Erlich v Fleiszig and Anor (No.2)
[2013] VSC 288
•31 May 2013
| Do Not Send for Reporting | ||
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION No. 00427 of 2011
IN THE MATTER OF Part IV of the Administration and Probate Act 1958
and
IN THE MATTER OF the Will and Estate of Rachel Anklewicz deceased
BETWEEN
| RONALD ERLICH | Plaintiff |
| v | |
| GABOR PAUL FLEISZIG | First Defendant |
| THE ADMINISTRATOR GENERAL OF ISRAEL, ON BEHALF OF THE STATE OF ISRAEL | Second Defendant |
---
JUDGE: | LANSDOWNE AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 5 March 2013 | |
DATE OF JUDGMENT: | 31 May 2013 | |
CASE MAY BE CITED AS: | Erlich v Fleiszig & Anor (No.2) | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 288 | |
---
COSTS – failed application for extension of time to make an application for further provision – whether the approach to costs in applications for provision applies to applications for extension of time – whether the plaintiff should pay the costs of a beneficiary as well as those of the executor – Court notice warning that two sets of costs may not be allowed - consideration of two Calderbank offers – Administration and Probate Act 1958 (Vic) ss 97(6) and (7)
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms U Stanisich | Robert Richter & Associates |
| For the First Defendant | Dr D Kovacs | Luis Peter Fleiszig |
| For the Second Defendant | Mr S L Tatarka | Arnold Bloch Leibler |
HER HONOUR:
Introduction
The plaintiff in these proceedings applied pursuant to s99 of the Administration and Probate Act 1958 (“the Act”) for an extension of time to make application for further provision from the estate of the late Rachel Anklewicz. In my reasons for judgment published 22 February 2013[1] I indicated I would dismiss the plaintiff’s application. These reasons concern costs applications made by the defendants following the publication of those reasons for judgment.
[1][2013] VSC 63
In short summary, the deceased was a Holocaust survivor who emigrated to Australia with her late husband after the Second World War, as did the plaintiff’s parents. The plaintiff’s natal family and the natal family of a Mrs Ruth Kayser were related to the deceased’s late husband, and were the only family members of the deceased or her husband in Australia. The deceased and her husband and the plaintiff’s parents were close friends and the plaintiff had a close relationship with the deceased as a child arising from those connections. As an adult the plaintiff provided assistance to the deceased, particularly in her later years.
By her last will the deceased left each of the plaintiff and Mrs Kayser a legacy of $20,000. She appointed the plaintiff and the first defendant, Mr Gabor Fleiszig, a solicitor, her executors. The plaintiff contended that by reason of his relationship with the deceased and his care for her, he was a person for whom she had a responsibility to make provision and the provision she did make was not adequate. He sought to make an application for further provision to the extent of one half of her estate. The estate was valued at $2,202,690.21 in the inventory attached to the grant of probate. The residuary beneficiary of the bulk of the estate is the State of Israel. The second defendant was joined by consent to represent the State of Israel by orders made 4 October 2011.
The plaintiff was out of time to make his Part IV application and accordingly sought an extension of time. I held that, although the delay in bringing his application was not especially long (5 and 1/2 months) his explanation for the delay was weak. Further, I was of the view that his case for further provision, if an extension to make it was granted, while not hopeless, was not strong. The application for extension of time was very vigorously contested, over three days of hearing with extensive cross examination of the plaintiff and other key witnesses, and detailed written submissions. I accepted that it was not appropriate at the stage of the extension application to make findings in relation to the issues to be determined at the substantive trial, but noted that although further evidence may be given at a substantive trial, if the extension was granted, “it would be difficult to overcome the weaknesses in the plaintiff’s case shown by the evidence in this application.” [2]
[2]Ibid, at [8].
I also found that the plaintiff had caused prejudice to the estate by using his position as co-executor to delay the sale of two residential properties, one or both of which he sought to obtain in specie if successful in his application for further provision, and that this prejudice would not necessarily be remediable by adjustment to an order for further provision if the extension was granted and the case proceeded. I concluded in summary that although no one of these factors was sufficient to lead to refusal of the application for extension of time, in combination they did so. I held that the plaintiff had not established that the overall justice of the case required the extension.
In relation to costs, the first defendant, the co-executor, seeks that the plaintiff pay his costs i.e. asserts that the executor’s costs should not be borne by the estate, and seeks that the plaintiff do so on an indemnity or solicitor/client basis.
The second defendant seeks that the plaintiff pay his costs on a party/party basis up to and including 30 August 2011 (or, in the alternative, 15 March 2012) and on an indemnity basis thereafter. The second defendant relies on Calderbank offers made by letters dated 30 August 2011 and 15 March 2012 in relation to the change in scale sought. The first defendant also relies on these offers.
The plaintiff does not seek any order in respect of his own costs. In relation to the applications made against him by the successful defendants, his counsel submits that costs do not necessarily follow the event in Part IV claims and in her written submissions submits that it would be appropriate for the plaintiff to bear his own costs and for the costs of the first defendant to be recovered from the estate. In the alternative, which alternative is adopted in the form of order handed up by the plaintiff, the plaintiff concedes that he should pay the costs of the proceeding of the first defendant, his co-executor, on a party/party basis, the first defendant to be reimbursed from the estate the difference between such costs and costs on a trustee basis.
The plaintiff entirely opposes the application of the second defendant, both as to liability and scale. The plaintiff’s form of order proposes that the second defendant’s costs be paid out of the estate. As the second defendant is the principal and residuary beneficiary this is equivalent to the second defendant bearing his own costs of the proceeding. The plaintiff asserts that the first defendant as executor was a sufficient contradictor and representative of the estate, and the plaintiff should not be liable for two sets of costs because the second defendant wished to be separately represented. The plaintiff also relies on the usual warning given as to two sets of costs in Part IV proceedings, where a beneficiary seeks to be joined as a defendant, which warning was also given in this case.
Issues
There are three sets of issues that arise as follows:
(1)The relevance, if any, of the conventional approach by the Court to costs in an application under s91 of the Act.
(2)Whether the plaintiff should be required to pay the costs of the second defendant as well as the first defendant, the executor of the estate.
(3) If the plaintiff is to pay some or all of the costs of the defendants, whether that should be on a higher scale having regard to the Calderbank offers, or otherwise.
Costs in Part IV applications
Applications for provision under s91
It is certainly the case that historically the Court has taken a view in relation to the award of costs following an unsuccessful application for further provision that differs from the usual approach taken in civil litigation. In Re Bull, deceased (No 2)[3] (“Re Bull ”) Byrne J contrasted the way the general discretion as to costs conferred on the Court by s 24 of the Supreme Court Act 1986 is usually applied (being that costs usually follow the event) with the determination of costs in an application for further provision. He noted that:
The fact is that, in applications under Part IV, orders for costs very often depart from the ordinary rule applicable in civil litigation. Defendant trustees are normally entitled to an indemnity in any event from the assets which they seek to protect. Even plaintiffs tend to be treated differently. If successful, they will often have their costs out of the estate on a solicitor and client basis; and this has become so common that it has been described as “the standard order”. Likewise the Court has shown a readiness in the case of an unsuccessful application to depart from the costs-follow-the-event rule which might otherwise obtain. In such a case, the Court may decline to make any order as to costs, leaving the unsuccessful plaintiff and the estate to bear their own… There have even been cases where an unsuccessful plaintiff has, nevertheless, obtained his or her costs from the estate.[4]
[3][2006] VSC 226
[4]Ibid, at [3]-[4], citations omitted.
Byrne J noted that the general discretion conferred by s 24 of the Supreme Court Act is expressed to be subject to specific provision otherwise in any Act or the Rules, and that there has been specific provision as to costs in the case of family provision applications since their earliest inception in 1906. The current provision is contained in s 97(6) of the Act as follows:
(6) Subject to subsection (7), the Court may make any order as to the costs of an application under section 91 that is, in the Court's opinion, just.
(7) If the Court is satisfied that an application for an order under section 91 has been made frivolously, vexatiously or with no reasonable prospect of success, the Court may order the costs of the application to be made against the applicant.
Byrne J considered s 97(6) to be legislative endorsement of the long line of authority as to the determination of costs in applications for family provision. He considered that the rationale for s 97(7) (which would not be necessary if the usual rule that costs followed the event applied) was that it did not i.e. because “in the ordinary course, an order for costs in family provision cases may not be made against a plaintiff simply because the application has failed”.[5] As can be seen, s 97(7) permits the Court to order an unsuccessful plaintiff in an application under s91 to pay the costs of the defendant, but only in the most extreme of cases. It would not, on the reasoning of Byrne J, have been necessary if a “just” order as required by s97(6) was intended usually to be that costs follow the event.
[5]Op cit, at [7].
Doubt on these propositions has been cast by some subsequent cases. In Forsyth v Sinclair (No 2)[6] the Court of Appeal made the general observation that:
We consider that it is a matter of concern that in many family provision cases the amount available for distribution among the competing beneficiaries is significantly reduced by legal costs. Parties should not assume that litigation can be pursued safe in the belief that costs will always be paid out of the estate. Every effort should be made to resolve the dispute before the costs get out of proportion.[7]
[6](2010) 28 VR 635, [2010] VSCA 195
[7]At {27], citation omitted.
The Court of Appeal made a similar observation in State Trustees Ltd v Bedford (as representative of the estate of Kim Whitehead, deceased) and Anor (No2)[8] (“Whitehead (No2)”). In each case, the case concerned an unsuccessful appeal by an executor, and so the comment was not specific to the costs of an unsuccessful plaintiff and may have been principally directed to assumptions made by executors, and, perhaps, even limited to appeals.
[8][2012] VSCA 319 at [26].
The law applicable to the costs of an unsuccessful plaintiff in a Part IV application was specifically considered by Gardiner AsJ in IMO Moerth (No 2)[9]. He considered a number of interstate authorities and Forsyth v Sinclair, although not Re Bull. He held that:
In my view, there is no basis for contending in this state that there is some special type of principle in applications under Part IV of the Act that an unsuccessful plaintiff will, as a starting point, be awarded their costs out of the estate.[10]
[9][2011] VSC 275
[10]Ibid at [26].
Gardiner AsJ then set out the policy reasons for this conclusion and further concluded in relation to the interrelationship between ss 97(6) and (7) that:
There will be cases where the claim will not meet (the s97(7)) characterisation but where it will be “just” that the unsuccessful claimant pay the costs of the estate…In the end, the question must be determined on a consideration of what is “just” in the circumstances of each particular case.[11]
[11]At [29] and [31].
In the case before him, he ordered that the unsuccessful plaintiff pay the costs of the estate, concluding that “I do not consider that there is any reason why the principle of costs following the event should be departed from in this instance”. He also concluded that the application fell within the categories expressed in s 97(7) in any event.[12]
[12]At [47] –[50].
Costs in an application to extend time
The cases setting out the principles discussed above did not concern applications for an extension of time under s99 of the Act. The parties have referred me to a number of s99 cases, in detail in argument and subsequently by way of table submitted by counsel for the plaintiff, a copy of which is annexed to these reasons. In the six cases there noted where the plaintiff was unsuccessful and a costs decision is recorded bar two, the plaintiff was ordered to pay the defendant executor’s costs.[13] In Fennessy v Fennessy[14] the defendant’s costs were ordered to be paid from the estate, but as the applicants were the residuary beneficiaries they in effect would bear the costs. In the other exception, DeAngelis v DeAngelis[15], the application was dismissed but on the basis that the claim was brought within time and costs were reserved. There is no suggestion in these cases that a special costs regime applies to applications for extension of time to bring a claim for further provision, even assuming such regime applies to such a claim itself.
[13]Henderson v Rowden [2001] VSC 267; Sherlock v Guest [1999] VSC 431; Neilson v Neilson BC 9801107; and Robinson v Kidman BC 9200659.
[14][2002] VSC 66
[15](2003) 7 VR 331
A more diverse range of costs orders is shown in the table in respect of s99 applications where the plaintiff was successful. There are instances of the successful applicant’s costs being paid out of the estate[16]; there are instances where the successful plaintiff was ordered to pay the defendant executor’s costs[17]; instances where the defendant recovered costs from the estate but the successful plaintiff was required to bear his or her own;[18] and one instance each where each party was required to bear his or her own costs[19] or costs were in the cause.[20]
[16]Yee v State Trustees [2010] VSC 645; Groser v Equity Trustees [2007] VSC 27
[17]McLeod v Troy [2002] VSC 187 and Troy v Pyers [2002] VSC 188; Beckmann v Shelton BC9701656
[18]Scammell v Colman [1999] VSC 111; Donehue v Thornton BC9803506 and Re Marland [1957] VR 338.
[19]Sweeney v Sweeney [2000] VSC 514
[20]Hancock v Thomas [1998] VSC 143
The better view, in my opinion, is that whatever the true effect of s97(6) and (7), the costs regime those provisions reflect or require does not apply to applications for extension of time under s99. This is for two reasons. First, those provisions on their face apply expressly to applications under s91 i.e. a claim for provision or further provision. They do not, on their face, apply to applications under s99.
Secondly, an application for extension of time seeks an indulgence. A successful applicant for an indulgence in general civil litigation would not routinely expect to be awarded costs, and may be required to pay the costs of the other side. The cases of successful applicants set out in the table may indicate that the Court has been more generous to successful applicants for this indulgence, than in general civil litigation, because of the availability of a fund or due to the nature of the case, or for other reasons. I express no view as to what may be an appropriate costs order in a successful s99 case. In the case of an unsuccessful application, however, such as this, I can see no warrant for departing from the approach taken in general civil litigation.
Counsel for the plaintiff submits that the impact of any costs order on the plaintiff, given his straitened financial circumstances, should be taken into account in determining whether or not to order that he pay costs. It may be that this is a factor to be considered in relation to the costs of an unsuccessful s91 claim. It is not, however, a factor usually considered relevant in general civil litigation, and I do not consider it relevant to a failed s99 claim.
Accordingly, I conclude that the plaintiff should pay the costs of the necessary defendant, his co-executor, the first defendant. The usual costs order in general civil litigation is that costs are paid on the then current lowest basis. At the time both the application for extension and the costs applications were heard, the lowest cost basis was party/party costs. The costs rules were changed as of 1 April 2013 to increase the lowest basis to “standard”, which is roughly the equivalent of what used to be called solicitor/client costs, but those changes are not retrospective.[21] It flows then from the approach I have taken, which is that the usual approach to costs applies, that, subject to special factors, the first defendant’s costs should be paid by the plaintiff on a party/party basis. I will consider shortly the special factors on which the first defendant relies, including the Calderbank offers, to justify an order that such costs be paid on a higher basis than party/party.
[21]Rule 63.90 Supreme Court (General Civil Procedure) Rules 2005
Payment of the costs of the second defendant as well as those of the first defendant
At the first directions hearing before Associate Justice Zammit on 16 August 2011 the Court made the usual orders for notification of the proceeding to the principal residuary beneficiary, the State of Israel, by way of notification to the Administrator General for the State of Israel, permitting him to seek leave to be joined as a defendant. Notice was required to be given by the plaintiff in the usual form. The usual form of notice, here given, refers to a claim for further provision, rather than the initial claim for extension of time (here made in the same originating motion) and contains the words:
Associate Justice (here Zammit) has authorised us to inform you that although legal costs incurred by a party to a proceeding of this type are usually allowed by the court out of the estate of the deceased, it is unlikely that more than one set of legal costs of separately represented parties with the same or a similar interest will be allowed.
The second defendant was subsequently joined as a defendant with the consent of the plaintiff, but the plaintiff says this is not enough to justify the unsuccessful plaintiff being required to pay the costs of the second defendant, as well as the executor. The plaintiff relies on the warning as to costs in the notice and says that these words should have alerted the second defendant to what counsel for the plaintiff described as the “usual rule” that unless the defendant executor has not, or cannot due to conflict, properly represented the interests of the beneficiaries, a beneficiary will not also be allowed costs.
I have not been referred to any authority where the form of the Court’s notice to beneficiaries is considered, but counsel for the plaintiff has referred me to a number of authorities to support the propositions on which she relies, and which are reflected in the notice. These general propositions are not questioned by the defendants. The thrust of these cases is summarised in the leading text, Wills Probate and Administration in Victoria[22] as follows:
The personal representative has a duty to uphold the will and it is not sufficient for the executor to stand back and merely inform the court as to the position of the estate. If the executor does his duty properly, the costs of separate representation for other beneficiaries may be saved: Re Klease [1972] QWN 44; Re Newell (dec’d) (1932) 49 WN (NSW) 181 (where it was said that the executor may be denied costs if he merely adopts a “submitting attitude”).
[22]Boaden et al, at [42,125].
In another Queensland case, Re Burton[23], the Court said that even where the executor was also a beneficiary it should not be necessary for him to have separate representation in that capacity, except where his duty as executor and his interest as beneficiary may conflict. Thus the emphasis is on the necessity for the executor to positively uphold the will, and that, if the executor does so, he or she will usually be a sufficient contradictor, except in case of conflict of interest. The Court form of notice reflects these principles in the statement that it is “unlikely” that more than one set of costs will be “allowed” (in the context, out of the estate) if the parties have the “same or a similar interest”. The notice refers to substantive proceedings for provision, not an application for extension, but it is not suggested the executor is under any different duty in an extension application.
[23][1958] QWN 27
Counsel for the plaintiff says that here the interests of the first and second defendants are similar if not identical; that the first defendant took an active role in defending the application and properly represented the estate and so the interests of beneficiaries, including the second defendant; and there are no special circumstances to justify two sets of costs. She also relies on the positive obligations imposed on parties by the Civil Procedure Act 2010 to conduct proceedings in a cost effective manner and to ensure that costs are reasonable and proportionate. Further, she asserts that if the second defendant wished to play an active role, then it would have been proper for the estate to take no active role to minimise the costs and avoid the duplication that has occurred.[24]
[24]Plaintiff’s Submissions as to Costs dated 5 March 2013 at [14]-[20].
I do not accept the plaintiff’s submission in its entirety. Certainly there was duplication in the cases of the first and second defendants. Both defendants cross examined the plaintiff and his mother, and their cross examination covered some of the same territory; and while only the first defendant called witnesses, the second defendant as well as the plaintiff cross examined both Mrs Kayser and Mr Fleiszig. How the Court was to approach assessment of the plaintiff’s substantive case was a major point of difference between the plaintiff and the defendants. I also requested submissions from the parties on the test for an arguable case, and the defendants took different approaches in relation to that issue, the second defendant taking the more aggressive stance, which was ultimately unsuccessful. Other than this difference and some other subtle differences in emphasis, however, their cases in submissions were essentially the same.
This is not, however, quite the same as saying that they had the same or similar interest. The plaintiff had made a personal attack on the first defendant, by asserting in his second affidavit that the first defendant had told him at the funeral of the deceased that he, the plaintiff, could not do anything about the absence of a bequest to him of an apartment. The first defendant denied this conversation in his affidavit in response, and made an attack on the actions of the plaintiff, as his co-executor, in delaying the sale of the real estate. The plaintiff retaliated by asserting under cross examination that the first defendant failed to properly advise him of the option of renting out the properties. The interests of the first defendant and the second defendant in resisting these attacks of the plaintiff were not the same. The first defendant’s interests were to both defend the will and his own actions as executor; the second defendant’s principal interest was to resist the claim so as to preserve the substantial bequest made to the State of Israel under the will but, depending how the evidence came out, the second defendant as a beneficiary may also have had an interest in considering a claim against the first defendant as executor for breach of duty.
In these circumstances, I do not consider it can be said that it was completely unnecessary for the second defendant to be joined and separately represented. As it transpired, the second defendant’s cross examination of Mr Fleiszig was brief, and more in the nature of supporting the first defendant’s case, rather than opposing it. I am unable to say on the information before me whether or not that approach had been determined before the trial, or was dependent on the evidence as given.
The plaintiff was unsuccessful in the attack he made on the first defendant arising from the conversation at the funeral, and his actions in obstructing the sale of the real estate, which was the substance of the first defendant’s attack on him, were influential in the dismissal of his application as a whole. I consider the second defendant should be compensated for at least some of his costs in relation to these matters, in respect of which separate representation was justified, and in respect of which the plaintiff was unsuccessful, by the plaintiff being ordered to pay some of his costs. As the second defendant represents the principal beneficiary, the alternative order that his costs be borne by the estate is equivalent to an order that the residuary beneficiary bear them itself.
I do not consider, however, that the whole of the second defendant’s costs should be borne by the plaintiff given the amount of duplication as between defendants. It is generally not practicable or cost effective to order costs by issue, as this requires the Costs Court, in the absence of agreement, to allocate steps taken to particular issues, which can be artificial and is certainly time consuming and so expensive. Generally it is preferable, where the whole of a party’s costs are not to be paid, to apportion the amount by percentage or fraction. I will take this approach.
I will order the plaintiff to pay a portion, being one third, of the second defendant’s costs, in addition to the first defendant’s costs. That proportion represents my best estimate of the relationship between the issues in respect of which separate representation was justified and the case as a whole.
Costs on a higher basis?
The parties’ contentions
Second defendant
The second defendant relied on two Calderbank offers made by the solicitors for the second defendant to the plaintiff by letter, the first dated 31 August 2011 and the second 15 March 2012.
The second defendant in his submissions says that it was unreasonable of the plaintiff to refuse each of these offers. The second defendant says that the plaintiff has done worse in the event than what was proposed in the first offer because the plaintiff concedes that in addition to being required to pay his own costs he should pay the first defendant’s costs on a party/party basis. The second defendant says that the plaintiff has done significantly worse than the second offer, which was more favourable to him, as that offer proposed both an increase in his legacy and payment of some or all of his legal costs.
The second defendant also seeks to rely on the Calderbank offers in the event the Court takes the view that there is, in applications to extend time, as well as in applications for further provision, a general rule that only one set of costs for defendants with the same or similar interest is allowed. The second defendant says that in this case that is displaced by the Calderbank offers. In the alternative, if only one set of costs is to be ordered, the second defendant seeks that those costs should be those of the second defendant. The second defendant concedes frankly that the second defendant’s costs exceed those of the first defendant.
First defendant
The first defendant also seeks that the plaintiff pay the first defendant’s costs on an indemnity basis or at least a solicitor /client basis. The first defendant concedes that he did not himself make a Calderbank offer but says he relied on the two offers made by the second defendant and that by unreasonably refusing those offers the plaintiff has put both defendants to the cost of the hearing. The first defendant submits that the protection afforded by the making of the Calderbank offers should be extended to the first defendant as well.
In addition to reliance on the Calderbank offers the first defendant makes the following additional submissions. The first defendant says that it was only the plaintiff’s assertion that Mr Fleiszig had told him at the funeral that he could not do anything about the will that “necessitated the trial” and that “(b)ut for that assertion the question of leave would have been determined on the affidavits in the Practice Court in the usual way and would have been heard in a few hours”.[25] Having regard to the findings I made in relation to this conversation, the first defendant asserts that the plaintiff’s evidence as to that conversation amounts to an allegation “which ought never to have been made” or led to the “undue prolongation of the case by groundless contentions” and so falls within a category of case established by Sheppard J in Colgate-Palmolive & Anor and Cussons Pty Ltd[26] (“Colgate-Palmolive”) as a basis for an award of indemnity costs.
[25]Submissions of the First Defendant on Costs at [2].
[26](1993) 46 FCR 225 at paragraph 24, sub-paragraph 5.
The first defendant further asserts that the plaintiff’s conduct in obstructing the sale of the two apartments is an additional factor that justifies the making of a special costs order in favour of the first defendant, because it amounted to “particular misconduct causing loss of time to the Court and to other parties” being a further class of circumstances which may justify an indemnity costs order in accordance with Colgate-Palmolive. The first defendant also relies on the refusal of the Calderbank offers as evidence of an “imprudent refusal of an offer to compromise”, being a further class of case that may justify an award of costs on a higher scale identified by Sheppard J.
Plaintiff
The plaintiff opposes the applications for costs on a higher basis. In particular, the plaintiff submits that it was not unreasonable for the plaintiff to reject the Calderbank offers, and that in any event the offers were made by the second defendant only i.e. neither offer could apply to the first defendant.
Discussion
I deal first with the first defendant’s contentions that the plaintiff’s conduct of the case falls within categories identified in Colgate-Palmolive as justifying a special costs order. I consider the assertion that the plaintiff’s obstruction of sale of the apartments falls within the misconduct category to be misconceived. “Misconduct” as identified in Colgate-Palmolive is misconduct in the conduct of the case, not in the circumstances leading to the proceeding. This is evident from the fact that in referring to “misconduct” as justifying a special costs order, Sheppard J adopted the comments of French J (as he then was) in Tetjo Holdings Pty Ltd v Keeprite Australia Pty Ltd who there referred to “litigious misconduct”.[27]
[27]Ibid, at [24] and [17].
Nor do I consider it can be said that the plaintiff’s contention as to what was said to him by the first defendant at the funeral of the deceased was an allegation that “ought never to have been made” or was “groundless”. He failed in relation to the contention, but failure by one party on a disputed issue is the necessary consequence of adversarial litigation- it does not necessarily mean, and in my view does not mean in this instance, that the failed contention falls into the grave category to occasion an award of costs on a higher basis. In any event, the plaintiff will already suffer a greater costs order than would otherwise be the case by reason of making that contention, because it is one reason why I consider that he should pay some of the second defendant’s costs.
Sheppard J did not discuss in Colgate-Palmolive the differences, if any, between an “imprudent refusal of an offer to compromise” and failure to accept a Calderbank offer. In this case, any distinction is immaterial as there were no offers other than those in the two letters discussed above, which were expressed to be Calderbank offers. I turn now to those letters.
Calderbank offers
The first letter from the solicitors for the second defendant to those of the plaintiff dated 31 August 2011 proposed that “each party walk away and bear their own costs to date”. It continues:
We are instructed that the defendant in the Proceeding, the other executor, would consent to orders dismissing the Proceeding and would agree that the Estate bear its own costs, were your client to accept our client’s offer and give full releases to the executor, in his own right and in right of the estate.
That is, although the offer was expressly put by the residuary beneficiary, who subsequently was represented by the second defendant, it was expressed to be with the consent of the first defendant. That offer was open for acceptance until 4 pm on 15 September 2011.
There is no reference to the first defendant in the second offer of 15 March 2012, by which time the residuary beneficiary had been joined as the second defendant. The offer put in that letter was the sum of $20,000 out of the residuary beneficiary’s share of the estate and all of the plaintiff’s legal costs on an indemnity basis up to a maximum of $20,000. These amounts were in addition to the plaintiff’s existing entitlement to $20,000 under the will. The offer was open for acceptance until 4 pm on Monday, 26 March 2012.
The consequence of non-acceptance was expressed in the first offer as follows:
If the matter proceeds to a hearing of your client’s request for an extension of time and that extension is denied, we will instruct the executor of the Estate to produce this letter on the question of costs and seek orders that your client pay the Estate’s costs of the Proceeding on an indemnity basis on the basis of Calderbank and Calderbank [1975] 3 All ER 333 and affirmed by the Victorian Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority [No.2] [2005] VSCA 298 and other decisions. (emphasis added)
It can be observed that the letter was conventionally expressed to ground an application for indemnity costs for the executor should the plaintiff fail in his application.
The consequence of non-acceptance of the second offer is expressed as follows:
If your client does not accept our client’s offer and the matter proceeds, we will produce this letter on the question of costs and seek orders that your client pay the defendants’ costs of the Proceeding, in accordance with the principles applied in Calderbank v Calderbank [1975] 3 All ER 333 and affirmed by the Victorian Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd and Victorian WorkCover Authority [No.2] [2005] VSCA 298 and other decisions, or at the very least, be required to bear his own costs. (emphasis added)
It can be observed that there is no explicit reference to indemnity costs in the second offer; the consequence of non acceptance is said to relate to both defendants, although the offer is put by the second defendant only and there is no other reference to the first defendant (as there is in the first letter); and the letter is not expressed to apply only if the plaintiff is less successful at judgment than the offer as put, but “if the matter proceeds” and so to ground not only an application for costs on the Calderbank basis (presumably in the event the plaintiff is less successful than the offer) but “at the very least” resistance to an order that the plaintiff recover his costs (presumably to apply if he is more successful).
The Court of Appeal in Whitehead (No 2) applied the usual Calderbank principles, as determined by the Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2)[28] (“Hazeldene”) to the question whether costs should be awarded on a higher than usual basis having regard to non acceptance of a Calderbank offer. The critical question is whether it was unreasonable of the plaintiff to refuse the offer, and in making that assessment the Court is required to have regard to the following:
[28](2005) 13 VR 435
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed to the offeree to consider the offer;
(c) the extent of the compromise offered;
(d) the offeree’s prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed;
(f)whether the offer foreshadowed an application for an indemnity costs in the event of the offeree’s rejecting it.[29]
[29]Whitehead (No 2), op cit, at [15] citing Hazeldene (2005) 13 VR 435, 442 [25]
The first offer was made shortly after the first directions hearing, at which directions had been made for the hearing of the application for extension of time and the plaintiff directed to notify the residuary beneficiary of the application and that it could seek to be joined. At the time of the offer the second defendant had not been joined to the proceedings but the residuary beneficiary which he represented would bear the burden of at least the first defendant’s costs, in the usual expectation that those costs would be paid from the estate. At the time of this first offer the only evidence filed was the plaintiff’s first affidavit which was largely in support of his substantive application for further provision. The letter of offer refers to a statement obtained from Ruth Kayser, who later became a witness for the first defendant, describing the statement as being exhibited to the plaintiff’s affidavit. It is conceded that this is incorrect. The statement is not annexed to the letter and the circumstances in which it was obtained (by whom, when and for what purpose) are unclear.
Critically, the plaintiff’s case in relation to the extension of time was not complete, as he had not yet filed[30] the affidavit containing his allegation that his delay could be explained by Mr Fleiszig telling him at the deceased’s funeral he could not challenge his bequest under her will. As a consequence, Mr Fleiszig had not yet responded to that allegation with his vigorous denial of it, nor made his own allegation that the plaintiff had obstructed the administration of the estate.
[30]The plaintiff’s second affidavit was sworn 1 September 2011 and so may well have been prepared by the date of receipt of the first offer, but was not filed when the offer was made and the allegations made therein are not referred to in the letter.
In these circumstances the plaintiff could only appraise the offer made on the basis of the criticism contained within the letter of his proposed substantive claim. Given that an applicant for extension of time need only establish an arguable substantive case when seeking extension, and that extension is to determined having regard to additional factors, at least being length of delay, explanation for delay and prejudice which had not yet been formally ventilated, I do not consider that the letter afforded the plaintiff a real basis for reassessing his prospects of success.
Further, the “offer” contained in the letter did not contain any financial benefit to the plaintiff other than relief from the possibility of having to pay the costs of the then single defendant, the co-executor, if the plaintiff was unsuccessful. The inducement may have been greater had the letter notified him that the Administrator General of Israel would seek to be joined as a defendant if the offer was not accepted, thus raising the possibility of two sets of costs if the plaintiff was unsuccessful, but it does not, and in terms refers to costs of the estate only.
Having regard to both the early stage of the proceedings at which the offer was received, and so limited degree to which the plaintiff could assess his prospects of success, and the limited extent of compromise offered I do not consider it was unreasonable for the plaintiff to refuse this offer.
At the time of the second offer dated 15 March 2012, by contrast, all the evidence subsequently relied upon, with the exception of one affidavit filed on behalf of the second defendant, had been filed. In fact, at the time of that offer the application for extension of time had been fixed for trial on 3 April 2012. Given that circumstance, the time given for acceptance, to Monday 26 March 2012, was in my view not unreasonable.
The second offer also contained a substantive financial inducement to the plaintiff, in the form of $20,000 additional to his existing bequest and his legal costs on an indemnity basis up to $20,000. This amount was very much less than the amount of further provision being sought by the plaintiff, but in my view it should have been evident to the plaintiff by this stage that his application for extension was hotly contested; that if unsuccessful he may be required to pay at least the executor’s costs, and possibly some of the second defendant’s costs as well as his own; and that given the vigorous nature of the contest, those costs could be substantial.
The trial date was subsequently adjourned, but not for reasons attributable to the parties. After the time for acceptance of this second offer expired, and close to the new trial date, the second defendant served an affidavit quantifying the loss to the estate said to have arisen from the plaintiff obstructing the sale of the two apartments.
The plaintiff says that the offer does not refer to the issue of prejudice which was raised and relied upon at the hearing of the application and became a significant issue in its determination. Further, the plaintiff says that this second offer was not sufficiently clear because it did not state that the executor had been consulted, and so whether or not the offer was conditional on his consent.
It is true that the second offer does not refer to prejudice to the estate as an issue telling against the plaintiff. Nor does it refer expressly to any inadequacy in the plaintiff’s explanation for delay (discussion with Mr Fleiszig at the funeral) or arising from his discussions with Mrs Kayser. It is a brief letter (in contrast to the earlier offer which canvassed the strength of the plaintiff’s substantive case in detail) which makes four assertions- that the application is “a contrivance to obtain a higher amount from the estate, after having considered various other possible ways of challenging the deceased’s will” (which may have been a reference to Mrs Kayser’s brief statement in her affidavit that the plaintiff told her he was thinking of challenging the will); that the plaintiff knew his rights before the expiration of the time limit and has “dragged his feet”; that the level of assistance given by the plaintiff to the deceased is “highly exaggerated”; and that the “purported close relationship” between the deceased and the plaintiff “is also exaggerated”. The stated conclusion is that “the deceased did not have an obligation to provide for your client. Your client simply feels entitled to more of the estate as compensation for the assistance he provided the deceased.”
Thus the letter makes some reference to the matters to be considered on an extension application in addition to the strength of the applicant’s substantive case, but the thrust is still on the plaintiff’s limited prospects of success in his substantive case for further provision. This was perhaps a reflection of the emphasis placed in the affidavits on that substantive case, although the questions of explanation for delay and loss to the estate from the plaintiff’s actions had also been addressed in the affidavits. The amount of loss to the estate had not been quantified by the time of this offer, as it was by the filing of the subsequent affidavit, but the allegation of obstruction had been made well before, in Mr Fleiszig’s affidavit of 10 October 2011. The letter of offer did not, however, focus on the extension issues. Its focus, as with the previous letter, remained on the claimed limitations of the plaintiff’s substantive case.
At trial on the extension application the second defendant also extensively canvassed the strength of the plaintiff’s substantive application, but the issues of delay, explanation and prejudice acquired, and appropriately so, a more significant emphasis than scrutiny of the affidavits alone might have suggested.
In failing to focus on the issues to be determined on an extension application, as opposed to a substantive application for further provision, the letter in my view missed its mark. The plaintiff must be presumed to know that he only had to establish an arguable substantive case at this stage, and although he must have known from the affidavits that the other extension issues were live ones, the letter would have given him limited guidance as to the emphasis to be placed on them by the second defendant. Further, the plaintiff’s explanation for delay and the question of obstruction really related to the first defendant, and the letter makes no reference to any consultation with the first defendant. Thus the plaintiff was not informed by the letter of the stance the first defendant took on these issues; whether the offer was made on behalf of both defendants; or even if the first defendant was aware of the offer (and determination of the proceedings could only be with the consent of the first defendant).
The letter also did not expressly flag an application for indemnity costs if the offer was rejected, and arguably lost clarity by seeking to cover too many possible outcomes. As discussed earlier, the reference to the plaintiff being required to bear his own costs was presumably in the event he was successful, and so that reference introduced a possibility of success into what is usually expressed as an offer based on the asserted likelihood of failure.
In summary, I do not consider that it was unreasonable for the plaintiff to refuse the second offer. The letter focused on one aspect only of the matters to be considered on an extension application, being the proposed substantive case for further provision, and did not really address the other issues to be considered. The plaintiff must be presumed to know of those issues, but would look to the offer to ascertain the second defendant’s stance in relation to them in assessing his prospects of success. Further, the letter was not clear as to how the offer was regarded by the first defendant and did not sufficiently elaborate how and in what circumstances it was to be relied upon if the offer was not accepted.
For these reasons I do not consider that refusal of the second offer should have any consequence in relation to either the first or the second defendant’s costs. It is not a basis for increasing the scale on which that portion of the second defendant’s costs the plaintiff will be required to pay are to be taxed and nor does it give any basis for increasing that proportion. I have determined the proportion of the second defendant’s costs the plaintiff is to pay having regard to the issues on which separate representation for the second defendant was justified, not having regard to either letter of offer.
In the circumstances it is not necessary to consider the second defendant’s contentions that the Calderbank letters afford a basis for departing from a general principle of one set of costs only, or that if the plaintiff is to pay only one set of costs those costs should be the second defendant’s. The contentions are, however, wrong in principle. I accept the plaintiff’s submissions that the Calderbank offers are significant only in relation to the scale of costs, not as to whether or not two sets of costs should be allowed. Further, I agree that it is not appropriate for the defendants to seek to select one set of costs, if only one is to be allowed, on the basis that those costs are the higher. The question as to whose costs should be allowed turns on who is the proper party and whether the plaintiff should bear the burden of those costs, not whose costs are the greater.
In relation to the impact of the Calderbank letters on the first defendant’s costs, the real issue to be determined arising from non acceptance of the offers is whether the difference between the first defendant’s costs on a party/party basis and on a solicitor/client or indemnity basis should be paid by the plaintiff or borne by the estate, which in practical terms means by the second defendant. Thus it is understandable that both offers were made by the second defendant, and in my view it is sufficient that both refer to the first defendant’s costs in setting out the consequences of non acceptance, to extend that consequence, if it is to apply, to the first defendant’s costs, as well as the second defendant’s costs. Any impact on the first defendant’s costs depends, however, on success of the argument for the second defendant. For the reasons given above, the second defendant has not persuaded me that the plaintiff’s non acceptance of either offer was unreasonable or should have any consequence in relation to costs.
Conclusions and orders
I will order the plaintiff to pay the first defendant’s costs of the proceeding and one third of the second defendant’s costs of the proceeding, each on a party/party basis. I will order that the first defendant be reimbursed from the estate of the deceased the difference between his costs on a party/party basis and his costs on a trustee basis. I will further order that the second defendant’s costs be otherwise paid out of the estate, if not agreed on a party/party basis.
2
12
0