Grynberg v Muller

[2002] NSWSC 350

CITATION:	Grynberg v Muller; Estate Late M Bilfeld [2002] NSWSC 350
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 119213/94
HEARING DATE(S):	28 August, 12 October, and 12, 13 & 15 November 2001, 4 - 8 February 2002
JUDGMENT DATE:	24 April 2002
PARTIES :	Robert Benjamin Grynberg & John Landerer (Ps) Stephen Muller (D1) Moriah War Memorial College Association (D2)
JUDGMENT OF:	Hamilton J

COUNSEL :	Dr C J Birch SC (Ps) J E Armfield (D1) M A Friedgut, Solicitor (D2)
SOLICITORS:	Milne Berry & Berger (Ps) Patterson Houen & Commins (D1) Freehills (D2)
CATCHWORDS:	PROCEDURE [488] [574] [601] [659] Judgments and orders - Amending, varying and setting aside - Consent judgment - Principles applicable - Relevance of interests of third party - Costs - Departing from the general rule - Order for costs on indemnity basis - Where party declines offer of settlement better than the result obtained - Whether there is presumption in favour of indemnity costs order - Other cases - Probate suit - Litigation caused by testator - Recovery of costs - Indemnity principle - Costs may not be ordered in favour of party who has incurred no liability to pay them.
CASES CITED:	Aghajanian v Stanley Thompson Valuers Pty Ltd [1999] NSWSC 1154 Bailey v Marinoff (1971) 125 CLR 529 Cachia v Hanes (1994) 179 CLR 403 Carlisle v Mullrai Pty Ltd (2000) 31 MVR 312 De L v Director-General, New South Wales Department of Community Services [No 2] (1997) 190 CLR 207 DJL v The Central Authority (2000) 201 CLR 226 Grynberg v Muller [2001] NSWSC 532 Grynberg v Muller [2002] NSWSC 51 Gundry v Sainsbury [1910] 1 KB 645 Hammond v Schofield [1891] 1 QB 453 Harvey v Phillips (1956) 95 CLR 235 Huddersfield Banking Company Limited v Henry Lister & Son Limited [1895] 2 Ch 273 Irving v Gagliardi (ex parte Gagliardi) No 2 (1895) 6 QLJ 200 John S Hayes & Associates Pty Ltd v Kimberley-Clarke Australia Pty Ltd (1994) 52 FCR 201 Johnson v Santa Teresa Housing Association (1992) 83 NTR 14 Latoudis v Casey (1990) 170 CLR 534 Logwon Pty Ltd v Warringah Shire Council (1993) 33 NSWLR 13 McLeod v Power [1898] 2 Ch 295 MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 235 Morris v Hanley [2001] NSWCA 374 Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 Ohn v Walton (1995) 36 NSWLR 77 Permanent Trustee Co (Canberra) Ltd v Stocks & Holdings (Canberra) Pty Ltd (1976) 28 FLR 195; 15 ACTR 45 Perpetual Trustee Company Ltd v Baker [1999] NSWCA 244 Pirrotta v Citibank Ltd (1998) 72 SASR 259 Quirk v Bawden (1992) FLR 115 Re The Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 Rosenberg v Percival (2001) 75 ALJR 735 SMEC Testing Services Pty Limited v Campbelltown City Council [2000] NSWCA 323 The Bellcairn (1885) 10 PD 162 TNT Bulkships Ltd v Hopkins (1989) 98 FLR 352 White v Nitis (nee Williams) NSWCA 17 July 1998 Powell JA unreported Foskett on Compromise (4th Ed, 1996) par 6-11
DECISION:	Application to set aside consent orders as to costs on settlement between plaintiffs and first defendant dismissed. Order that plaintiffs should have their costs of the proceedings against the second defendant out of the estate.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
PROBATE LIST

HAMILTON J

WEDNESDAY, 24 APRIL 2002

ESTATE OF THE LATE MALKE BILFELD

JUDGMENT

1 HIS HONOUR: The subject of this judgment is the costs of a hotly contested probate suit concerning a very large estate. The first aspect of the suit was settled and orders made by consent by Hodgson CJ in Eq (as his Honour then was) on 9 November 1998. The second aspect of the suit was tried by me and judgment delivered: Grynberg v Muller [2001] NSWSC 532 ("my judgment"). I use terms which were defined in my judgment in the same way in this judgment. There have now been a further eight days of evidence and argument before me concerning the costs of the suit. The length of this hearing has been occasioned by the necessity to take a deal of further evidence on this aspect of the matter, the fact that the hearing has included an application to set aside the costs order made by consent by Hodgson CJ in Eq, namely, that there be no order as to costs, and make an order concerning the costs of the first aspect of the suit, and the fact that there have been legal arguments to an extent unusual on applications concerning costs.

2 I shall attempt to refer to rather than repeat matters set out in my judgment, but it is necessary to give some background. The estate concerned is that of the late Malke Bilfeld who died on 18 January 1994. In her later years she was undoubtedly suffering from Alzheimer's disease and I have found that she was also suffering from paranoid delusions. She left extant a large number of wills which are particularised in a schedule to my judgment. Those with which this judgment will be principally concerned are the 1988 will, which was propounded in the first aspect of the suit but which all parties at the trial before me of the second aspect were agreed was made without testamentary capacity; the 1987 will, which was propounded by the plaintiffs at the trial before me but refused admission to probate; and the 1985 will, which was admitted by me to probate at the suit of the second defendant. The plaintiffs, Robert Grynberg and John Landerer, were the executors of the 1987 will. The first defendant, Stephen Muller, was the executor of the 1988 will, which he propounded by cross claim. These were the active participants in the first aspect of the suit. The second defendant, Moriah College, was not a party to the suit up to the time of settlement of the first aspect. The second aspect of the suit was conducted between the plaintiffs and the second defendant. To determine the matters before me, it is necessary to state a considerable number of facts which were, for the most part, not stated in my judgment nor before me at the trial.

3 The estate was at the testator's death worth about $7 million. It is now undoubtedly worth considerably more. Under the 1988 will it was distributed as to 30 per cent to Stephen Muller, 30 per cent to Mordecai Popovtzer, 30 per cent to Moriah College and 10 per cent to Rosie Matzner. Under the 1987 will, after minor legacies totalling less than $1 million, Moriah College took $1 million and Mordecai Popovtzer the residue. Under the 1985 will the principal difference from the 1987 provisions was that Mordecai Popovtzer took $350,000 and Moriah College took the residue. Mordecai Popovtzer lives in Jerusalem and, as a nephew of the testator, was one of her closest living relatives. At the end of her life he had taken her to Jerusalem to care for her and it was there that she died.

4 There is no doubt that the terms on which the plaintiffs conducted the suit were that Professor Popovtzer should pay the whole of their solicitors’ costs. There is dispute as to whether under the tripartite agreement as to costs between the plaintiffs, Professor Popovtzer and the solicitor the plaintiffs were also liable to the solicitor for the costs, but indemnified by Professor Popovtzer, or whether Professor Popovtzer was alone liable to the solicitor to the exclusion of the plaintiffs. The terms as to costs of the 1998 settlement of the first aspect of the suit were that there should be no order as to costs, and that was the order made by consent. The other provisions of those terms and that order will appear in due course.

5 The applications now before me are as follows. As to the first aspect of the suit, the plaintiffs and the first defendant join in asking me to set aside the order for costs made by consent. Both then ask me to order their costs out of the estate. The second defendant opposes the setting aside of the existing order. Although made in 1998 that order has not been entered. As to the second aspect, the plaintiffs, despite losing the suit, ask for an order for their costs out of the estate. The second defendant opposes this. As it has emphasised repeatedly, it does not ask for its costs against the plaintiffs (even though on some of its submissions it may be entitled to them), but it says that the plaintiffs ought be left to bear their own costs. As one of the grounds on which an order for costs in their favour was objected to was that the costs had been incurred and paid by Professor Popovtzer only, late in the day Professor Popovtzer sought to file a motion that, failing an order in the plaintiffs’ favour, costs be awarded out of the estate to him, as the person who in fact paid them, although he is not a party to the suit. The second defendant opposed the application for leave to file the motion, but I granted leave (Grynberg v Muller [2002] NSWSC 51). The second defendant opposes the motion. There are areas in which new facts need to be stated including the making of the agreement whereby Victor Berger acted as the plaintiffs’ solicitor, the circumstances surrounding the settlement of the first aspect of the suit and the part played by the second defendant in relation to the proceedings up to and at the time of that settlement. The second defendant also relies on offers it made to the plaintiffs in relation to the plaintiffs’ application for costs of the second aspect of the suit.

The Facts as to the Plaintiffs’ Solicitor's Engagement

6 Within days after the testator's death steps were taken in relation to her estate. On 20 January 1994 Professor Popovtzer sent a fax to John Landerer as follows:

"Dear Johnny

Thank you for the faxed will-testament of M. Bilfeld. At the first glance: 1) it was dated when M. Bilfeld was unable to speak or express he [sic] wishes 2) there is no certificate of a psychiatrist or evidence of her mental capacity to express her wishes (as opposes [sic] to the real will) 3) the signature is not her [sic] (I have her signatures in passports) 4) I believe that the will does not bind legally under these circumstaces [sic] 5) I authorise you to proceed with Mr Berger to contest the new 'document'

Warm Regards Mordecai"

7 On 21 January 1994 at 9 am there was a meeting in Victor Berger's office in Sydney between Mr Berger, Robert Grynberg and John Landerer. Mr Landerer later that day sent an aide memoire of that meeting to Mr Berger and Mr Grynberg. At that meeting Mr Landerer handed Mr Berger the original 1987 will and codicil and also a fax from Lee Wunderlich, solicitor for Stephen Muller, with the 1988 will. The differences between the wills were discussed. The aide memoire continues:

“5 Dr Popovtzer is very upset that he has been removed as the residuary beneficiary. He has written to John Landerer authorising the executors of the Will where he is named as residuary beneficiary to contest the Will of 9 December 1988. A copy of the letter dated 20 January 1994 written by Dr Popovtzer to JL was handed over to VB.

6 It was agreed that the sensible solution would be for all parties to get together and divide the estate up in a commercial manner.

7 The following things were agreed to be done:

……………

(d) VB would write to all the beneficiaries under the original Will and Codicil and advise them of what they were left and advising them further that there has been a subsequent Will and further advising them of the changes. Obviously in the case of Moriah College they should be advised that their position has substantially changed and they should be referred to Lee Wunderlich as to their position under the subsequent Will. They should be told their position under the original Will and Codicil;

(e) VB would write to Dr Popovtzer asking him for money to begin acting on his behalf and would advise him of the steps that are being taken.”

8 Victor Berger’s account of the conversation concerning costs is recorded only in indirect terms. It is included in an affidavit in which he deposed as follows:

“2 …… That conference included being informed of the Will of 9 December 1988 and being instructed to challenge such Will. The instructions further were to write to Professor Popovtzer and Mrs Popovtzer to say that we are so Instructed [sic] provided they paid all fees and disbursements. Both of the plaintiffs informed me that they were prepared to allow us to act in respect of challenging the said Will provided that this firm ensured that the plaintiffs were indemnified by Professor and Mrs Popovtzer and have no liability themselves for fees. I received a facsimile from John Landerer on 21 January 1994 which represented a summary or as called by him ‘Aide Memoir’ of the said conference.

……

5 Subsequent to the discussion with the plaintiffs on 21 January 1994, there have been many occasions where the plaintiffs individually remarked upon their being willing to allow me to act upon the instructions of Professor and Mrs Popovtzer provided that the plaintiffs were kept informed of the instructions received and advice given and were indemnified in respect of costs by Professor and Mrs Popovtzer. By this I include similar conversations since the citing of Moriah College in these proceedings.

6 In the course of these proceedings, that is since 1994, I have had approximately 2 or 3 occasions in addition to that described in clause 15 hereof to say to Professor Popovtzer in the presence of Mrs Popovtzer when they were giving me their views on certain issues words to the effect:-

‘I am the solicitor for the estate and not your solicitor. You should obtain independent legal advice if you disagree with what I as the lawyer for the estate am doing.’”

No objection was taken to this evidence by reason of the generality of its terms.

9 On 21 January 1994 Victor Berger wrote to Mordecai Popovtzer in Jerusalem stating that “John Landerer together with Robert Grynberg the executors of the Will of Mrs Bilfeld of 15 September 1986 have asked me to act” and promising to write further. On 24 January 1994 Victor Berger again wrote to Mordecai Popovtzer a letter including the following:

“John Landerer and Robert Grynberg as executors must act in the interest of the beneficiaries under the Will prepared by us. Hence, the need for us to know what each of such beneficiaries wishes to do against the more recent Will. Most important is the matter of John Landerer and Robert Grynberg being protected against costs and expenses arising from the circumstances which have arisen and the contesting of the more recent Will. Normally the beneficiaries wishing to contest provide the funds on account of such costs and expenses in proportions agreed between them. In this instance we would anticipate that the beneficiaries other than yourself may be disinclined to make other than a minor contribution if any. Unfortunately as you are the party most affected and substantially it is highly likely that you will be faced with funding of this matter. It is fairly usual that if there is a contest in respect of a Will

- the parties settle on;
- or the Court Orders that

- the costs and expenses of all parties to the contest are met from the estate that is something in the future; and not totally certain. Furthermore result [sic] can be that not the full amount incurred is payable by the estate. In these circumstances we have been asked to request of you that you provide us with funds on account of the costs and expenses that will be incurred in this matter and we ask you therefore to transmit the sum of $2000.00. Enclosed is a copy of the Costs Agreement we will be asking John Landerer and Robert Grynberg to sign in respect of our costs and expenses.”

10 The document forwarded with that letter was a single page document. Under the heading "Terms of Engagement" its first clause provided that the document contained the whole of the terms of engagement "between us" and proceeded with a further nine clauses making provision for the payment of costs and termination of the agreement. At the foot was a space for the name of the client above a space for signature. In the Terms of Engagement as sent the name of Mordecai Popovtzer had been typed as the name of the client before the despatch of the document. On 25 February 1994 Mordecai Popovtzer faxed the Terms of Engagement back signed by him. Despite the statement in the letter that the plaintiffs would be asked to sign the costs agreement, it seems clear that they never did sign the Terms of Engagement or any other costs agreement. There is no copy of the Terms of Engagement in which their names have been entered as names of clients. Equally, it is plain on the evidence that all subsequent memoranda of costs were directed by Victor Berger to Mordecai Popovtzer and paid by him.

The Facts as to the First Aspect of The Case: The Second Defendant’s Participation and the Settlement Negotiations

11 In response to correspondence from Victor Berger, the then President of the second defendant, Robert Goot, on 28 February 1994 wrote to Victor Berger as follows:

“In order that the College can properly consider its attitude to the enforcement of the terms of the Will and Codicil of 22nd July 1987 I would be grateful if you could let me have any documentary evidence to the effect that Mrs Bilfeld had testamentary capacity as at that date and, if available, as at 9 December 1988.”

On 15 April 1994 Victor Berger forwarded to Robert Goot "a copy of the report of Dr Neil Buhrich". However, this was only the short certificate dated 22 July 1987, not Dr Buhrich's more ample report dated 24 July 1987.

12 By 1995 Cowley Hearne, solicitors, were acting for the second defendant. On 11 May 1995 they asked Patterson Houen & Commins, solicitors for the first defendant, for the pleadings and were furnished with them. They asked for further information by letter dated 7 June 1995. A desultory correspondence continued until 26 March 1996 when they requested further documents, indicating what they held, which included the affidavit of Dr Neil Buhrich sworn 1 June 1995 and that of Victor Berger sworn 15 June 1995, both of which were subsequently used at the trial before me. Correspondence continued and the matter was fixed for trial from 10 to 28 February 1997, although this fixture was cancelled. Victor Berger informed Cowley Hearne of the fixture by letter dated 23 January 1997. That letter contained the following:

“The first discussions as to exploring settlement have just arisen and of course should the matter not be settled before the hearing there is always the possibility that there will be negotiations in the course of the hearing. We need to know whether in the event that the terms concluded are:

- the Will of 1986 and Codicil of 1987 are those to be propounded;

- Dr Muller receives a larger sum than that which they provided,

will your client accept the result. We would appreciate your prompt reply.”

Cowley Hearne replied on 14 April 1997 as follows:


“We have now been instructed by the College that the terms of a settlement outlined in your letter of 23 January 1997 would not be acceptable to it.

We have been instructed to advise you that if there are to be settlement discussions between the parties which will result in the Estate of Mrs Bilfeld being distributed differently to either the Will of 1986 (including its Codicil) or the Will of December 1988, our client would like to participate in such discussions.

Would you please advise what is now proposed.”

13 However, on 2 October 1997 Victor Berger wrote informing of another fixture commencing on 13 October 1997 (also subsequently cancelled) and stating:

“If you had wished to inform the Court of your interest in the matter, we would have thought you would have acted upon same already having regard to past exchanges between our respective firms and our clients of objection of [sic] any claim by your client you would have made some application to the Court previously.

In the event the matter is settled by negotiation between the parties to the proceedings it will be the basis [sic] of having no regard to your client's claim.”

14 Cowley Hearne responded on 8 October 1997:

“We refer to your facsimile transmission dated 2 October 1997.

We note that prior to the receipt of this facsimile we had not heard from you since your letter dated 6 May 1997 which undertook to revert to us ‘shortly’. Our clients have not, to date, sought to intervene in the proceedings between your client and the executor of the 1988 will. It is that executor's duty to maintain the validity of that will and we presume that in defending the proceedings commenced by your clients he is discharging that duty.

If, as your clients assert, the later will is affected by lack of capacity, then our clients will, like all of the other beneficiaries named in either of the wills, have to abide by the Court's decision.

If however the matter is to be settled by negotiation between the parties we would expect that both your clients and the defendant, being executors of wills in which our clients are beneficiaries would have regard to our clients' views. We cannot see how they could do this without at least consulting our clients.

We should make it perfectly clear to you that our clients will not abide a situation where their interest is sacrificed by the executors of the competing wills in order to further the interests of any of the executors.”

15 In May 1998 Cowley Hearne again asked for documentation beyond what they had. The list of what they had was the same as in March 1996. In June 1998 Cowley Hearne alone attended at a callover before the Registrar, leading to the matter being stood out of the list. They again complained of the non supply of documents. The matter was again fixed for trial commencing on 9 November 1998, shortly before which date there was an outbreak of settlement negotiations between the plaintiffs and the first defendant.

16 On 6 November 1998 the following correspondence was sent. Victor Berger wrote to Cowley Hearne:

“The parties to the above proceedings have all but reached agreement to settle their claims and at this stage it is expected that on Monday morning 9 December 1998 Dr Muller will consent to dismissal of his cross [sic] and to the making of the orders sought by Messrs Landerer and Grynberg that the 1986 Will and the 1987 Codicil be admitted to Probate in solemn form.

In the absence of agreement with your client as to the appropriate way to deal with the estate we intend to cite your client to see the proceedings in solemn form. We will adjourn the Application for that purpose. Your client is of course at liberty to seek to be joined if your client wishes to oppose the application. However, your client may wish to appear before Hodgson J on Monday morning 9 November 1998 and indicate the course your client wishes to take.”

Patterson Houen and Commins wrote to Cowley Hearne in generally similar terms. Cowley Hearne replied to Victor Berger:


“Based upon our various enquiries regarding proposed settlement of this matter in the past, we were of the impression that settlement was an unlikely prospect.

It was therefore with no little surprise that we learnt yesterday of the settlement discussions between the parties, being only 1 working day prior to the commencement of the hearing of the matter.

We understand from our attempts to discuss the matter with yourself and Mr Commins yesterday that settlement is imminent, although we note the refusal of both of you to appraise [sic] us of any detail.

Both parties to the proceedings have at all times been aware of the College's wish to be involved in any settlement discussions.

We are unable to adequately advise our clients as to whether they should acquiesce to [sic] or oppose the settlement, without full and frank disclosure of:

1. the current value and composition of the Estate;

2. the terms of the settlement, including:


(i) the orders proposed; and

(ii) the programme for the future administration and winding up of the Estate.

In the event that settlement is reached, our clients hold your clients (and the Defendant) responsible for any loss or further costs which may be incurred in our clients' implementation of the wishes of the late Mrs Bilfeld.”

Victor Berger responded, but did not vouchsafe any information as to the terms of the settlement.

17 The settlement agreement entered into (“the settlement agreement”) was, so far as relevant, as follows:

“This agreement is made between:

(i) Robert Grynberg and John Landerer (hereafter ‘the executors’)

(ii) Mordecai Popovtzer (hereafter ‘Popovtzer’).

(iii) Stephen Muller (hereafter ‘Muller’)

1 The parties agree to the following in settlement of their respective claims in proceedings in the Probate Division of the New South Wales Supreme Court No. 119213 of 1994.

2 Popovtzer shall pay to Muller the sum of $750,000 to be charged upon his interest in the estate of the late Malke Bilfeld under the Will of the deceased made on 15 September 1986 and under the codicil to the Will executed on 22 July 1997 [sic] or the Will dated 9 December 1998 [sic] whichever is granted probate.

3 The payment by Popovtzer to Muller described in paragraph 2 above is conditional upon:-

(i) A grant of probate in solemn form to the executors of the Will of the deceased made on 15 September 1986 and the codicil to the Will made on 22 July 1987, or
(ii) A grant of probate or letters of administration in solemn form being given on the application of Moriah College or Mrs Rosie Matzner of a Will purporting to be a Will of the deceased dated 9 December 1988.


4 In the event that the condition in the preceding paragraph be fulfilled so as to entitle Muller to the said payment then Muller hereby releases the estate of the deceased, and Popovtzer, and the executors, from any further claim or action of any kind Muller might have against either the estate of the deceased or Popovtzer or the executors and undertakes not to bring any proceeding in regard to the estate of the deceased seeking to have set aside any grant of probate that has been given in regard to that estate of the deceased or seeking to have admitted to probate any instrument said to be a testamentary instrument of the deceased whether a formal Will or not or otherwise seeking to claim any provision from the estate whether under any statutory entitlement or any rule of law or equity.

………

6 The parties further agree that in regard to proceedings no. 119213 of 1994 in the Probate Division of the Supreme Court Muller shall consent to the dismissal of his cross-claim and shall consent to the orders sought by the plaintiffs seeking a grant of probate in solemn form of the Will of the deceased dated 15 September 1986 and the codicil to the said Will dated 22 July 1987 and that as between the executors and Muller. [sic] Muller shall bear his own costs and the costs of the executors shall be paid out of the deceased's estate on an indemnity basis.

7 It is further agreed that in regard to the payment to Muller described in paragraph 2 above the payment shall be made by the executors from the estate of the deceased from the interest of Popovtzer in the said estate and Popovtzer hereby directs the executors to pay to Muller the said sum from his interest in priority to payment to him of the residue of that interest.

…………

9 Muller further agrees that he shall not provide a statement or give evidence or information or any other assistance to any other party in regard to any application or claim or possible claim against the estate of the deceased or any claim for probate or letters of administration in regard to the deceased’s estate other than pursuant to any order of the Court.”

18 The orders procured on 9 November 1998 from Hodgson CJ in Eq should be set out in full:

“The Court orders:-

1. The cross-claim filed by Stephen Muller be dismissed.

2. There be no order as to the costs of Stephen Muller with the intent that he bear his own costs.

3. The costs of the plaintiffs shall in the event that they obtain proof in solemn form of the Will of the deceased dated 15 September 1986 together with the codicil dated 22 July 1987 be paid from the deceased's estate on an indemnity basis otherwise the plaintiffs shall bear their own costs.

4. The plaintiffs application for probate in solemn form of the Will dated 15 September 1986 and the codicil dated 22 July 19987 be adjourned to the Probate Judge's on 1 December 1998.

The Court notes that:-

5. The defendant, Stephen Muller, withdraws his defence to the plaintiffs' statement of claim and consents to the making of the orders granting probate in solemn form of the Will dated 15 September 1986 and the codicil thereto dated 22 July 1987.”

It is to be noted that up to this time Moriah College had not been a party to the proceedings. It would seem (although it is not recorded in the Associate’s Record of Proceedings) that it had a representative in Court on 9 November 1998. It was as a result of a citation issued at that time, to which it entered an appearance, that it became the second defendant.

Facts as to Offers

19 As has already been noted, Moriah College, not then a defendant to the proceedings, was excluded from the settlement negotiations. More needs to be said about what contact there was with representatives of Moriah College prior to the settlement. In fact there was evidence given before me on the costs applications as to that participation. Robert Gavshon, the then President of Moriah College deposed as follows in an affidavit:

“4.7 Shortly after the receipt of the notification of the proposed settlement, and to the best of my recollection prior to 9 November 1998, I had a meeting with Victor Berger at the offices of MBB in an attempt to resolve the matter without the need for further litigation. At this meeting I said words to the following effect:

‘In the light of the proposed settlement, Moriah needs to carefully investigate this matter. It seems to me, on the basis of the documents that I have been given access to and that I have just read, that there may well be a question mark about Mrs Bilfeld' s testamentary capacity in July 1987. If Mrs Bilfeld did not have capacity in 1987, Moriah will seek to propound an earlier will. Moriah needs to fully investigate the matter. However, I think that we should try to settle this matter, if possible.’
During the same period, I had a further meeting at the offices of MBB in an attempt to resolve the matter. This meeting was attended by Professor and Mrs Popovtzer and Victor Berger. This is the meeting which is referred to in paragraph 16 of Victor Berger's affidavit of 27 July 2001. At this meeting I said to Professor and Mrs Popovtzer and Victor Berger words to the same effect as the words that I said to Victor Berger at the meeting referred to immediately above. I recall that Professor and particularly Mrs Popovtzer became angry with me because I suggested that Moriah College may seek to propound one of the earlier wills of Mrs Bilfeld.

4.8 My recollection is that at or around this time I made an oral without prejudice settlement proposal on behalf of Moriah College to Mr Berger on behalf of Professor Popovtzer …. The effect of the settlement proposal that I made was that Moriah College should be paid $2 million by Professor Popovtzer. I suggested that investigations could be conducted to ascertain whether that amount could be paid by Professor Popovtzer to Moriah College in a tax effective form …. The settlement proposal that I made on behalf of Moriah College to Mr Berger on behalf of Professor Popovtzer was never accepted by Professor Popovtzer (or by the Plaintiffs). To the best of my recollection, no counter-proposal was ever made by Professor Popovtzer or the Plaintiffs to Moriah College.”

20 Victor Berger also gave evidence concerning this proposal. At the time he swore his affidavit on costs questions he could remember little more than that there had been a meeting in “this period”. His only other recollection at that stage was that the meeting had ended unpleasantly when the Popovtzers understood that the second defendant was considering making a claim in relation to an earlier will. At the hearing on costs before me Mr Berger was cross examined and produced a file note that he made of the meeting that included the Popovtzers. His recollection was also refreshed in a number of regards by his reading of those notes. Once again, as with the conferences that took place before and at the time of the making of the 1987 will (see my judgment [29], [30], [58]), I came to the conclusion that Mr Berger’s file notes, although sketchy, provided the most reliable record that there was of what was said at the meeting, particularly concerning the second defendant’s attitude towards settlement and concerning its intentions in relation to the proceedings.

21 Concerning these matters Mr Berger’s notes were to the effect that Mr Gavshon indicated that Moriah College was “aggrieved” that it had not been consulted concerning the settlement negotiations and that it did not know the proposed terms; that it had misgivings about the validity of the 1987 testamentary instruments; that it would be prepared to accept “$1 million plus” in settlement of the proceedings; and that it “may challenge” the 1987 testamentary instruments. The note indicated that the entire meeting lasted from 6 pm to 8 pm and that Mr Gavshon was present from 6 pm to 6.45 pm. There is no doubt that he left after the unpleasantness arose when he indicated that Moriah College might challenge the 1987 will.

22 In the upshot I find that Mr Gavshon and Mr Berger had two meetings at about this time, at the first of which only they were present and at the second of which they were present along with the Popovtzers. It is clear from Mr Berger’s notes that the second of these meetings took place on 5 November 1998 and therefore both before 9 November 1998. Mr Berger, reminded by his note, was quite emphatic that the sum or formula mentioned by Mr Gavshon at this meeting was “$1 million plus”. I accept that this was the expression used by Mr Gavshon. The expression “$1 million plus” may be equivocal: it could be suggested that it indicated $1 million in addition to the $1 million already given under the 1987 will; or it may mean that, in addition to the first million, the second defendant should receive an additional “$1 million plus”, ie, a sum greater than $1 million. However, both parties are clear that, whatever was said at the meeting, the sum being sought was in addition to the $1 million in the will. In my view the hearer of the offer in the context to take “$1 million plus” would take it as an indication of a willingness to accept an additional sum over the $1 million already given of $1 million plus, ie, an offer of an additional sum over $1 million. I find that this was the way it was taken by Mr Berger.

23 Although it is not contained in Mr Berger’s note, I also accept that there was discussion at this time, as deposed to by Mr Gavshon, that it might be possible to structure the settlement in a “tax effective” way, by the additional sum or the whole of the amount to be paid to the second defendant being paid by way of a donation to the Moriah College Building Fund, which would attract an income tax deduction. There is no doubt that Mr Berger sent a brief to counsel on about 15 November 1998, shortly after the settlement, in which he sought advice in this regard. In that brief it was indicated to counsel that what was in mind was a payment of $900,000 in addition to the $1 million given by the 1987 will. Mr Berger was obviously contemplating a counter offer of $900,000 additional when he sent the brief to counsel. Counsel’s response is not in evidence. On the evidence, these negotiations thereafter simply petered out.

24 There was no further negotiation, so far as the evidence goes, until the second defendant’s solicitors wrote to Mr Berger on 1 February 2001 just before the commencement of the trial a letter stated to be “Without prejudice except as to costs”. The body of that letter was as follows:

“In order to have this matter resolved expeditiously and before further substantial costs are incurred, we have been instructed by our client to make the following Calderbank offer:

1 Your clients (by which we mean Messrs Landerer and Grynberg and Professor Mordecai Popovtzer) agree to Probate being granted over the will executed by the late Mrs Malke Bilfeld on 11 December 1985.

2 Subject to probate being granted over the 11 December 1985 will, our client will agree to pay your client, out of the residue of the estate, the sum of $150,000. (That is, your clients will receive a bequest of $350,000 pursuant to clause 3(e) of the 1985 will, and our client will, in addition, pay your client an additional $150,000 out of the residue of the estate).

3 Our client will not require Professor Popovtzer to repay the loan of $200,000 made to him 11 August 1987 or any interest on that sum.

4 Our client will consent to an order that your clients' reasonable legal costs, either as agreed or as assessed, be paid out of the estate.

For the avoidance of any doubt, this offer is strictly subject to the condition that it is approved by the court, and that probate is in fact granted over the will of 11 December 1985.

This offer is open for a period of 14 days from the date of this letter.

We have been instructed to give you notice, as we hereby do, that if the offer is not accepted, our client reserves its rights to seek special costs orders, including (without limitation) orders for indemnity costs. Furthermore, our client will obviously oppose any order that your clients may seek that their costs (either in whole or in part) be paid out of the estate.

Our client's rights all remain strictly reserved, including its right to withdraw this offer prior to the expiration of the 14 day period referred to above.”

That offer was not accepted.

The Law: Setting Aside Judgments

25 There have been a number of pronouncements of recent years by the High Court on the circumstances in which a judgment may be set aside by the Court which pronounced it. In De L v Director-General, New South Wales Department of Community Services [No 2] (1997) 190 CLR 207 the majority (Toohey, Gaudron, McHugh, Gummow and Kirby JJ) said at 215:

“The power of this Court to reopen its judgments or orders is not in doubt. The Court may do so if it is convinced that, in its earlier consideration of the point, it has proceeded ‘on a misapprehension as to the facts or the law’, ( Autodesk Inc v Dyason [No 2] (1993) 176 CLR 300 at 302) where ‘there is some matter calling for review’ ( Smith v NSW Bar Association (1992) 176 CLR 256 at 265) or where ‘the interests of justice so require’ ( Autodesk Inc v Dyason [No 2] supra). It has been said repeatedly that a heavy burden is cast upon the applicant for reopening to show that such an exceptional course is required ‘without fault on his part, ( Wentworth v Woollahra Municipal Council (1982) 149 CLR 672 at 684; cf State Rail Authority of NSW v Codelfa Construction Pty Ltd (1982) 150 CLR 29 at 38, 45-46; Nintendo Co Ltd v Centronics Systems Pty Ltd (1994) 181 CLR 134 at 168) ie without the attribution of neglect or default to the party seeking reopening ( Autodesk Inc v Dyason [No 2] supra at 303). By such expressions of the power to reopen final orders, courts seek to recognise competing objectives of the law. On the one hand, there is the principle of finality of litigation which reinforces the respect that should be shown to orders, final on their face, addressed to the world at large and upon which conduct may be ordered reliant upon their binding authority. On the other hand, courts recognise that accidents and oversights can sometimes occur which, unrepaired, will occasion an injustice. In the case of a final court of appeal, such as this Court, that injustice may be irremediable, unless the Court itself, acting promptly, is persuaded to reopen its orders so as to afford relief in the exceptional circumstances of the case ( Autodesk Inc v Dyason [No 2] supra; Wentworth v Rogers [No 9] (1987) 8 NSWLR 388 at 394-395; Logwon Pty Ltd v Warringah Shire Council (1993) 33 NSWLR 13 at 28-29).”

26 That, however, was a case where the order, although made, had not been entered, a fact relied on by the Court (at 216) in setting aside the order. A different rule applies where the order has been perfected by entry. There, the general principle was stated by Barwick CJ in Bailey v Marinoff (1971) 125 CLR 529 at 530 as follows:

“Once an order disposing of a proceeding has been perfected by being drawn up as the record of a court, that proceeding apart from any specific and relevant statutory provision is at an end in that court and is in its substance, in my opinion, beyond recall by that court. It would, in my opinion, not promote the due administration of the law or the promotion of justice for a court to have a power to reinstate a proceeding of which it has finally disposed.”

27 There are, however, limited exceptions to the rule even in the case of entered judgments. Thus, in DJL v The Central Authority (2000) 201 CLR 226 the majority (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ) said at 244:

“The common law courts, as superior courts of record, had ‘full power to rehear or review a case until judgment [was] drawn up, passed, and entered’. That statement, with citation of supporting authority, was made by Starke J in Texas Co (Australasia) Ltd v Federal Commissioner of Taxation (1940) 63 CLR 382 at 457. Even after entry of judgment, an error arising from an accidental slip or omission might be corrected at any time by further order in the action and even without an enabling rule of court ( Shaddock (L) & Associates Pty Ltd v Parramatta City Council [No 2] (1982) 151 CLR 590 at 594-595). An order also might be made in the action for the correction of the records of the court to make certain that they truly represented what the court had pronounced or had intended to pronounce ( Ainsworth v Wilding [1896] 1 Ch 673 at 678-679; Ivanhoe Gold Corporation Ltd v Symonds (1906) 4 CLR (Pt 1) 642 at 669). It also appears that a judgment might be set aside after entry if the parties to the judgment consented, although in deciding whether to make such an order the court would have regard to the interests of third parties ( Permanent Trustee Co (Canberra) Ltd v Stocks & Holdings (Canberra) Pty Ltd (1976) 28 FLR 195; 15 ACTR 45). Finally, where the business of the court was so organised that some orders were made in chambers, those orders may have been open to review by motion in the action, even if they were final orders ( Giles (CH) & Co Ltd v Morris [1972] 1 WLR 307 at 313; [1972] 1 All ER 960 at 965).”

28 The cases previously cited in this judgment all concern judgments which had been passed and entered after a contested hearing. So far as judgments given by consent are concerned, while they stand, they have the same effect and are, in general terms, subject to the same rules as judgments passed after contest: Foskett on Compromise (4th Ed, 1996) par 6-11; Huddersfield Banking Company Limited v Henry Lister & Son Limited [1895] 2 Ch 273 per Lindley LJ at 280 (quoted infra); McLeod v Power [1898] 2 Ch 295. However, the judgment being based on agreement, it may in general terms be set aside if the agreement is vitiated in accordance with the ordinary law of contract. Thus, Lindley LJ said in the Huddersfield Banking case supra:

“… A consent order, I agree, is an order; and so long as it stands it must be treated as such, and so long as it stands I think it is as good an estoppel as any other order. I have not the slightest doubt on that; nor have I the slightest doubt that a consent order can be impeached, not only on the ground of fraud, but upon any grounds which invalidate the agreement it expresses in a more formal way than usual.”

And it was said per curiam in Harvey v Phillips (1956) 95 CLR 235 at 243 - 244:

“… The question whether the compromise is to be set aside depends upon the existence of a ground which would suffice to render a simple contract void or voidable or to entitle the party to equitable relief against it, grounds for example such as illegality, misrepresentation, non-disclosure of a material fact where disclosure is required, duress, mistake, undue influence, abuse of confidence or the like.”

And see Logwon Pty Ltd v Warringah Shire Council (1993) 33 NSWLR 13 at 28 - 29.

29 The situation where the parties to an entered judgment obtained by consent consent to it being set aside was discussed by Brennan J when a Judge of the ACT Supreme Court in Permanent Trustee Co (Canberra) Ltd v Stocks & Holdings (Canberra) Pty Ltd (1976) 28 FLR 195; 15 ACTR 45. There his Honour discussed English authority, particularly The Bellcairn (1885) 10 PD 162 and Hammond v Schofield [1891] 1 QB 453, and concluded (FLR at 201; ACTR at 50):

“The better view appears to be that the court has jurisdiction to set aside a regular judgment if the parties to the judgment consent to the court doing so. But it further appears that the court should decline to make the order if a third party would suffer particular injury by the making of the order. It appears from an elliptical phrase in the affidavit of Mr. Guild that there may be debenture holders of the judgment debtor whose interests may be affected by the making of the order now sought by the consent of the parties. He deposes to information given by his Sydney principals that, because of delay in finalizing the release of monies from the solicitors who held the deposit paid under the contract ‘the amount of $3,500 payable to the plaintiff remains unsatisfied and ... this may prejudicially effect (sic) certain debentures entered into by the defendant’.

The affidavit certainly does not contain sufficient information to satisfy me that there are no third party rights which will be either unaffected by the setting aside of the judgment or, if affected, are of a kind which are immaterial to the exercise of the jurisdiction to set aside the judgment. I therefore decline to make the order sought at the present time.”

Significantly, in the Huddersfield Banking case supra Kay LJ had said (at 284):

“Of course, if the order had been acted upon, and third parties’ interests had intervened and so on, difficulties might arise; but nothing of that kind occurs here. Here we have got simply the parties to this agreement and order before us. No one else seems to have obtained any kind of interest under it; and therefore, if it be made out that the order proceeded upon the common mistake of a material fact, there is ample jurisdiction in the Court to set it aside.”

30 There has been no precise formulation by authority of the nature of the affectation of or injury to an interest of a third party which will prevent the setting aside of a consent judgment by consent of the parties to it. In The Bellcairn supra it was the interest of cargo owners which was held an impediment to the setting aside of a judgment between shipowners arising out of a collision at sea. In Hammond v Schofield supra it was the interest of a co contractor who was not a party to the judgment.

31 Furthermore, all the cases in which this principle is stated or applied appear to be cases where the judgment had been entered. I have been unable to discover a case which considered the situation where third party rights have been affected by a consent judgment passed but not entered.

The Law: Costs in Probate Suits

32 The rules concerning costs in probate suits have been dealt with in many cases over the years. The modern position has been compendiously stated in the Court of Appeal by Giles JA and Brownie AJA in Perpetual Trustee Company Ltd v Baker [1999] NSWCA 244. Their Honours said at [13] and [14]:

“[13] Costs are in the discretion of the Court, and the established principle on which the discretion as to costs will normally be exercised is that costs follow the event. In probate litigation, in particular, however, exceptions have been recognised, one being that where the testator has been the cause of the litigation the costs of unsuccessfully opposing probate may be ordered to be paid out of the estate, and another being that if the circumstances led reasonably to an investigation concerning the testator's will the costs may be left to be borne by those who incurred them (see for example In the estate of Hodges: Shorter v Hodges (1988) 14 NSWLR 698 at 709).

[14] The two exceptions tend to overlap. As was said by Santow J in In the estate of Moyle: Moyle v Moyle (18 June 1988, unreported), ‘if a testator is by his mental frailty and other circumstances in a position where the circumstances reasonably call for investigation of the validity of the will ‘in one sense the testator, though usually with no sense of blameworthy fault, has by his or her conduct caused the litigation to occur’. A party reasonably but unsuccessfully propounding or challenging the will, and so bringing about the necessary investigation, should no more have to bear his own costs than pay the costs of the other party. So it has been said that where the conduct and habits and mode of life of a testator have given ground for questioning his testamentary capacity the costs of the unsuccessful party should be paid out of the estate, as distinct from being left to be borne by that party ( Davies v Gregory (1873) 3 P & D 28; Roe v Nix (1893) P 55; In the will of Millar (1908) VLR 682), and the costs of both sides in testamentary capacity cases have often been allowed out of the estate ( In the will of Severs (1887) 13 VLR 572; Phillips v Dundas (Smith J, VSC 4 December 1995, unreported); Redroff v Miegoch (Santow J, NSWSC, 22 April 1996, unreported); re Ryan: Williams v Ryan (1998) VSC, 109; In the will of Ryan: Williams v Ryan (Byrne J, VSC, 23 October 1998, unreported); cf Middlebrook v Middlebrook (1963) 26 ALJR 216 where Dixon CJ and McTiernan, Taylor and Owen JJ ordered that the parties bear their own costs but Menzies J would have ordered that the costs be paid out of the estate).”

33 There has been some argument before me as to what is meant by "overlap" in [14]. It seems clear to me that it means simply that some cases, on their facts, will fall both within the category of cases caused by the testator and within the category of cases where investigation was required. In such cases, it is within the judicial discretion to determine whether the interests of justice will be best satisfied by ordering that costs come out of the estate or be borne by the unsuccessful party.

The Law: Indemnity Costs

34 In SMEC Testing Services Pty Limited v Campbelltown City Council [2000] NSWCA 323 Giles JA said at [37]:

“The making of an offer of compromise in the form of a Calderbank letter (from Calderbank v Calderbank [1976] Fam 93), where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure: see for example, John S Hayes & Associates Pty Ltd v Kimberley-Clarke Australia Pty Ltd (1994) 52 FCR 201; MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 235.”

35 It is wrong to say, as stated in the second defendant’s written submissions, that “it is now trite law that [there is] a presumption that an order for indemnity costs should be made if an offer of settlement was made, rejected and not bettered.” There was a suggestion to that effect in Rolfe J’s decision in Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 at 451. Whilst that decision was not specifically mentioned in SMEC Testing, any suggestion that there is a such a presumption cannot now be supported in New South Wales in the face of that decision. The proposition had already been rejected in the Federal Court by Hill J in John S Hayes & Associates Pty Ltd v Kimberley-Clarke Australia Pty Ltd (1994) 52 FCR 201 and by Lindgren J in MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 235. Those decisions appear to be approved by the Court of Appeal in SMEC Testing. The Full Court of the ACT decided to the same effect in Quirk v Bawden (1992) FLR 115, but the Full Court of South Australia found it unnecessary to decide which approach to follow in Pirrotta v Citibank Ltd (1998) 72 SASR 259.

The Law: Costs: The Indemnity Principle

36 In Ohn v Walton (1995) 36 NSWLR 77 at 79 Gleeson CJ (when Chief Justice of this Court) said that: "the purpose of an order for costs is to indemnify or compensate the person in whose favour it is made, not to punish the person against whom it is made". In Latoudis v Casey (1990) 170 CLR 534 a similar statement had been made by Mason CJ at 543 and also by other Justices (Toohey J at 562 - 563; McHugh J at 566 - 567). And see Cachia v Hanes (1994) 179 CLR 403 at 414. It flows from this principle that for a costs order to be made there must be some liability, satisfied or unsatisfied, to indemnify or compensate for. There was a graphic illustration of this principle in Gundry v Sainsbury [1910] 1 KB 645. There a plaintiff recovered damages in a County Court before a jury, but said in cross examination that he had an agreement with his solicitor that he should not pay any costs. The County Court Judge held that the plaintiff could not recover costs and this decision was upheld by the Court of Appeal. In TNT Bulkships Ltd v Hopkins (1989) 98 FLR 352 a successful party’s solicitors were unable to recover costs from the party relating to proceedings in the Supreme Court of the Northern Territory because not the holder of a current practising certificate. The successful party was held unable to recover costs from the unsuccessful party. And see per Griffith CJ in Irving v Gagliardi (ex parte Gagliardi) No 2 (1895) 6 QLJ 200 at 200. The mere existence of an indemnity does not, of course, preclude the making of an order for costs: Johnson v Santa Teresa Housing Association (1992) 83 NTR 14.

Contentions as to the Costs of the First Aspect

37 The plaintiffs and the first defendant contend that the original consent order for costs should be set aside because the Court had proceeded on a misapprehension as to the facts or the law, or there is some matter calling for review, or the interests of justice so require, within the meaning of De L’s case supra. So far as the Permanent Trustee case supra is concerned, the second defendant will not be affected in any material way if the original costs order is set aside. One reason this is said to be so is that the second defendant was not yet a party to the proceedings when the order was made. The misapprehension they allude to is an alleged apprehension that one of the wills that the first defendant would receive his promised payment out of, and not some other will, would be admitted to probate. Other matters they rely on are the allegation that the second defendant, by joining in the proceedings late, caused them to expend costs unnecessarily, or that they conferred some benefit on the second defendant by their conduct of the proceedings up to the time the second defendant joined in.

Contentions as to the Costs of the Second Aspect

38 I have already made it plain that the second defendant does not ask that the plaintiffs be ordered to pay its costs of the trial but opposes the plaintiffs’ application that they have their costs out of the estate. In compendious written submissions this opposition was put on numerous ground as follows.

(1) Real plaintiff is Professor Popovzter. The real plaintiff in this case was Professor Popovtzer who pursued the case, not in order to give effect to the true intent of the testator, but simply to get the best benefit for himself as the residuary beneficiary under the 1987 codicil.

(2) No prospects of success on onus. These proceedings were commenced and continued in circumstances where the plaintiffs, properly advised, should have known that they had no prospect of success.

(3) Failure to accept Calderbank offer. The plaintiffs (in effect, Professor Popovtzer) failed to respond to the very generous settlement offers made by Moriah College. No settlement offer whatsoever was ever made by the plaintiffs to Moriah College.

(4) Knowledge of circumstances surrounding execution of the will. The plaintiffs (and Professor Popovtzer) were fully aware of the circumstances surrounding the execution of the will and codicil of 22 July 1987 and the state of mind of the testator, such that in propounding that particular will and codicil they took on themselves the risks as to costs if unsuccessful.

(5) Litigation caused by conduct of the Popovtzers . The litigation was caused by conduct of Professor and Mrs Popovtzer on 20 July 1987, coupled with their failure to ensure that proper and credible evidence in relation to testamentary capacity on 22 July 1987 was obtained.

(6) Case does not fall within first limb of recognised probate costs exception . The ordinary rule in probate matters is that costs follow the event. However, where the testator has been the effective cause of the litigation, the costs of those unsuccessfully opposing the grant of probate may be ordered out of the estate. However, this is not a case in which the litigation was “caused” by the conduct of the testator in the sense that that concept is used.

(7) No costs incurred by the plaintiffs. In any event, on the basis of the evidence, the plaintiffs have not incurred any costs. All of the costs have been incurred and paid by Professor Popovtzer. It would be inappropriate to direct that the costs of Professor Popovtzer be paid out of the estate.

(8) Paragraph 9 of the settlement agreement . This was the clause of the settlement agreement entered into by Messrs Grynberg and Landerer and Professor Popovtzer and Dr Muller by which the first defendant agreed not to assist any person other than the plaintiffs or Professor Popovtzer in relation to the testator’s estate.

(9) Onus of proof that plaintiffs fall within exception to costs following the event . In the light of all of the above facts, the plaintiffs have not discharged the onus of proving that they come within any exception to the rule that costs follow the event in probate matters.

39 The submissions in [38] may conveniently be grouped under five heads as follows:

(1) The plaintiffs incurred no costs . Costs were incurred by Professor Popovtzer to the exclusion of the plaintiffs. There was nothing to indemnify: submissions (1) and (7).

(2) The plaintiffs were not within any category that entitles them to costs out of the estate. The plaintiffs were not demonstrated to fall into any exception to the general rule that costs follow the event so as to entitle them to costs out of the estate: submissions (6) and (9).

(3) No prospects of success. The plaintiffs and the Popovtzers were fully aware of the circumstances surrounding the execution of the will and the testator’s state of mind of mind so that, properly advised, they must have known that their claim was doomed to failure: submissions (2) and (4).

(4) The conduct of the Popovtzers. The conduct of the Popovtzers during the period 20 – 22 July 1987, in lying on their oaths and in entering into clause 9 of the settlement agreement should prevent an order for costs out of the estate that would redound to their benefit: submissions (5) and (8).

(5) The Calderbank offers. Failure to accept the offers made by the second defendant was unreasonable and should preclude an order for costs out of the estate: submission (3).

Conclusion: Setting Aside the Costs Order of 9 November 1998

40 If the principle in Permanent Trustee Co (Canberra) Ltd v Stocks & Holdings (Canberra) Pty Ltd supra applies before judgment is entered, then the only question is whether there is such affectation of a third party interest as will invoke the application of that rule. If there is, the judgment ought not be set aside. Whilst I have commented in [30] above about the lack of authority on the ambit of the concept of third party interest for the purposes of this rule, I am of the view that such an interest does exist in this case. The second defendant is not precluded from being a relevant third party because it was not yet a party to the suit at that stage; it is not only parties to the proceedings who are encompassed by the rule: see Permanent Trustee itself. The matter was settled in November 1998 with the second defendant, which, although not a party, was taking a close interest in the proceedings, excluded against its wishes from the settlement negotiations. It was settled in a way which did not impinge on the second defendant. If specified wills were admitted to probate, then the additional payment to the first defendant would come out of Professor Popovtzer’s share under the will proved and the parties to the settlement would bear their own costs. Now it is asked that the orders for costs be set aside and be set aside specifically to the intent that both the plaintiffs’ and the first defendant’s costs be ordered out of the estate. In the events which have happened this would mean that it would be the second defendant’s share in the estate under the 1985 will which would bear the burden of those orders. The second defendant has an interest in receiving that gift undiminished by the costs of the first aspect of the case. That interest would be impinged on by the setting aside of the judgment, especially since the judgment would be set aside only for the purpose of making an order that so impinged. If the rule in Permanent Trustee does apply although the orders were not entered, then it will preclude the setting aside of the order, which I have held is the better view.

41 However, even if I am wrong, and the Permanent Trustee rule does not apply where the order has not been entered, in my view the result will be the same. Even if the existence of the third party interest does not absolutely preclude the setting aside of the judgment by consent, the setting aside can occur only by the exercise of a judicial discretion. In my view, the interference or potential interference with a third party interest by the setting aside of the judgment, even if not an absolute bar, will remain a factor to be taken into account on the exercise of that discretion. In my view, the way I should exercise that discretion is as follows. The second defendant was not yet a party to the proceedings. However, it had clearly indicated its interest in the matter to both the plaintiffs and the first defendant and had asked for relevant material to be supplied to it, although that had been furnished in a laggardly and not very thorough way. Equally, it may be said that the second defendant had not been vigorous in its pursuit of the material, at least until it was suddenly apparent on the eve of the trial before Hodgson CJ in Eq that settlement negotiations were taking place. There is no doubt that it did ask to participate in those negotiations. That request was refused and, at least until the orders were made in Court, it was excluded from knowledge of what the proposed settlement was. No doubt, at least in part to justify that stance, the settlement was effected in terms which did not on their face affect the second defendant, as I have noted in [40]. Both parties were aware that the second defendant had reserved its position. Both parties were aware that it was not certain that the 1987 will would be admitted to probate, and the terms of settlement and orders based on them were conditioned accordingly. To the plaintiffs and Professor Popovtzer it was made quite plain before the settlement was effected that the second defendant continued to object to its exclusion from the negotiations and made plain that it may well propound an earlier will. It is the clear recollection of both Mr Gavshon and Mr Berger that this was said at the meeting on 5 November 1998 at which the Popovtzers were present and led to unpleasantness when they became angry at this suggestion. There is no evidence that the first defendant was aware up to the time of the settlement of this further announcement on behalf of the second defendant, but there is equally no doubt that the matters earlier stated in this paragraph were known to the first defendant when it entered into the settlement agreement.

42 In the light of those circumstances, I do not see that the dictates of justice require the judgment to be set aside and the question of the costs of the suit up to that point re-agitated. The eventuality which has occurred is no doubt unwelcome to the parties to the settlement, but existed as a known possibility at the time the settlement was entered into. Those parties do not like the eventualities which have occurred, but they took their chances in coming to the settlement as they did and the outcome contrary to their hopes is not sufficient to justify the judgment being set aside when a party whose interests would be affected by the setting aside objects to that course. It should be noted that the application to set aside is not made on the basis that the agreement is vitiated under the principle in the Huddersfield Banking case supra or Harvey v Phillips supra. The entitlement to set it aside is said to arise from the fact that the parties to the agreement are now agreed to abandon it. In my view the dictates of justice do not require the judgment to be set aside; indeed, the dictates of justice require that the judgment not be set aside and that, in the circumstances, the parties be left subject to the orders entered as a result of the agreement, albeit the parties to it now regret it. I should add that I am not persuaded that there is any substance in the arguments that the second defendant gained some advantage by lying by up to the time of the settlement, nor that it caused the other parties to incur unnecessary costs, nor that it gained some advantage out of the work they had done, so as to render it unfair that it should have the advantage of its ultimate share of the estate without that share bearing the costs of the first aspect.

43 There is yet another reason why the judgment ought not be set aside. If the orders are set aside, I am invited to make orders replacing them, namely, orders that the plaintiffs and the first defendant have their costs of the first aspect out of the estate. Unless such an order were to be made, it would be pointless to set the judgment aside. On the material before me I should not be prepared to make the order for costs sought; the order that I should make if the judgment were set aside would be identical with the order which the then Chief Judge made by consent. The situation in relation to this aspect of the suit was significantly different from the situation in relation to the costs of the second aspect of the suit, with which I shall deal below.

44 So far as the second aspect of the suit is concerned, the plaintiffs’ case for the costs out of the estate is that the testator was in the requisite sense the cause of the litigation; albeit the conduct was occasioned at least in large part by her illness, it was her irregular and inconsistent conduct which raised the very grave doubts that existed as to her capacity to make the 1986 and 1987 wills. In the first aspect of the case there was, of course, a like issue in relation to her capacity to make the 1988 will. However, the parties had chosen to and were proceeding to contest in addition an issue of a totally different nature, namely, whether the testator had signed the will at all. The contesting cases on this aspect were that Professor Popovtzer, a person who was in a position to be familiar with her handwriting in her later years, denied that the signature which appeared on the 1988 will was hers. Furthermore, there was the evidence of handwriting experts to the effect that it was not. On the other side, the first defendant proposed to lead the evidence of the nurses who swore that they had seen her sign. They were people with no interest in the estate under any of the wills. The first defendant denied forging the will or having any complicity in the forging of the will. There were also handwriting experts who pronounced the signature genuine. Perhaps it could be alleged that it was her deteriorating condition which led to infirmity of handwriting and that this in some way played some part in the execution issue. However, I do not think it could be said in any realistic way that the testator was the cause of this issue. Although, as I have said, there was as well a capacity issue in relation to the 1988 will, faced with the settlement of a suit which centred on the forgery issue the Court will not try proceedings at any stage for the purpose of simply determining costs. The first aspect of the case was never tried. The usual rule was stated by McHugh J in Re The Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 at 624 – 625. It is that in relation to settled or abandoned proceedings the usual order is that there be no order as to costs. The decision I should make, if called upon to decide what should be done concerning the costs of the settled first aspect of the proceedings, is that, in accordance with that principle, I should order that there be no order as to those costs, to the intent that the plaintiffs and the first defendant should bear those costs themselves. For all the foregoing reasons I dismiss the application to set aside any of the orders made by Hodgson CJ in Eq on 9 November 1998.

Conclusions: Plaintiffs’ Application for Costs of the Second Aspect out of the Estate

45 The decision of this application involves two questions. The first is whether the circumstances of this case are such as to justify an award of costs out of the estate in favour of the unsuccessful plaintiffs: see second defendant’s submissions [39](2) to (5). The second is whether those plaintiffs are entitled to an order in their favour or whether an order in their favour is precluded on the basis that they did not incur and never were liable for those costs and are therefore not entitled to be indemnified against them: see submission [39](1). It should be borne in mind that the second defendant does not ask for the application of the usual costs rule in its full rigour, ie, it does not ask that the unsuccessful plaintiffs be ordered to pay its costs, but says that the application for costs out of the estate should be refused and the plaintiffs (and Professor Popovtzer) ought be left to bear their own costs.

46 As to submissions [39](2) to (4), the second defendant in essence says that the litigation cannot in any way be regarded as having been caused by the testator. They say that it was caused by conduct of the plaintiffs and the Popovtzers. Furthermore, they say that not only did the litigation fail but that it was always hopeless and always hopeless to the knowledge of the plaintiffs and of the Popovtzers. They further say that there was conduct of the Popovtzers that should lead to the conclusion that there should be no costs order which would be ultimately to the benefit of Professor Popovtzer, who actually paid the plaintiffs’ costs of the proceedings.

47 The disentitling conduct principally relied on is that it is said that both Professor Popovtzer and Mrs Popovtzer lied in the course of the proceedings. In this regard the second defendant points to [40] of my judgment, where I indicated that they were not impressive witnesses and that there was certain of their evidence which I did not accept. About that, two things should be said. The first is that the evidence which I did not accept was the degree of their recollection of the conferences in July 1987 before the making of the 1987 will and their statements as to the testator’s declarations of intention at that time to leave the bulk of the estate to them. On the other hand, as I made plain at the time, there were large parts of their evidence that I did accept, including their evidence of the history of their relationship with the testator and even many or most of the events of their visit to Australia in 1987. I accepted their evidence of a paranoid outburst by the testator against the first defendant. What I said was carefully cast not to encompass a finding that any lack of accuracy or candour concerning the matters as to which I did not accept them was the result of deliberate falsehood. The second defendant accepts that I did not make that finding in my judgment, but presses me to make it now. I very deliberately did not make it at that time and I do not make it now. The human mind, as Judges know, has an enormous power to convince itself of the existence of facts in which a witness or party wishes to believe or has an interest in believing, so that he or she does believe it when giving evidence that is found to be contrary to the real state of affairs. One possibility as to why the Popovtzers gave evidence I did not accept is rationalisation. There may be others. In any event, I decline to find on the balance of probabilities that there was deliberate falsehood. I add that the conduct in including clause 9 in the settlement agreement was not very worthy, but should not affect the conclusion as to costs that I otherwise come to.

48 Arguments were put to me in detail as to why the plaintiffs and the Popovtzers must have known that the proceedings would fail, or must have known facts which, properly assessed, made it inevitable that the proceedings would fail. These submissions focus the bright light of hindsight. Hindsight sings a siren song of which Judges must be cautious. There have been many judicial warnings as to its dangers in different contexts. The Court of Appeal has recently drawn attention to the dangers of hindsight in determining foreseeability in cases of personal injury caused by negligence: see White v Nitis (nee Williams) NSWCA 17 July 1998 unreported per Powell JA; Carlisle v Mullrai Pty Ltd (2000) 31 MVR 312 at [28] per Foster AJA. In Rosenberg v Percival (2001) 75 ALJR 735 at [16] Gleeson CJ analysed the dangers of hindsight as follows:

“In the way in which litigation proceeds, the conduct of the parties is seen through the prism of hindsight. A foreseeable risk has eventuated, and harm has resulted. The particular risk becomes the focus of attention. But at the time of the allegedly tortious conduct, there may have been no reason to single it out from a number of adverse contingencies, or to attach to it the significance it later assumed. Recent judgments in this Court have drawn attention to the danger of a failure, after the event, to take account of the context, before or at the time of the event, in which a contingency was to be evaluated: see, eg, James v Bartlett (2000) 75 ALJR 1 at 5 – 6 [19]; Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 75 ALJR 164 at 167 [17], 183 – 184 [109].”

I gathered some references to warnings of the dangers of hindsight in the field of land valuation cases in Aghajanian v Stanley Thompson Valuers Pty Ltd [1999] NSWSC 1154. That was a case where there had been events which had caused a catastrophic decline in the value of properties used as squash courts. It was easy to say there, when everyone was agreed that some months after the valuation the value of a property had halved, that that must have been able to be known or foreseen at the earlier time when the valuation was made. That has some similarities to this case. After weeks of litigation with the cross examination of many witnesses, lay and medical, it seems reasonably plain to the second defendant, as it seemed reasonably plain to me by the time of my judgment, that the plaintiff did not have capacity, but that was not plain at the start and it was a very hard fought issue. This was a case in which the medical evidence was of high quality. There was a large body of psychiatric evidence including that of eminent experts in the field of dementia. And both the doctors on the ground at the time of the events deposed to and those looking at the matter ex post facto were divided on the question of whether the testator had capacity or not. Professor Broe, an expert of particular eminence, thought she had not. Dr Rosenfeld, who worked with Professor Broe and regarded Professor Broe as his mentor, was of the opposite view. Dr Stanley, a very experienced psychiatrist, who had treated her a few months before, believed she did not have capacity. Professor Buhrich saw her a few months before and believed that she did not, but saw her on the day and believed that she did. Although I found fault with Professor Buhrich’s view, I did not doubt either his expertise or his honesty. Mr Berger, the solicitor who made the will, whom I have at all times found to be a witness of honesty and candour, believed honestly, although in my view mistakenly, that she had capacity. The phenomenon to which Professor Broe drew attention in his evidence, namely, the difficulty that even close and experienced observers have in appreciating the full extent of the disability (see my judgment [63]), is no doubt a factor. It is all very well to say that people knew this, that or the other fact and so must have known that there was no capacity. That there was none was determined only after a long trial in which medical and legal skills of the highest quality were deployed. The difficulties arose from characteristics of the testator compounded by the deterioration of her mind undoubtedly caused by her disease. She was an eccentric and rather larger than life lady before the disease had its impact. But it was her conduct at the time of making the 1986 wills and the 1987 will that made the situation very hard to determine. In those circumstances I am not prepared to find that anybody did know or must have known that the propounding of the 1987 will was hopeless. Nor do I find that any conduct of the Popovtzers at the time the will was made should have any effect on the result as to costs: it could not be said to have caused the litigation.

49 Bearing in mind the modern view as to the ambit of the concept of litigation caused by the testator (see Perpetual Trustee Company Ltd v Baker supra) it is my view that it was by reason of the testator’s conduct and habits that the difficulty as to determining capacity arose. In my view the correct conclusion is to characterise this litigation as within the class of litigation caused by the testator and to order, therefore, subject to what follows, that the plaintiffs’ costs be paid out of the estate.

50 Submission [39](5) relies on the making of Calderbank offers. As to the first of these, made at the time of the November 1998 settlement with the first defendant, I do not accept a submission put on behalf of the plaintiffs that Mr Gavshon did not have authority to bind the second defendant; he was the Chairman at the time, engaged in negotiations to attempt to join in the imminent settlement, and I see no reason to doubt his authority. However, in my view, this “offer” never attained sufficient certainty to be capable of acceptance. As I have said (in [22]), I accept Mr Berger’s evidence that the offer was in terms that the second defendant would accept an additional million dollars “plus” to settle the case. True it is that Mr Berger set out to procure taxation advice, but this was with a view of making an offer of perhaps $900,000. In any event, although there were undoubtedly negotiations, I find that no offer was made in a sum certain that was capable of acceptance. That is not the case with the letter of 1 February 2001 (see [24]). That was undoubtedly an offer capable of acceptance. The question is whether it was unreasonable for the plaintiffs not to accept it. The conclusion that I have reached is that it was not. The reasons for this are largely the reasons set out in [48] for finding that the outcome of the litigation was unclear up to the time of the trial. The executors were under a duty to propound the 1987 will to carry out the testator’s intentions, if they did not renounce and unless it were clear that she did not have capacity or did not know and assent to the contents of the will. That was not clear. In my view it was not unreasonable for them to continue with the litigation despite the offer.

51 As to submission [39](1), in relation to the question of whether the plaintiffs incurred any liability to pay Mr Berger’s costs, it is necessary to ascertain in the appropriate way the intent of the parties embodied in the tripartite agreement among the plaintiffs, Professor Popovtzer and Mr Berger. This is not easy to do. Whether or not the executors were to be liable to Mr Berger if costs were incurred and Professor Popovtzer did not pay them is unclear on the face of the contemporaneous material. Equally, whilst “indemnity” was mentioned on a number of occasions, there was no specific mention as to whether that indemnity extended to costs ordered against the plaintiffs in the event of the failure of the suit. Whilst hopeful that that would not occur, Mr Berger and Mr Landerer at least must have been aware of the possibility. The following facts are significant. Whilst Mr Landerer and Mr Grynberg did not in fact sign “Terms of Engagement” (see[10]), it was stated by Mr Berger to Professor Popovtzer that it was intended that they should in the communication which led to Professor Popovtzer signing that document. Whilst they never did sign, there is no suggestion in any of the material before me that the intention was ever retracted. Bearing all the factors in mind, it seems to me that the tripartite agreement should be construed as follows. First, there is no doubt that the plaintiffs were to remain as clients of Mr Berger; they were prepared to and did remain parties to the suit; the alternative course of their renouncing probate and leaving it to Professor Popovtzer as residuary beneficiary to apply for administration cum testamento annexo was not followed. Secondly, although the proceedings were to be conducted largely in accordance with Professor Popovtzer’s wishes Mr Berger was to (and did) continue to take the plaintiffs’ instructions. Thirdly, the plaintiffs were to be protected from personal liability; they had the contractual indemnity of Professor Popovtzer which extended both to Mr Berger’s costs and to any costs ordered against them. Fourthly, so far as Mr Berger’s costs were concerned, they were to be protected by Professor Popovtzer paying the costs and paying them, at least in the first instance, in advance. A $2,000 advance was sought in the letter which forwarded the costs agreement to Jerusalem. Fourthly, the plaintiffs would sign the Terms of Engagement if called on to do so or would in any event be bound by their provisions. In other words, the plaintiffs were to become liable for the costs, as shown by the intention that they should sign the Terms of Engagement, but they were to be protected against being left to pay the costs, both by the indemnity and by advance or prompt payment of Mr Berger’s costs by Professor Popovtzer. In those circumstances I find that they did incur liability for Mr Berger’s costs, albeit they have not in the event paid any of them, having been absolved from their obligation by the payment of those costs throughout by Professor Popovtzer in fulfilment of his obligations. There is therefore no barrier to ordering that their costs of the proceedings after 9 November 1998 be paid out of the estate and that is the order that I propose to make. In those circumstances, Professor Popvtzer’s application becomes otiose and may be dismissed.

Orders

52 Short minutes may be brought in encompassing the decisions that I have made. The costs of the application to set aside Hodgson CJ in Eq’s orders may be dealt with at that time.

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Last Modified: 05/21/2002