what happens after 1 April 2021. The Court’s reasoning above shows that Basil could have utilised UCPR, r 31.50 to put to rest any queries that he had about Dr Deacon’s report and should have done so. But it would have taken time for him to have taken this course; longer than was available during the term of the offer of compromise or the Calderbank letter. It may have taken him up to another few months. Basil’s continuation of the proceedings after he had an opportunity (which he did not take) to explore any queries he had about Dr Deacon’s report was unreasonable. Once his continuation became unreasonable, even the second exception could not arguably apply, and Basil should pay Zina’s costs on the ordinary basis. The date on which his continuation of the proceedings became unreasonable can be fixed at 10 August 2021, the date that upon his application, the Court allowed him to engage an alternative expert, without first properly exploring his stated issues with Dr Deacon’s opinion.

35. The Offer of Compromise and Calderbank letter. Kunc J explained in Brady (at [44]) that there is no reason why a Calderbank letter should not be taken into account in probate litigation. I agree with Kunc J’s observations in Brady (at [44]) that the public interest behind Calderbank offers and offers of compromise in encouraging the settlement of destructive litigation is of greater force in probate cases between family members.

36. Zina has obtained a result in the proceedings which is no less favourable than each of the offers she made.

37. Had Basil accepted the offer of compromise, he would have been entitled to receive his costs out of the estate on the indemnity basis for the whole of the proceedings. This was a genuine compromise. Basil would not have been entitled to an indemnity out of the estate even if the Change of Will document were valid: the plaintiff’s appointment as executor remained unaffected by the Change of Will document.

38. Had Basil accepted the Calderbank Offer, he would have received 52% of the net value of estate, rather than 50% as he will receive under Apolonia’s 2005 will in 2009 codicil.

39. It follows from an application of UCPR, r 42.14 that Basil should pay Zina’s costs of the proceedings on the indemnity basis from 1 April 2021, unless the Court should “order otherwise” within UCPR, r 42.14.

40. But the Court’s reasons above (at [55]) show why the Court should “order otherwise”. Basil was ill-equipped to consider and accept the offer of compromise, until he had an opportunity to explore by clarification under UCPR, r 31.50 any queries that he had with Dr Deacon’s report.

41. Given this conclusion, it is not necessary for the Court also to consider the Calderbank letter. But were it called upon to do so, the Court would have concluded for the same reasons, that Basil’s rejection of the Calderbank offer was not unreasonable.

42. Thus, the result will be that Basil should play Zina’s costs of the proceedings on the ordinary basis after 10 August 2021. Those costs will include the costs of this costs argument. There will be no order as to costs between 1 April and 10 August 2022.

43. Zina’s Costs as Executrix. Zina, the executrix of Apolonia’s 2005 will, retains her right indemnity out of the estate in relation to this contest: Hodges at 709. This enables her to be fully indemnified for any shortfall from costs paid by the defendant and the Court will so order.

Conclusions and Orders

65. For these reasons the Court makes the following orders and notation:

1. Order that the plaintiff’s and the defendant’s costs of the proceedings up to 1 April 2021 be paid out of the estate of the late Apolonia Czerwaniw, with the defendant’s costs being paid on the ordinary basis and the plaintiff’s costs being paid on the indemnity basis as is provided for by order (4) hereof;

2. Order that the defendant pay the plaintiff’s costs of these proceedings on and from 10 August 2021 on the ordinary basis;

3. Note that there will be no order as to costs between the plaintiff and the defendant for the period between 1 April and 10 August 2021 to the intent that the defendant will bear his own costs of that period;

4. Order that the all the plaintiff’s costs of these proceedings, including in respect of any costs not otherwise recovered from the defendant, be paid out of the estate on the indemnity basis; and

5. Order that these costs orders against the defendant may be recovered out of his share of the estate.

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Amendments

01 November 2022 - appearances: coversheet

Decision last updated: 01 November 2022