Giunti v Cavallaro

[2004] NSWCA 62

CITATION:	Giunti & Ors v Cavallaro [2004] NSWCA 62
HEARING DATE(S):	9 February 2004
JUDGMENT DATE:	8 April 2004
JUDGMENT OF:	Sheller JA at 1; Giles JA at 25; Santow J at 58
DECISION:	(1) Extend time for filing application for leave to appeal up to and including the date of filing of the summons for leave to appeal; (2) Leave to appeal granted; (3) Appeal upheld; (4) Set aside the order for costs made by Barrett J on 27 September 2002 and in lieu thereof order the opponent to pay the claimant's costs of the proceedings; (5) The opponent to pay the claimants' costs of the application for leave to appeal and the appeal but to have a certificate under the Suitors' Fund Act 1951 if so qualified.
CATCHWORDS:	Costs - order that defendant pay plaintiff's costs of proceedings - extension of time to apply for leave to appeal - communication through defendant's Italian lawyer - inference that significance of costs and of time for leave to appeal not appreciated - no evidence of prejudice - extension granted - leave granted - whether error in principle in costs order - error found in failure to pay sufficient regard to plaintiff's conduct in bringing about the need for the proceedings and in generating their length and complexity - analogy with testator's conduct in generating dispute over proof of will - different costs order made. D
CASES CITED:	Re Bardon v Florence; Shekelton v Bardon (Holland J, Supreme Court of NSW, 15 December 1983); Donald Campbell & Co v Pollak [1927] AC 732; Re Cutcliffe's Estate; Le Duc v Veness [1959] P 6; Gronow v Gronow (1979) 144 CLR 513; House v The King (1936) 55 CLR 499; Latoudis v Casey (1990) 170 CLR 534; Maiden v Maiden (1908) 7 CLR 727; In the Will of Millar (1908) VLR 682; New South Wales Ministerial Corporation v Edkins (1998) 45 NSWLR 8; Oshlack v Richmond River Council (1998) 193 CLR 72; Spiers v English [1907] P 122; Wentworth v Rogers (No 3) (1986) 6 NSWLR 642.
PARTIES :	Santa Giunti, Leopoldo Antonino Giunti, Pietra Alfia Gounti - Claimants Angelina Cavallaro - Opponent
FILE NUMBER(S):	CA 40428/03
COUNSEL:	C J Bevan - Claimants M R Aldridge SC & P N Khandhar - Opponent
SOLICITORS:	Turner Freeman - Claimants Anderson Lawyers - Opponents

LOWER COURTJURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	ED 1532/01
LOWER COURT JUDICIAL OFFICER :	Barrett J

CA 40428/03
ED 1532/01

SHELLER JA
GILES JA
SANTOW JA

8 April 2004

GIUNTI & ORS v CAVALLARO

Judgment

1 SHELLER JA: I have had the benefit of reading in draft the reasons for judgment of Giles JA.

2 The claimants on this application for leave to appeal are the children of the late Agatina Giunti, an Italian resident, who died on 24 January 2000 in Mascali, Italy, intestate. The opponent is a sister of the deceased. Another sister was Iolana Calderone. By summons, filed on 22 February 2001, the opponent began proceedings in the Equity Division to restrain Pompeo Joseph Egisto, the administrator of the deceased’s estate, who had obtained Letters of Administration in New South Wales on 13 February 2001, from disbursing or otherwise dealing with the sum of $233,774.42 under his control as administrator. A declaration was sought that the administrator held that sum on trust for the opponent.

3 On 20 June 2001, the opponent filed a statement of claim which explained her claim to the sum of $233,774.42. This amount, the deceased’s only asset in Australia, was the balance of monies held in a term deposit account which had been opened on 9 February 1987, in the name of the deceased, by the deposit of a cheque for $8,000 drawn in the deceased’s favour by Iolana Calderone. Thereafter, between 1997 and August 2000, the opponent deposited into the term deposit account twenty-two amounts totalling $165,700. It appears that these amounts were deposited without the knowledge of the deceased. The opponent asserted that she was solely entitled to the whole of the monies in the term deposit account.

4 On 5 December 2001, the statement of claim was amended to add the claimants as defendants. Declarations were sought together with an order that the defendants forthwith pay the balance in the deposit account to the opponent. The administrator played no active part in the proceedings. On 19 February 2002, the claimants filed a defence which, after extensive pleading, asserted that the administrator held that part of the term deposit, which did not include the amount of $8,000, standing to the credit of the term deposit as at 14 July 1995 and interest accrued on that amount since that date, in trust for the estates of the opponent’s and deceased’s parents. The reasons for and the details of this claim are immaterial for present purposes.

5 On 28 February 2002, Mr Ian John Cheney, a solicitor at Turner Freeman, the claimants’ solicitors, swore an affidavit in which he referred to his difficulty in obtaining instructions because:

· none of the claimants spoke the English language at all; they all lived in Mascali, a small town in Italy, which the attorney in Italy, who was advising them and through whom Mr Cheney was taking his instruction, visited only periodically;

· the only person competent to translate relevant legal documents in the proceedings from English into the appropriate dialect of the Italian language which the claimants understood was located in Messina, which was some distance from Mascali, and

· the only notary public competent to witness documents signed by them for the purposes of conducting the proceedings also resided in Messina.

6 In his judgment of 6 March 2002, Barrett J said that basically the claimants made no claim to any beneficial interest in the deposit fund and conceded that it belonged to the opponent or perhaps her and her sister, Iolana Calderone. That seems to have been conceded in Mr Cheney’s affidavit of 28 February 2002. The claimants did, however, have concerns about the exposure they might have, as beneficiaries in the estate of their late father, to claims by the Commissioner of Taxation upon the funds. No income tax had been paid on the interest earned by the term deposit account. Accordingly, the claimants sought leave to file a cross-claim and to forward the pleadings and affidavits in the proceedings to the Commissioner of Taxation. The main relief sought in the cross-claim, which was filed on 1 March 2002, was a declaration that the administrator held the term deposit in trust for the opponent “but subject to the due payment in full of any claim or claims made or to be made upon it by the Deputy Commissioner of Taxation at Sydney or the Commissioner of Taxation of the Commonwealth of Australia.”

7 His Honour observed:

“There are claims for ancillary relief, the aim of which is to ensure that the funds are not paid out to the [opponent] until all taxation claims have been resolved. The [opponent] says, by contrast, that now that the [claimants] acknowledge the [opponent’s] right to the funds, there is no longer any contest and the [opponent] is entitled to summary judgment.”

8 On 6 March 2002 there were three notices of motion before the Court; the claimants’ notice of motion for leave to file a cross-claim and two notices of motion by the opponent, one for summary judgment and the other for security for costs. The opponent’s notice of motion for summary judgment was dismissed. On the opponent’s notice of motion for security for costs against the claimants his Honour said:

“I really regard the [claimants] as playing a facilitating role in sorting out the Australian estate of their deceased father. It is desirable that they continue, unimpeded, in that role and although they are resident in another country, it is not necessary nor appropriate that they be required to give security for costs. This is not one of the rare cases in which security should be ordered against the defendant. The application for security for costs is therefore also dismissed.”

His Honour said that on costs he thought the appropriate order was that the costs of “the two” (sic? three) interlocutory applications by way of notice of motion be costs in the cause and he so ordered.

9 One would have hoped that after this decision the parties would await some response from the Commissioner of Taxation and avoid incurring further costs. That was not to be.

10 On 14 March 2002, Turner Freeman wrote to a senior legal officer of the Australian Taxation Office referring to the proceedings and Barrett J’s orders of 6 March 2002 giving leave to the claimants to forward to the ATO with the letter all pleadings and affidavits filed in the proceedings and seeking a written determination of two issues:

“(a) Whether the Deputy Commissioner or any other Officer of the Australian Taxation Office now has, or intends to make, any claim upon the Commonwealth Bank Term Deposit held by the first defendant as executor [sic] of the estate of the late Agatino Giunti (‘the Term Deposit’) or any part of the Term Deposit or any other asset of the said state; and
(b) If so, what are the terms and conditions on which the Deputy Commissioner or any other relevant Officer of the Australian Taxation Office is prepared to release to the first defendant, as executor [sic] of the estate of the late Agatino Giunti, from all personal liability to account to the Australian Taxation Office for the Term Deposit or for any other assets of the estate of the late Agatino Giunti in the event that any claim made or proposed to be made by the Deputy Commissioner or any other relevant Officer of the Australian Taxation Office against the Term Deposit or any part of it is ultimately successful.”

11 It was apparent from Mr Cheney’s affidavit of 19 April 2002 that no response had been received to that letter by that date.

12 On 8 April 2002, the opponent’s solicitors wrote to the Australian Taxation Office requesting a private ruling. In doing so, they enclosed the affidavit material before Justice Barrett together with a copy of his decision of 6 March 2002 and noted that the claimants “through their solicitor, Turner Freeman, have approached the Australian Taxation Office for a private ruling in relation to the potential effect of any tax liability upon the first defendant and themselves”. They pointed out that the claimants had conceded that the money was the opponent’s. They requested a private ruling “as to how you will assess the money held in the account (held previously in the name of Agatino Giunti and now held in the estate of the late Agatino Giunti).” The letter continued:

“The court based upon the consent of the second defendants should now rule that the monies are beneficially owned by our client. If this is the case, please advise how the income earned will be dealt with by the Australian Taxation Office …

Based upon the information enclosed herein and based upon our understanding that a declaration will be made by the Supreme Court that our client is the beneficial owner of the said monies, we seek a ruling as to how the money will be treated in relation to her income tax.”

13 The proceedings were set down for hearing on 23 and 24 April 2002. On 23 April, the claimants filed a notice of motion seeking to have the hearing vacated because the position of the Australian Taxation Office had not been ascertained. The opponent opposed that course. Barrett J acceded to it and ordered that the costs be costs in the cause. On 30 April, the opponent filed a defence to the cross-claim in which she said that “since the claimants had conceded her entitlement to the money they had no standing to seek the relief in the cross-claim.”

14 The proceedings came again before the court on 14 August 2002. By that date, the taxation position had been clarified by a ruling, which required the opponent to pay tax for past periods on income generated by the deposit account in the deceased’s name plus interest on that tax. As Barrett J observed in his judgment of 27 September 2002:

“The possibility of some claim by the Commissioner of Taxation upon the estate which might have rebounded upon the claimants was thereby laid to rest.”

In substance the result was that the opponent was entitled to the funds in the deposit account and an order that they be paid to her by the administrator. The remaining question was costs.

15 In para 7 of his judgment of 27 September 2002 Barrett J said that there was some substance in the [claimants’] contentions that the actions of the deceased and the opponent combined to obscure the true position as to the ownership of the funds and that it was necessary for the claimants to take steps to ensure that they were not left with an exposure to tax liability.

16 His Honour said that the fact remained that the taxation concerns were satisfactorily resolved by the opponent herself, once the claimants had flagged the issue of their possible tax exposure. In fact what had happened was that first the claimants’ solicitors, Turner Freeman, and then the opponent sought private tax rulings. This happened only after the claimants, despite the opponent’s opposition, obtained leave to send the pleadings and affidavits to the Australian Taxation Office. Further, before this leave was obtained, the opponent unsuccessfully attempted to obtain summary judgment and security for costs. In short, the opponent’s attitude was one of forensic obstruction.

17 His Honour acknowledged that the situation was created in the first place by the deceased and the opponent. More correctly the situation was created by the opponent depositing her money in the deceased’s account without his knowledge and hence his authority. No reason was advanced by the opponent for doing this. Obviously the opponent wished to earn interest on her money. She did not disclose this income for income tax purposes. Since the account was not in her name presumably her evasion of income tax passed without notice. The problems in administering the deceased’s estate in terms of whether the money in the account belonged to the estate and in terms of the failure to disclose the interest earned to the Commissioner of Taxation were entirely of the opponent’s making.

18 It was also obvious from the concession made in February 2002 that once tax advice was received the proceedings, as to the ownership of the term deposit account funds, would be resolved in favour of the opponent. Even so, applications which failed continued to be filed and, fruitlessly, the opponent resisted adjournments to allow the taxation matter to be clarified. All this was unreasonable, unnecessary and no doubt costly.

19 In the event Barrett J ordered that the costs of the opponent, assessed on the party/party basis, should be paid by the claimants. His Honour said:

“6 Beyond that, the principle that costs follow the event would say that the costs of the plaintiff should be paid by the second defendants, they being the real parties to a dispute which was eventually resolved in the plaintiff’s favour. The plaintiff presses for an order for costs against the second defendants or their solicitors. The possibility of an order against the solicitors is raised because, it is said, there was never any substance in the defence and, in particular, the second defendants’ actions in delaying matters to have the tax position (and, in particular, their own lack of tax exposure) clarified by assessment or ruling was unnecessary. That, to my mind, puts things too high. I do not regard the solicitors’ conduct as warranting any such course.
7 The second defendants resist an order for costs. They do so essentially on the basis that actions of the deceased and the plaintiff combined to obscure the true position as to the ownership of the funds and that it was necessary for them to take steps to ensure that they were not left with an exposure to tax liability. There is some substance in the second defendants’ contentions but the fact remains that the taxation concerns were satisfactorily resolved by the plaintiff herself, once the second defendants had flagged the issue of their possible tax exposure.”

20 The claimants seek leave to appeal out of time from Barrett J’s decision against them on costs. For the reasons that Giles JA has given, an extension of time to make this application should, in my opinion, be granted.

21 A successful party in proceedings has a reasonable expectation of obtaining an order for the payment of its costs by the other party; Pt 52A, rule 11 of the Supreme Court Rules; Donald Campbell & Co v Pollak [1927] AC 732 at 811-2. The discretion to refuse to make the order should not be exercised against the successful party except for a reason directly connected with the conduct of the proceedings; Latoudis v Casey (1990) 170 CLR 534 at 566. The awarding of costs is a discretionary matter and an appeal court will not intervene unless error is demonstrated; House v The King (1936) 55 CLR 499 at 505. It is important to note that in considering whether, what might be described as the normal rule, should apply, it is the conduct of the successful party and not the conduct or motives of the unsuccessful party, which is relevant to the exercise of the costs discretion; Oshlack v Richmond River Council (1998) 193 CLR 72 at 102. The following matters are material to the question of costs:

· The opponent had, during the period from 10 January 1997 to 4 August 2000, paid $165,700 of her own money into a term deposit account not in her own name but in that of the deceased. During that period the account had earned interest which, although the opponent claimed the fund was hers, she had not disclosed for income tax purposes. This unexplained and unauthorised conduct with its income tax consequences created the problems which the proceedings were instituted to solve.

· Because the opponent deposited these monies into the term deposit account in the name of the deceased and the payments had been made without his knowledge, it was not unreasonable for the claimants to believe that the funds were part of his estate with an obvious consequence in terms of the failure to disclose the interest earned to the Commissioner of Taxation.

· To resolve the consequences of the opponent depositing her own money in an account in the deceased’s name and failing to disclose the interest payments to the Commissioner of Taxation, the claimants played a facilitating role in sorting out the Australian estate of the deceased in the proceedings.

· The opponent began the proceedings against the administrator in February 2001 and joined the claimants as defendants in December 2001. By February 2002, it had been made plain that the claimants sought no more than that they or the estate should be protected from having to pay default income tax consequent upon the opponent’s failure to make returns on a fund which belonged to the opponent.

· Despite this, in March 2002 the opponent resisted the necessary material being placed before the Commissioner of Taxation to consider the question of taxation liability and, unavailingly, sought summary judgment and security for costs. It was only as a result of the claimants’ insistence that material be placed before the Commissioner and the appropriate private ruling obtained. Even so, the opponent, again unavailingly, sought to force the proceedings on in April when the ruling of the Commissioner was still awaited.

22 In my opinion, and with due respect, Barrett J did not give any or sufficient attention or weight to the conduct of the successful opponent. The opponent by placing her own money into a term deposit account in her father’s name, by not returning the interest earned for income tax purposes and by refusing, initially, to assist in sorting out the resultant problem, herself brought about the need for the proceedings to be instituted and generated the complexity and prolongation of those proceedings and the consequent increase in the costs of the proceedings. His Honour’s error enables the Court to review the costs order made. In my opinion, the costs order resulted in manifest injustice to the claimants; compare New South Wales Insurance Ministerial Corporation v Edkins (1998) 45 NSWLR 8 at 12E.

23 The problem of a potential tax liability being wrongly and unjustly thrust upon the claimants, the need for the opponent to bring proceedings and the complexity and expense of those proceedings were of the opponent’s making, principally by her failure, in due time, to disclose to the Commissioner of Taxation the interest earned on the term deposit account in the deceased’s name, but also by her subsequent attempts to frustrate the claimants’ obtaining a ruling. That being the case, the order awarding the costs of the proceedings to the opponent should be set aside and in lieu thereof the opponent ordered to pay the claimants’ costs of the proceedings.

24 I would propose the following orders:

1. Extend the time for filing the application for leave to appeal up to and including the date of filing of the summons for leave to appeal;
2. Leave to appeal granted;
3. Appeal upheld;
4. Set aside the order for costs made by Barrett J on 27 September 2002 and in lieu thereof order the opponent to pay the claimants’ costs of the proceedings;
5. The opponent to pay the claimants’ costs of the application for leave to appeal and the appeal but to have a certificate under the Suitors’ Fund Act 1951 if so qualified.

25 GILES JA: The claimants were the second defendants in proceedings in the Equity Division. The opponent was the plaintiff in the proceedings. Orders disposing of the proceedings were made on 27 September 2002. They included an order that the claimants pay the costs of the opponent of and incidental to the proceedings. The claimants wish to appeal against that order, and seek an extension of the time within which they can apply for leave to appeal and leave to appeal. There has been a full hearing as if on appeal, so that if the extension of time and leave to appeal be obtained the appeal can be determined without a further hearing.

26 During a visit to Australia in 1987 Mr Agatino Giunti, a resident of Italy, opened a deposit account with the Commonwealth Bank in Sydney into which he paid some money to be used for the care of his elderly mother, then residing in Australia. The opponent, who was Mr Giunti’s sister and also resided in Australia, was authorised to operate on the account.

27 The mother died in about 1995. Mr Giunti died in January 2000. The claimants had not been aware of the account, but became aware of it. On the surface the money then in the account was to go to the claimants, children of Mr Giunti residing in Italy, he having died intestate. In order that the money could be dealt with it was necessary that letters of administration be obtained in this State, and on 13 February 2001 a grant of letters of administration was obtained by Mr Pompeo Egisto, a Sydney solicitor, as attorney for the claimants.

28 On 22 February 2001 the opponent commenced the proceedings in the Equity Division, claiming that the money in the account was hers and seeking interlocutory restraint upon Mr Egisto dealing with the money. Mr Egisto was the sole defendant. The opponent’s case was that, unknown to Mr Giunti and the claimants, she had deposited money of her own into the account over many years, including after the death of Mr Giunti, and that she was entitled to all the money in the account.

29 Mr Egisto immediately filed a submitting appearance and purported to interplead, and declined actively to participate in the proceedings. The claimants protested that he was not protecting their interests, but he still declined actively to participate. On the claimants’ application, on 20 June 2001 an order was made that they be joined as the second defendants.

30 Pleadings had been ordered, and also on 20 June 2001 the opponent filed a statement of claim, still with Mr Egisto as the sole defendant. The claimants were not immediately joined as the second defendants, and it seems for a time took steps to be substituted as administrators. In August 2001 they provided the opponent with a draft defence, subject to their substitution, in which they denied the opponent’s claim. In the result there was no substitution, and the claimants were joined as second defendants by an amended statement of claim filed on 5 December 2001. They filed a defence to the amended statement of claim on 19 February 2002, in which they continued to deny the opponent’s entitlement to the money in the account.

31 However, on 22 February 2002 the claimants’ counsel stated at a directions hearing that they made no claim to the money in the account, and on 1 March 2002 the claimants filed a cross-claim in which, although repeating by incorporation the contents of their defence, they claimed a declaration that the money in the account was held in trust for the opponent “but subject to the due payment in full of any claim or claims made or to be made upon it” by the Australian Taxation Office. Other relief was claimed to the effect that Mr Egisto could not pay the money to the opponent until any claims of the Australian Taxation Office had been ascertained and met and the claimants had been released by the Australian Taxation Office from any personal liability in relation to the money. The claimants sought that the costs of the notice of motion be costs in the cause.

32 The cross-claim was filed without leave, and also on 1 March 2002 the claimants filed a notice of motion in which they sought leave to file the cross-claim against the opponent, together with leave to send to the Australian Taxation Office the pleadings and affidavits and to deal with that Office to ascertain what taxation liability, if any, would be asserted in relation to the money in the account. The opponent opposed the notice of motion, which was heard on 6 March 2002. The claimants asserted exposure to indemnifying Mr Egisto if a tax liability on his part were raised and it exceeded the amount of money held in the account or he had paid the money to the opponent. The opponent replied that the claimants could have no obligation to indemnify Mr Egisto if the money in the account was not theirs, and that the tax liability in relation to her money was none of their business.

33 For reasons which he gave, the judge considered that the claimants’ concerns were “not so devoid of merit that [the claimants] should be deprived of the opportunity they seek to see the matters of concern to them appropriately tested and ventilated in the course of these proceedings”, observing that as the account holder Mr Giunti would at first sight have had any tax liability “thus enlivening the concerns of … [the claimants]”. His Honour allowed the cross-claim to be filed, and made orders permitting the communication with the Australian Taxation Office. A notice of motion filed by the opponent claiming summary judgment was also before the judge on 6 March 2002, which he consequentially dismissed.

34 Before the judge as well was a notice of motion filed by the opponent seeking security for costs from the claimants, as to which the judge said -

“On the plaintiff’s application for security for costs against the second defendants, I say that I really regard the second defendants as playing a facilitating role in sorting out the Australian estate of their deceased father. It is desirable that they continue, unimpeded, in that role and although they are resident in another country, it is not necessary nor appropriate that they be required to give security for costs. This is not one of the rare cases in which security should be ordered against the defendant. The application for security for costs is therefore also dismissed.”

35 His Honour ordered that the costs of “the two interlocutory applications by way of notice of motion” be costs in the cause. Presumably he meant all three notices of motion.

36 The proceedings were set down for hearing on 23 and 24 April 2002. By a notice of motion filed on 23 April 2002 the claimants sought that the hearing be vacated because the position of the Australian Taxation Office had not been ascertained. The opponent opposed that course. For reasons which he gave, the judge acceded to it. He ordered that the costs of that day be costs in the cause.

37 On 30 April 2002 the opponent filed a defence to the cross-claim in which she said that, having conceded her entitlement to the money, the claimants had no standing to seek the relief in the cross-claim.

38 The proceedings came before the judge on 14 August 2002. There was evidence that the claimants had sent the pleadings and affidavits to the Australian Taxation Office on 12 March 2002, that the opponent had herself made disclosure to that office by applying for a Private Binding Ruling on 8 April 2002, and that ultimately the opponent had been assessed for additional tax. In his reasons delivered on 27 September 2002 the judge noted that the taxation position “has been clarified by rulings and assessments received by [the opponent] following by submission by her to the Australian Taxation Office of relevant facts and matters”, and that the opponent had been required to pay tax for past periods on income on the money in the bank account, plus interest. The judge said that “[t]he possibility of some claim by the Commissioner of Taxation upon the estate which might have rebounded upon [the claimants] was thereby laid to rest”.

39 Without dissent, his Honour made orders that the opponent was entitled to the money in the account and that the money should be paid to her by Mr Egisto. The reasons were otherwise concerned with costs.

40 The judge said as to Mr Egisto’s costs -

“5 The administrator entered a submitting appearance except as to costs and, despite suggestions by the plaintiff to the contrary, I do not think that the administrator resiled from that position by becoming an active party to the dispute. The administrator should be awarded costs on the indemnity basis, particularly in light of his essentially custodial and passive role. In the ordinary course, those costs would come out of the residue of the estate but this, of course, is not the ordinary course because it has emerged that the deceased was in essence a bare trustee for the plaintiff. Since all the funds will pass to the plaintiff (who was the beneficial owner all along) and it is she who has ultimately benefited from the role taken by the administrator, his costs, assessed on the indemnity basis, should be paid by the plaintiff and the convenient course, in the circumstances, is to order that those costs be paid out of the funds in his hands.”

41 As to costs as between the opponent and the claimants, the judge continued -

6. Beyond that, the principle that costs follow the event would say that the costs of the plaintiff should be paid by the second defendants, they being the real parties to a dispute which was eventually resolved in the plaintiff’s favour. The plaintiff presses for an order for costs against the second defendants or their solicitors. The possibility of an order against the solicitors is raised because, it is said, there was never any substance in the defence and, in particular, the second defendants' actions in delaying matters to have the tax position (and, in particular, their own lack of tax exposure) clarified by assessment or ruling was unnecessary. That, to my mind, puts things too high. I do not regard the solicitors' conduct as warranting any such course.
7. The second defendants resist an order for costs. They do so essentially on the basis that actions of the deceased and the plaintiff combined to obscure the true position as to the ownership of the funds and that it was necessary for them to take steps to ensure that they were not left with an exposure to tax liability. There is some substance in the second defendants’ contentions but the fact remains that the taxation concerns were satisfactorily resolved by the plaintiff herself, once the second defendants had flagged the issue of their possible tax exposure.
8. In all the circumstances, I consider the appropriate outcome to be that the costs of the plaintiff, assessed on the party and party basis, should be paid by the second defendants.”

Extension of time

42 The claimants’ solicitor received instructions through the claimants’ lawyer in Italy, Mr Raffaele Arena. On 30 September 2002 the solicitor sent the judgment of 27 September 2003 to Mr Arena, with advice that the costs order was erroneous in principle, and asked whether an appeal should be filed. He said that the costs “are likely to exceed $20,000” and that any application for leave to appeal must be filed within twenty-eight days. He did not elaborate on the need for leave to appeal or the importance of the stipulated period.

43 The claimants’ solicitor received no response. On 16 October 2002 he filed a holding summons for leave to appeal, although without instructions to do so. He wrote “several further letters seeking instructions”, the detail of which was not a matter of evidence. Still he received no response. The time for filing the summons for leave to appeal expired on 16 January 2003. A summons was not filed.

44 By a letter dated 10 April 2003 from her solicitors the opponent then served on the claimants in Italy a bill of costs and documents relating to assessment of costs. The bill of costs was not in evidence, but we were informed by agreement that the costs claimed were of the order of $96,000.

45 On 25 April 2003 Mr Arena wrote to the claimants’ solicitor about an appeal, in terms not disclosed in the evidence. He was told that it was too late to appeal “without special leave of the Court”. Mr Arena’s reply of 28 April 2003, which included that the costs were “very huge and unthinkable for our law system”, was taken as instructions to apply for an extension of time and leave to appeal. The summons for leave to appeal was filed on 21 May 2003, accompanied by the application for an extension of time.

46 There was much contention over explanation of the delay, in particular so far as the explanation relied on difficulties of communication with the claimants in Italy and their preoccupation with the eruption of Mt Etna in the vicinity of the village in which they reside. More important, in my opinion, were Mr Arena’s astonishment at the costs and the statement in an explanatory letter provided by the claimants in August 2003, as translated that in the judgment “the amounts that we were to pay [the opponent] were not laid down as it normally happens in Italian judgments” and “[i]n any case, it was unthinkable for us that the costs could be such a high sum of money as the one requested from us afterwards by Mr Anderson, the solicitor, in April 2003”.

47 Had the significance of the letters indicating the need for leave to appeal and the stipulated period been appreciated, the evidence suggested that the lines of communication would have permitted a timely response to the letters from the claimants’ solicitor to Mr Arena. The eruption of Mt Etna on 22 October 2002 must have distracted the claimants, but again if the significance of the letters had been appreciated it could not explain the prolonged absence of response. In my opinion, it is a proper inference from the reaction in Italy to the bill of costs that neither Mr Arena nor the claimants had appreciated the monetary impact of the costs order or the importance of leave to appeal and the time for applying for leave to appeal. It was only with the prospect of costs of $96,000 that their minds were concentrated on the order and on an appeal.

48 I do not think that, as submitted by the opponent, the claimants decided not to appeal and then changed their minds. My inference is that they paid insufficient attention to the matter, perhaps in the beginning distracted by the eruption, until they were galvanised by the magnitude of the costs in the bill of costs. No doubt it can be said that they should have been more attentive, but it would be unrealistic not to recognise that Mr Arena and the claimants are accustomed to a different legal system and to insist on the understanding of potential costs and the attention to our procedural rules which is in other circumstances required. Importantly, there was no evidence of prejudice to the opponent from the four months delay from 16 January 2003 to 21 May 2003. In all the circumstances, I would grant the extension of time.

Leave to appeal and appeal

49 Costs being discretionary, it was necessary that the claimants establish an error of principle, meaning an error of the kind described in House v The King (1936) 55 CLR 499 at 504-5. This was common ground, and need not be elaborated.

50 The claimants’ submissions contended for error of principle essentially in two respects.

51 The claimants pointed to the order that Mr Egisto’s costs be paid out of the money in the account and to the judge’s observation, in relation to the application for security for costs, that he regarded the claimants as “playing a facilitating role in sorting out the Australian estate of their deceased father”. They submitted that there was error of principle in that the judge departed without justification from this view of their role, which they said should have brought an order similar to that in favour of Mr Egisto because they were doing what he should have done as administrator. They said that in any event it was erroneous in principle to treat them as ordinary disputants with the opponent, and that, in line with the judge’s observation last mentioned, their costs should have been paid out of the money in the account because the proceedings had been made necessary by the conduct of Mr Giunti and the opponent in the creation and misuse of the account and they were entitled to step into the shoes of Mr Egisto and protect their interests in the manner they had. They said that the judge’s response, in para 7 of his reasons, to their argument to that effect was itself erroneous, because it was not correct to say that the claimants’ taxation concerns were resolved by the opponent herself when it was the claimants’ stance which had forced her to make disclosure to the Australian Taxation Office.

52 The claimants further submitted that the judge had erred in principle by awarding costs in accordance with the “event” of resolution of the proceedings in the opponent’s favour. They said that there was relevantly no dispute that the opponent was entitled to the money in the account, and that the only matters truly litigated were whether the claimants should be permitted to bring their cross-claim and communicate with the Australian Taxation Office and whether the grant of substantive relief to the opponent should be deferred accordingly. The claimants said that in determining costs by regard to the ultimate resolution of the proceedings in the opponent’s favour, and not the intermediate resolutions of those matters in the claimants’ favour, the judge acted on irrelevant and failed to act on relevant considerations. The true “event”, they said, was their success on the matters truly litigated and in forcing the disclosure which laid to rest their exposure to indemnifying Mr Egisto.

53 The judge said that there was “some substance in [the claimants’] contentions”, as summarised by his Honour being rather focussed upon the role of the claimants but comprehending that the “event” of resolution of the proceedings in the opponent’s favour was not the correct criterion for awarding costs. But Mr Egisto received costs only for acting in a “custodial and passive role”, and the claimants were in a very different position. They actively opposed the opponent’s entitlement, in their own interests, at first wholly and later conditionally. What told against the claimants’ contentions, in his Honour’s view, was what he said about resolution of the taxation concerns. What did he mean by this?

54 The opponent had brought proceedings claiming to be entitled to the money in the account. The claimants had opposed that entitlement from the beginning. They had applied to be joined as defendants, and had filed a defence opposing it. The claimants’ position had then changed, to one of conditional concession of the opponent’s entitlement. Whether the claimants were justified in their indemnity concerns and in insisting on the condition was not determined, the judge’s ruling on 6 March 2002 being only that they should have the opportunity to have their concerns “appropriately tested and ventilated in the course of these proceedings”. Their concerns were shown to be ill-founded when disclosure to the Australian Taxation Office brought a tax liability of the opponent, not of Mr Egisto (or the claimants). In saying that the taxation concerns “were satisfactorily resolved by the plaintiff herself, once the second defendants had flagged the issue of their possible tax exposure”, in my view the judge’s point was that the claimants’ concerns, once raised, had been shown to be ill-founded; it was not that the resolution of the concerns had been by voluntary act of the opponent rather than because the opponent had been forced to make disclosure.

55 While the judge’s reasons are brief, I consider that he saw the litigation as the opponent being required to bring the proceedings in order to establish her entitlement, and taking steps, once the condition was raised by the claimants, which showed that the condition was not well founded. It was open to the judge to see the litigation in this way, as “a dispute which was eventually resolved in [the opponent’s] favour” (judgment para 6), and to see the interlocutory skirmishes on which the claimants succeeded as incidents in the opponent ultimately achieving her goal of establishing, contrary to the claimants’ position, her unfettered entitlement to the money in the account. The claimants’ were acting in their own interests, notwithstanding what the judge had said at an earlier time about playing a facilitating role in the different context of providing security for costs. Other judges might have made a different order, but I do not think error of principle has been shown.

56 As a subsidiary matter, the claimants’ submitted that they should not have been ordered to pay the opponent’s costs so far as incurred prior to their joinder as defendants. By their application to be joined as defendants in order to oppose the opponent’s claim, they made themselves liable for those costs if it were appropriate that a costs order be made against them.

57 Error of principle not having been shown, in my opinion leave to appeal should be refused. The claimants should pay the opponent’s costs of the summons.

58 SANTOW JA: I have had the benefit of reading, in draft, the judgments of Sheller JA and Giles JA. This obviates the necessity for me to set out the relevant facts in any detail.

59 The central issue is whether, constrained by the strictures upon appellate intervention in a matter classically one of practice and procedure, this Court should nonetheless substitute a different costs order from that imposed by the trial judge, Barrett J.

60 Nearly a century ago Isaacs J in Maiden v Maiden (1908) 7 CLR 727 anticipated the stringent approach to reviewing cost orders. Nonetheless he recognised that, exceptionally, appellate intervention can be justified where the cost order proceeds on an erroneous view of the law or a misapprehension of the facts:

“As to costs, it is clear that the discretion of the primary tribunal cannot be interfered with so long as it is not caused by an erroneous view of the law or a misapprehension of the facts. In the present instance there was either one or the other, perhaps both. The order is materially varied, and the matter of costs is open to this Court.” (at 742)

61 To that basis of review may be added failure to take into account relevant considerations or taking into account irrelevant ones, or where the result is plainly unreasonable or unjust; see, for example, Gronow v Gronow (1979) 144 CLR 513.

62 Certainly, as was said by Kirby P in Wentworth v Rogers (No. 3) (1986) 6 NSWLR 642 at 644:

“…it is normally necessary for a claimant for such leave to show something more than that the appeal court would, if exercising its discretion afresh, have come to a conclusion different to that reached by the trial judge. Some error of principle in the exercise of the discretion, a consideration of irrelevant matters or some other manifest mistake is needed to take the case out of the ordinary situation in which, wherever a discretion is to be exercised, minds may differ on the result …”

63 The relevant consideration of which account should have properly been taken was that the opponent had, during the period from 10 January 1997 to 4 August 2000, paid $165,700 into a term deposit account not in her own name but in that of the deceased’s; whether, as she claimed, without the deceased’s knowledge or not, but in any event for the support of the deceased’s mother. Moreover, this had been done during that period without any taxation return of the interest earned on that deposit in circumstances where, although the opponent claimed the fund was her’s, she had never disclosed it for income tax purposes. Whether that was deliberate or inadvertent it is not necessary to decide; one is presumed to know the law in so basic a matter as declaring income for tax purposes.

64 The claimants acted entirely reasonably, faced with this deposit apparently owned by the deceased, in first believing that the funds were part of the estate; that had an obvious consequence of tax liability from failure to declare the interest earned. They acted equally reasonably when satisfied that the monies belonged to the opponent, in requiring by way of a cross-claim, relief in the form of the following declaration. It was to the effect that the administrator held the term deposit in trust for the opponent “but subject to the due payment in full of any claim or claims made or to be made upon it by the Deputy Commissioner of Taxation at Sydney or the Commissioner of Taxation of the Commonwealth of Australia.”

65 Moreover, there was no suggestion in the reasoning of the trial judge that that position was other than entirely reasonable for the claimants to take.

66 As Sheller JA explains, both the claimants and the opponent then approached the Australian Taxation Office requesting a private ruling. That duplication was unfortunate but not such as to lead to an order denying costs to either party. Some co-operation in the matter would have avoided this. However, at [7] in the judgment of Barrett J of 27 September 2002 the following is concluded concerning costs:

“[7] The second defendants resist an order for costs. They do so essentially on the basis that actions of the deceased and the plaintiff combined to obscure the true position as to the ownership of the funds and that it was necessary for them to take steps to ensure that they were not left with an exposure to tax liability. There is some substance in the second defendants’ contentions but the fact remains that the taxation concerns were satisfactorily resolved by the plaintiff herself, once the second defendants had flagged the issue of their possible tax exposure.”

67 With due respect, the fact that the taxation concerns were satisfactorily resolved by the opponent is an irrelevant consideration. This is when regard is had to the fact that the taxation concerns only arose because the opponent had failed to declare the income in the first place. It had required the claimants to flag the issue of that possible tax exposure before the opponent, wanting her money, set about getting the ruling that should never have been needed in the first place, had tax had been paid as it should have been.

68 While as Barrett J observed, “the possibility of some claim by the Commissioner of Taxation upon the estate which might have rebounded upon the claimants was thereby laid to rest”, that should not be read as meaning that the claimants were acting entirely in their own interests to advance their position. Rather they were seeking proper protection against a tax liability that was never their’s in the first place, though they had a legitimate fear that it might have been attributed to the claimants or the estate, absent such a ruling. By February 2002, as Sheller JA points out, it had been made plain that the claimants sought no more than that they or the estate should be protected from having to pay default income tax, consequent upon the opponent’s failure to lodge tax returns on a fund which was her’s, though that ownership was hidden in the deceased’s name.

69 There is an analogy here between the position that applies with probate suits. It is conveniently set out in Re Bardon v Florence; Shekelton v Bardon (Holland J, Supreme Court of NSW, 15 December 1983, unreported):

(1) In a probate suit costs are discretionary. There are no inflexible rules, although there are general principles that act as guides to the exercise of discretion in the ordinary run of cases.

(2) The general principle is that costs of the litigation ought to follow the event. But there are considerations that arise in probate cases that are not common to other jurisdictions and lead to two exceptions. Those considerations arise out of the public interest in having the court exercise the function of investigating, where there are grounds for questioning it, the execution of an alleged Will and the capacity of the deceased to make it. This is so as to enable the court to answer and declare what the true will of the testator was.

(3) The two main exceptions to this general principle are:

(i) if a person who makes a Will or is interested in residue, has by his or her conduct caused the litigation to occur, then the costs of a party unsuccessfully contesting the Will may be ordered out of the estate.

(ii) if the circumstances reasonably called for an investigation to be made before the court could properly pronounce in favour of the Will, then a contesting party who fails, ought not to be required to pay costs and, as has been, in some of the cases, left to bear merely his or her own costs; (Spiers v English [1907] P 122; Re Cutcliffe’s Estate; Le Duc v Veness [1959] P 6). There is however also the alternative that costs in this context should be allowed out of the estate (In the Will of Millar (1908) VLR 682).”

70 Though the analogy is not perfect there is here a comparable case to the person who gets his costs for putting the validity of a will to proof, where its validity is genuinely doubtful where that doubt is by reason of the testator’s own deficiencies. Though the validity of the will be ultimately upheld it may well be proper to award costs to the challenger, and particularly if the challenge ceases when it is clear enough that the will is valid. Here the case is even stronger. The administrator took no active role in the intestate estate to ascertain the true position regarding the deposit, and its ownership. Therefore the claimants properly did. That they needed to do so was the result of the opponent’s own failure. It has not been shown that the claimants could have performed that necessary role in a way which would have obviated the costs incurred. Nor that they persevered beyond the point where ownership in the opponent was established and their position reasonably protected against a tax liability reasonably apprehended until the private ruling dispelled that fear.

71 In these circumstances, the principle that costs follow the event would produce and did produce in the trial judge’s orders a manifestly unjust result. The claimants were obliged to pay a very large sum for costs whose incurrence was a direct result of the opponent’s concealment of her ownership of the fund from the tax authorities. I agree, for the reasons stated more fully by Sheller JA, that the orders which should be substituted are those proposed by him whereby the opponent is to pay the claimants’ costs.

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Last Modified: 04/14/2004