Peters v Salmon (No 2)

[2013] NSWSC 1071

Supreme Court

New South Wales

Medium Neutral Citation:	Peters v Salmon (No 2) [2013] NSWSC 1071
Hearing dates:	13 September 2013
Decision date:	17 September 2013
Jurisdiction:	Equity Division
Before:	Ball J
Decision:	See paragraph 36 of this judgment
Catchwords:	JUDGMENT AND ORDERS - family provision - whether interest payable on a family provision order - whether an applicant should have liberty to apply if the order is not paid by a specific date COSTS - awarding of costs in circumstances where two applicants are jointly represented and one is successful and the other unsuccessful - whether an adverse costs order should be made against the unsuccessful applicant - whether costs should be borne or paid by all of the beneficiaries where this has the effect of requiring a successful applicant to pay part of the estate's costs - what constitutes an offer of compromise under Uniform Civil Procedure Rules 2005 (NSW) Pt 20 Div 10
Legislation Cited:	Probate & Administration Act 1898 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Harkness v Harkness (No 2) [2012] NSWSC 35 Peters v Salmon [2013] NSWSC 953 Shellharbour City Council v Johnson (No 2) [2006] NSWCA 114; (2006) 67 NSWLR 308 Singer v Berghouse [1993] HCA 35; (1993) 114 ALR 521
Category:	Costs
Parties:	Donna Maree Peters (First Plaintiff) Kerryn Therese Osmond (Third Plaintiff) Esmae Frances Salmon (First Defendant) Michael Augustine Salmon (Second Defendant) Sue Frances Salmon (Third Defendant)
Representation:	M Meek SC (First and Third Plaintiffs) D A Smallbone (Defendants) Peter Evans & Associates (First and Third Plaintiffs) RJI Legal (Defendants)
File Number(s):	2012/60490
Publication restriction:	Nil

Judgment

Introduction

1. I delivered judgment in this matter on 19 July 2013 (Peters v Salmon [2013] NSWSC 953). I will use the abbreviations in that judgment in this one. The relevant factual background is set out in my earlier judgment. There is no need to repeat it here. In my earlier judgment, I referred to Kerryn as the second plaintiff, since two of the other plaintiffs had discontinued their claims. In this judgment, consistently with the court record, I will refer to her as the third plaintiff.

1. In my earlier judgment, I concluded that Kerryn was entitled to provision out of the estate of her late father in the sum of $200,000 and that that provision ought to be borne from Michael's share of the estate. I concluded that no provision should be made for the other plaintiff, Donna.

1. A number of outstanding issues remain. The first is whether the provision for Kerryn should bear interest and, if so, from when. The second is whether liberty should be given to Kerryn to apply if the legacy of $200,000, to which I have concluded she is entitled, is not paid by a specified date and, if so, what that date should be. The third is what cost orders should be made. The fourth is whether any order should be made concerning which part of the estate should bear the costs of the proceedings.

Interest

1. Kerryn seeks interest on her legacy from 20 October 2013 if the legacy has not been paid by that date. The defendants accept that interest should be paid. However, they say that it should not run until 20 August 2014. They submit that in order to satisfy the judgment of the court it will be necessary for the estate to sell one of the properties which comprises the family farm. They submit that, in order to get the best price for that property, it will be necessary to allow a year for the sale to occur and that interest should not run during that period. In making the submission that the sale will take as long as a year the defendants rely on evidence given by Mr Maher at the hearing who estimated that the time needed to sell the properties that comprised the deceased's estate, without exposing the sale to an adverse result, was a year.

1. I do not accept the defendants' submission. I accept that it may take some time to sell rural property. However, in my earlier judgment I concluded that Mr Maher's evidence was not reliable and I am not prepared to accept his evidence that it will take as long as a year to sell the property that will need to be sold in order to pay Kerryn her legacy.

1. In addition, it is necessary to bear in mind how the $200,000 legacy was calculated. I concluded that adequate provision for Kerryn was an amount that would enable her to buy out her partner's share of a unit they both own and reduce the mortgage in respect of that property to the point where she was likely to be able to repay the balance of the mortgage before her retirement. The ultimate amount that Kerryn will have to pay will be determined by the value of the unit; and the likelihood is that the value of the unit will increase over time. Consequently, the longer the delay in Kerryn receiving her legacy the less likely it is that the legacy will be sufficient to achieve the goal it was intended to achieve. An award of interest will go a considerable way in avoiding that consequence.

1. In addition, until the property is sold, Michael is likely to have the benefit of it and to earn income from it. An alternative order I could have made was that Kerryn receive the property known as "Olivers" which I found to have a value of $200,000. I chose not to make that order to give Michael flexibility in satisfying the judgment I concluded ought to be made in Kerryn's favour. However, I do not think that Michael should retain whatever income is earned from the properties that were left to him if the true position is that one of those properties must be sold in order to satisfy the judgment in Kerryn's favour. That income should be Kerryn's. An award of interest is the simplest proxy for that income.

1. Finally, it is important to Kerryn's own position that she be paid her legacy as soon as possible. Her current domestic arrangements are unsatisfactory because she has separated from her partner but they continue to live in the unit together and are likely to do so until their financial arrangements are finalised. In those circumstances, it is appropriate that the executors of the estate, and Michael in particular, have some incentive to resolve the question of how Kerryn's legacy will be paid as quickly as possible.

Liberty to apply

1. Kerryn also asked for an order that there be liberty to apply after a specified date if the legacy has not been paid. She proposes that the date be 19 January 2014 on the basis that that will give Michael sufficient time to sell the property so as to raise the $200,000. The defendants, on the other hand, resist any such order. Their position is that the executors should be left to administer the estate in accordance with their duties. If, at some time in the future, Kerryn takes the view that the executors have not discharged their duties, it is open to her to commence fresh proceedings.

1. I do not accept the defendants' submission. The parties have already spent a great deal of money on legal costs which has made the difficult task of dividing an estate that is inadequate to meet all of the claims that might be regarded as legitimate more difficult. There is considerable animosity between the parties and there will no doubt be an understandable reluctance on the part of Michael to sell any of the properties. In those circumstances, there is a real risk that there will be inordinate delay in finalising the deceased's estate. The most efficient way of minimising that delay is to grant Kerryn liberty to apply. However, in my opinion, the period proposed by her is too short. It may well be necessary to do some work on the property to be sold to make it ready for sale. The sale could take some time and the settlement of that sale some time after that. In my opinion, it is reasonable to allow a period of approximately six months from the date of this judgment. On that basis, in my opinion, it is appropriate to give liberty to apply to Kerryn to restore the proceedings on seven days' notice to seek orders to enforce payment of the legacy if the legacy and interest on it are not paid in full by 31 March 2014.

Kerryn's costs

1. There is no issue that Kerryn should have her costs of the proceedings. There is a question whether the court should make some special order in relation to those costs.

1. Kerryn and Donna (sensibly) were represented by the same firm of solicitors and counsel. There is no evidence before me of what arrangements were made between Kerryn and Donna in relation to the payment of costs as between them. Much of the work done by their legal advisers was relevant to both their claims. To the extent that work was done that was relevant to the claim of only one of them, the amount of work done in relation to each claim appears on the material before me to be roughly the same. Consequently, in the absence of any other evidence, it is reasonable to conclude that the costs of the proceedings would be shared by Donna and Kerryn equally. The estate should only be liable for Kerryn's proportion of the shared costs.

1. There are practical advantages in making an order that the estate should pay 50 per cent of the plaintiffs' costs in respect of its liability to pay Kerryn's costs. An order in those terms is likely to make it easier for the parties to estimate the costs recoverable by Kerryn on assessment and therefore make it more likely that the parties will be able to reach agreement on that matter without incurring further significant costs. Even if agreement cannot be reached, an order in those terms is likely to make any assessment less complicated.

1. Having regard to those matters, in my opinion it is appropriate to order that Kerryn's costs be paid out of the estate of the deceased and that those costs be calculated as 50 per cent of Kerryn's and Donna's costs of the proceedings.

Donna's costs

1. The general principle is that costs follow the event unless it appears to the court that some other order should be made: Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.1.

1. In this case, that principle is affected by three considerations.

1. First, on 8 January 2013 the defendants made an offer pursuant to UCPR Pt 20 Div 4 to settle Donna's claim on the basis that judgment be entered for the defendants against Donna and an order that each of Donna and the defendants pay their own costs of the proceedings insofar as they concerned Donna. The defendants say that they have done better than that offer and that, as a consequence, they are entitled to an order for indemnity costs from 8 January 2013 in accordance with UCPR r 42.15A.

1. In order for that rule to operate, the offer must be an offer of compromise. "Compromise" in this context is interpreted to mean a genuine compromise. Whether a compromise is a genuine one or not must be considered having regard to all the circumstances, particularly the strength of the plaintiff's claim: see Shellharbour City Council v Johnson (No 2) [2006] NSWCA 114; (2006) 67 NSWLR 308 at [20] - [23] per Hunt AJA with whom Beazley JA and Tobias JA agreed.

1. Second, it is generally accepted that courts should take a more flexible approach in dealing with costs orders in family provision matters. As Gaudron J explained in Singer v Berghouse [1993] HCA 35; (1993) 114 ALR 521 at 522:

Family provision cases stand apart from cases in which costs follow the event. Leaving aside cases under the Act which, in s.33, makes special provision in that regard, costs in family provision cases generally depend on the overall justice of the case. It is not uncommon, in the case of unsuccessful applications, for no order to be made as to costs, particularly if it would have a detrimental effect on the applicant's financial position. And there may even be circumstances in which it is appropriate for an unsuccessful party to have his or her own costs paid out of the estate.

1. That is not to say that the court will not make an order for costs against an unsuccessful plaintiff. However, in considering whether to make an order, it is necessary to consider whether the plaintiff's case had merit and the effect of the costs order in the context of the distribution of the estate and the competing claims of the parties. So, for example, courts are often reluctant to make costs orders which undermine the value of an order for provision that the court has made or which impose a financial liability on a party which itself would have had an effect on the court's assessment of whether proper provision had been made for that party out of the deceased's estate: see Harkness v Harkness (No 2) [2012] NSWSC 35 at [18].

1. Third, in the present case, the defendants incurred costs both in defending Donna's unsuccessful claim and in defending Kerryn's successful one. Many of the costs unquestionably related to the defence of both claims. Only a proportion of the costs related to the defence of the claim brought by Donna alone.

1. I am not satisfied that the defendants' offer was a genuine offer of compromise in this case. The offer was that Donna should receive no provision out of the deceased's estate. The only element of compromise was a proposal that the estate would bear its own costs. Donna's claim was not without merit. She had a good relationship with the deceased, she received virtually nothing under the will and her own financial position is not so strong that she could be described as wholly without need. Her case failed because of the competing needs of Michael and Mrs Salmon. In that context, I do not think it could be said that the offer made to her was a genuine offer of compromise.

1. The defendants' costs are estimated to be in the order of $166,000. Donna submits that if a costs order is made against her (as well as having to bear her own costs), that order will have a very serious effect on her financial position to the point where, in accordance with the principles I have referred to, it would be appropriate not to make any costs order against her.

1. I do not accept that submission for two reasons.

1. First, in determining what costs order should be made, it is also necessary to consider the position of Michael and Mrs Salmon. The costs of these proceedings will have a very significant effect on their position. It appears that Michael will need to sell one of the properties in order to satisfy the judgment that Kerryn has obtained. The costs in the proceedings have reached the point where, depending on what order is made, the order is capable of causing substantial hardship for Michael as well as Donna. There is no reason for preferring Donna's position over Michael's in that regard. Indeed, as between them, Michael can be regarded as the successful party.

1. Second, in the circumstances of the case, I think it is appropriate that Donna should only be required to pay the defendants' costs referrable to her claim alone. She should not be required to pay the defendants' costs which were also referable to Kerryn's claim. Those costs would have been incurred if Kerryn alone had pursued her claim and the defendants would have been liable to bear those costs because Kerryn did better than any offer they made to settle her claim.

1. Mr Meek SC, who appeared for Donna, submitted that, if the court adopted that approach, it would be appropriate for the court to order Donna to pay a percentage of the estate's costs rather than to leave the determination of those costs to an assessment. I accept that submission. The advantage of that approach is that it will minimise the area of future disputes and simplify the task of determining the amount of costs payable by Donna.

1. There is necessarily a degree of guess work involved in fixing an appropriate percentage. In my opinion, the majority of costs incurred by the estate related to the claims of both Donna and Kerryn. Some of the costs related solely to Kerryn's claim. Taking those matters into account, in my opinion, it is appropriate to order that Donna pay 20 per cent of the defendants' costs of defending Donna's and Kerryn's claims calculated on the ordinary basis.

1. The defendants submitted that it was appropriate to permit the estate to setoff against the costs payable by it in respect of Kerryn's claim the costs due to it in respect of Donna's claim. It would obviously be desirable if an arrangement along those lines could be agreed between the parties. However, in circumstances where the costs are payable to and by different parties, I do not think it is appropriate to make any order that the costs be setoff.

Who should bear the costs?

1. The defendants submit that I should make no order in relation to who should bear the costs. The effect of that is that the costs would be borne by all beneficiaries (including Kerryn) according to the value of their respective bequests since no residual estate remains from which those costs can be paid: see Probate & Administration Act 1898 (NSW) s 46C(2) and Schedule III, Part 2.

1. The plaintiffs, on the other hand, submit that the costs to be borne by or payable out of the estate should be paid out of Michael's share.

1. In my earlier judgment, I concluded that Kerryn's legacy should be paid out of Michael's share of the estate. In part, I reached that conclusion because there was evidence before me that Mrs Salmon had transferred her interest in the farm (including the interest she inherited under the will) to Michael. Although it is not seriously disputed that that is her intention, Mr Smallbone, who appeared for the defendants, submitted that that intention had not been effected and that if I ordered the costs of the estate to be paid out of Michael's share that, together with the amount of Kerryn's legacy, would largely exhaust the amount Michael stands to inherit.

1. In my opinion, it is not appropriate that the costs to be borne or paid by the estate should be borne by all beneficiaries. An order in these terms would have the effect of requiring Kerryn to pay part of the estate's costs of defending a claim in which she has been successful.

1. Mr Smallbone accepted the proposition that, in practical terms, these proceedings were a dispute between Michael and Mrs Salmon on the one hand, and Kerryn and Donna on the other. In those circumstances, in my opinion any costs to be paid or borne by the estate should be paid or borne out of Michael's and Mrs Salmon's share of the estate.

1. For the same reason, costs recovered by the estate should be to the benefit of Michael and Mrs Salmon.

Orders

1. The orders of the court are:

(1)   The claim of the first plaintiff (Donna Maree Peters) be dismissed.

(2)   In addition to the provision for the third plaintiff (Kerryn Therese Osmond) made under the will of the late Maurice Augustine Salmon (the Deceased), and on the third plaintiff giving an undertaking not to make any claim against the estate of the first defendant (Mrs Esmae Frances Salmon) the third plaintiff receive a legacy out of the estate of the deceased in the sum of $200,000.

(3)   The burden of the legacy for the third plaintiff is to be borne by way of a charge upon the second defendant's (Michael Augustine Salmon) share of the estate.

(4) No interest is to be payable on the legacy in favour of the third plaintiff if it is paid on or before 19 October 2013, and otherwise interest is payable on that legacy, or so much of it as remains unpaid from time to time, at the rate prescribed under s 84A(3) of the Probate and Administration Act 1898 (NSW) on unpaid legacies, calculated on the last day of each month thereafter until the legacy has been fully paid.

(5)   Subject to (6), the first plaintiff is to pay the costs of her claim against the estate in such amounts as may be agreed by the parties or, if not agreed, then assessed,

(6)   The costs referred to in (5) shall be determined as 20 per cent of the costs incurred by the estate (calculated on a party/party basis) in defending the proceedings brought by the first plaintiff and the third plaintiff and shall be credited to the amounts to be distributed from the estate to the first defendant and second defendant in proportion to the amounts paid from their share of the estate to satisfy order (7).

(7)   Subject to (8), the third plaintiff's costs of her claim are to be paid out of the estate of the deceased.

(8)   The costs referred to in (7) shall be determined as 50 per cent of the first and third plaintiffs' costs of the proceedings (calculated on a party/party basis).

(9)   The burden of the costs order referred to in order (7) is to be borne by way of a charge upon the first and second defendants' share of the estate in proportion to the value of those shares.

(10)   The defendants' costs of the proceedings are to be paid out of the estate of the first and second defendants' shares of the estate in proportion to the value of those shares.

(11)   In the event that the legacy in favour of the third plaintiff and interest on that legacy are not paid by 31 March 2014, there be liberty to the third plaintiff to apply to restore the proceedings on 7 days' notice to seek orders to enforce payment of the legacy and interest.

The court notes:

The giving of the undertaking by the third plaintiff that is required by order (2).

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Decision last updated: 17 September 2013