Pizimolas v Pizimolas (No 2)

[2010] SASC 209

SUPREME COURT OF SOUTH AUSTRALIA

(Civil: Application)

PIZIMOLAS v PIZIMOLAS & ZANNIS (NO 2)

[2010] SASC 209

Judgment of The Honourable Justice Kourakis

14 July 2010

PROCEDURE - COSTS - GENERAL RULE - COSTS FOLLOW THE EVENT - COSTS OUT OF A FUND - WHEN COSTS ALLOWED OUT OF FUND

Following trial in which plaintiff claimed entitlement to whole of deceased estate, judgment delivered dismissing plaintiff’s claims for a constructive trust and family provision and allowing defendants’ counterclaim for mesne profits – defendants applied for costs – plaintiff argued that costs should come out of the estate.

Held: Defendants in their capacity as executors to have costs paid on indemnity basis from the estate – defendants to have solicitor’s costs on party/party basis and lump sum of $800 for counsel fees on the counterclaim – plaintiff to pay defendants 15 per cent of defendants’ total costs of litigation on party/party basis for constructive trust claim – defendants to have costs of defending family provision claim paid out of estate on party/party basis.

Evidence Act 1929 s 67C, referred to.
Public Trustee v Hall [1937] SASR 252, applied.
Bowyer v Woods [2007] SASC 327, discussed.
R v Seigneur (2009) 103 SASR 207; Chapman v Allan and Draper (1999) 74 SASR 274; Rayner v Pethick [2006] SASC 70, considered.

PIZIMOLAS v PIZIMOLAS & ZANNIS (NO 2)
[2010] SASC 209

Civil: Application

1. KOURAKIS J:      On 28 May 2010 I delivered judgment in this matter.[1]  The plaintiff and the defendants are siblings.  I dismissed the plaintiff’s claim that he held his mother’s residence, which was the substantial asset of her estate, on a constructive trust.  I also dismissed his claim for greater provision out of the estate than the equal shares which were left to him and his two siblings.  I allowed the defendants’ counterclaim for mesne rent for a period in which the plaintiff remained in occupation of his mother’s residence after he had been given notice to quit.

   [1]    Pizimolas v Pizimolas & Zannis [2010] SASC 158.

2. The defendants, in their capacity as beneficiaries under the will, seek an order that the plaintiff pay their costs of defending his claim and in prosecuting their claim for mesne profit.  The plaintiff contends that no order for costs should be made against him and seeks an order that his costs be paid out of the estate.  It is common ground that the defendants, in their capacity as executors, should have their costs paid on an indemnity basis from the estate; I so order.

3. I shall first deal with the question of costs on the defendants’ mesne profit claim.  There is no basis upon which the ordinary rule that costs follow the event can be displaced.  I order that the defendants have their solicitor’s costs on the counterclaim, to be taxed on a party/party basis.  I shall fix a lump sum for counsel fees on that claim because of the difficulty in disentangling the counsel fees incurred on the counterclaim.  I fix a lump sum of $800.

4. I turn next to the plaintiff’s claim that he was entitled in equity to the house.  That claim is closely related to the family provision claim.  It is very difficult to separate out costs and allocate them between the two claims.  I can only wield a broad axe.  Far too much of the estate, or the anticipated distribution from it, has already been dissipated on legal fees.  I estimate that 15 per cent of the costs of the proceedings are attributable to the equitable claim.  There is no reason to depart from the ordinary rule as to the costs of this part of the plaintiff’s claim.  It never enjoyed any real prospect of success.  I order that the plaintiff pay the defendants 15 per cent of their total costs of the litigation on a party/party basis.

5. I now turn to the family provision claim.  The cost of defending the plaintiff’s claim is a cost which was incurred as an incident of determining the just entitlements of the beneficiaries under the will.  The defendants were successful.  They are entitled either to have their costs paid by the plaintiff or, alternatively, paid out of the estate.  If I were to make the latter order, the effect would be that the plaintiff would shoulder only a proportion, reflecting his one third share of the estate, and not the whole of the defendants’ costs.

6. The ordinary rule as to costs is more easily displaced in family provision claims.  In my view that approach reflects conflicting public interest considerations.  On the one hand unmeritorious litigation which dissipates the estate should not be encouraged.  On the other hand the purpose of family provision legislation is to charge the estates of testators who have made inadequate provision with such an amount as is necessary for the support of their dependents; that public policy objectives may not be achieved in practice if meritorious claimants are discouraged from making a claim by the ordinary rule as to costs.  In Bowyer v Woods,[2] Debelle J considered the exercise of the costs discretion in family provision claims, saying:

   [66]The reported decisions contain little discussion of the principles to be applied.  In most instances the report simply notes the order as to costs.  There is a substantial number of decisions in which no costs order was made in the case of an unsuccessful application: re Maslin [1908] VLR 641; re Chapman [1918] St R Qd 226; re Roberts [1919] VLR 125; re Kennedy [1920] VLR 513; re Richardson [1920] SALR 24; re McCreedy [1938] St R Qd 293; re Milanovic [1973] Qd R 205; Dobell v Van Damme [1982] VR 425. In Fox v Burvill (1955) 92 CLR 334 at 341, the High Court ordered that, in the particular circumstances of that case, the costs of the unsuccessful applicant who was also the appellant (she was the divorced widow of the testator) be paid out of the estate. In Krause v Sinclair at 78, Tadgell J ordered that an unsuccessful applicant should not have the benefit of an order for costs but at the same time she would not be ordered to pay costs.  The executor’s costs were paid out of the estate.  In Singer v Berghouse at 214, the majority noted that there is nothing in the Act which precludes an order for costs against an unsuccessful applicant.  While that is unquestionably correct, their Honours were not discussing the ordinary rule nor did they question that in some circumstances an unsuccessful applicant might recover costs out of the estate.  In exercising its discretion not to order costs against an unsuccessful applicant, the court will also consider the effect of an order for costs upon the applicant’s financial position: re De Feu (deceased) [1964] VR 420 at 428.

   [67]In some instances the question whether an unsuccessful applicant will be liable for costs will depend on the reasonableness of the application.  In re Testator’s Family Maintenance Acts (1916) 12 Tas LR 11 at 13 Ewing J held that in view of the fact that the applicant was ‘within his rights in coming to the Court there should not be an order for costs’ except as to the costs of two parties which were paid out of the estate. The decision was affirmed on appeal. In the case of a reasonable application based on a moral claim or obligation, the unsuccessful applicant may even obtain an order for costs in his favour out of the estate. Re Bodman [1972] Qd R 281 is an instance. In that case, a number of applicants succeeded but one failed. Hoare J ordered that both the successful applicants and the unsuccessful applicant be paid their costs out of the residuary estate of the deceased. He said:

   As to costs I order that the costs of each applicant, including reserved costs, be taxed as between solicitor and client and be paid out of the residuary estate of the testator.  So far as concerns the applicant George Albert Bodman, although his application failed, in the particular circumstances of this case especially having regard to the strong moral obligation of the deceased towards him, I order that his costs, including reserved costs, be taxed as between solicitor and client and paid out of the residuary estate of the deceased.

   In re Klease (1972) QWN 44 Hoare J ordered that unsuccessful applicants should have paid their costs out of the estate because ‘there was this moral obligation in their favour and the applicants could not be said to be unreasonable’.[3]

   [2] [2007] SASC 327.

   [3]    Bowyer v Woods [2007] SASC 327 at [66]-[67].

7. In my view, the principles which govern the award of costs where the validity of a will is contested have some application to family provision claims by way of analogy.  Those principles were summarised by Angas Parsons J in Public Trustee v Hall:[4]

   The rules relating to costs have been classified as follows: - 1. If the litigation results through the fault of the testator or those interested in the residue the costs may properly be paid out of the estate.  2. If there be sufficient and reasonable ground looking to the knowledge and means of knowledge of the opposing party to question either the execution of the will or the capacity of the testator, or to put forward a charge of undue influence or fraud, the losing party may properly be relieved from the costs of his successful opponent.  3. Unless the circumstances of the case bring it within one of the foregoing exceptions, the general rule that costs follow the event ought to prevail.[5]

   [4] [1937] SASR 252.

   [5]    Public Trustee v Hall [1937] SASR 252 at 253. This passage was recently cited with approval by Doyle CJ in Thomas v Nash (No 2) [2010] SASC 171.

8. I find that the plaintiff did have some prospect for success in bringing the family provision claim.  There was some doubt about the adequacy of the provision made by the testator for the plaintiff’s long term accommodation having regard to his physical and psychological disabilities.  As it transpired, I found that sufficient suitable accommodation could have been purchased on realisation of his one third share of the estate.  However, the plaintiff’s claim was not frivolous or devoid of any merit.  In that sense, he did not act unreasonably.

9. The defendants contend that the plaintiff prosecuted his claim in an unreasonable manner in that he was not forthright and frank in his evidence.  Many, if not most, litigants attempt by their testimony to put their case in the best possible light.  The plaintiff’s testimony was by no means an egregious example of that tendency.

10. The defendants also rely on what they contend was the plaintiff’s unreasonable failure to settle.  They tendered a letter dated 31 December 2009 in which the plaintiff, by his solicitor, made an open offer to settle for about 55 per cent of the value of the estate.  In the letter, the plaintiff informed the defendants of his intention to tender the letter in the event that he bettered that offer.  Now, however, the plaintiff objects to the tender of the letter.  I received the letter de bene esse to determine the objection to its admissibility.

11. The letter refers to offers made in an earlier mediation conference including an offer made by the defendants to settle on the basis that the parties withdraw their respective claims and carry their own costs. The defendants have bettered that offer and now wish to tender the plaintiff’s letter to show that they made the offer. The plaintiff objects on the ground that, even though the offer was set out in his letter of 31 December 2009, it evidences communications made in a settlement conference and is therefore rendered inadmissible by s 67C of the Evidence Act 1929, which provides:

    67C—Exclusion of evidence of settlement negotiations

    (1)Subject to this section, evidence of a communication made in connection with an attempt to negotiate the settlement of a civil dispute, or of a document prepared in connection with such an attempt, is not admissible in any civil or criminal proceedings.

    (2)     Such evidence is, however, admissible if—

    (a)     the parties to the dispute consent; or

    (b)     the substance of the evidence has been disclosed with the express or implied consent of the parties to the dispute; or

    (c)     the substance of the evidence has been partly disclosed with the express or implied consent of the parties to the dispute, and full disclosure of the evidence is reasonably necessary to—

    (i)enable a proper understanding of the other evidence that has already been adduced; or

    (ii)avoid unfairness to any of the parties to the dispute; or

    (d)     the communication or document included a statement to the effect that it was not to be treated as confidential; or

    (e)     the proceeding in which the evidence is to be adduced is a proceeding to enforce an agreement for the settlement of the dispute or a proceeding in which the making of such an agreement is in issue; or

    (f)    the evidence tends to contradict or to qualify evidence that has already been admitted about the course of an attempt to settle the dispute; or

    (g)     the making of the communication, or the preparation of the document, affects the rights of a party to the dispute; or

    (h)     the communication was made, or the document was prepared, in furtherance of—

    (i)     the commission of a fraud or an offence; or

    (ii)    the doing of an act that renders a person liable to a civil penalty; or

    (iii)     the abuse of a statutory power.

    (3)Subsection (1) does not apply to parts of a document that do not concern attempts to negotiate a settlement of a dispute, if it would not be misleading to adduce evidence of only those parts of the document.

12. It should be noted that s 67C of the Evidence Act 1929 prohibits the admission of evidence in “proceedings”.  It is not limited to the trial of the substantive controversy.  An application for costs is a proceeding or, at the very least, a step in a proceeding.[6]

    [6]    R v Seigneur (2009) 103 SASR 207.

13. In my view, none of the exceptions in s 67C(2) apply. Whatever the plaintiff may have intended when the letter was sent, he does not now consent to admission of the letter for the purposes of s 67C(2)(a). Generally, the consent of the parties to the tender of confidential information pursuant to s 67C(2)(a) must be contemporaneous.[7] Nor has the substance of the evidence been disclosed to the Court, or indeed any third party, so as to fall within s 67C(2)(b). Section 67C(2)(d) of the Evidence Act 1929 is inapplicable because the “communication” to which it refers is the communication made in the course of the settlement conference. Section 67C(2)(d) does not operate on the statement made in the plaintiff’s subsequent letter that he did not intend to treat the contents of his letter confidential. Moreover, the defendants have at no time stated that they would not treat the offer made by them in the mediation as confidential. The other exceptions even more obviously do not apply. I refuse to receive the letter.

    [7]    Chapman v Allan and Draper (1999) 74 SASR 274 at 289; Rayner v Pethick [2006] SASC 70 at [25].

14. Balancing the competing considerations to which I have referred, I am not persuaded that the plaintiff should have his costs paid out of the estate.  His attempt to secure greater provision for his future needs was reasonable but not so obviously justified by the testamentary disposition of his mother to warrant an order of costs out of the estate.  The equal division of the estate between the three siblings was prima facie appropriate and a one third share of the estate was ultimately found to have been adequate provision for the plaintiff.

15. On the other hand, there is sufficient basis here to relieve the plaintiff of the burden of the ordinary rule as to costs.  In particular, I am concerned about the effects of such an order on the plaintiff’s financial capacity to support himself in future years.

16. I order that the defendants have their costs paid from the estate.  I am informed that such costs are often ordered on a solicitor/client basis.  I am not persuaded that it is appropriate to so order.  A practice direction has been issued on the award of costs in estate matters.  It provides:

    Direction 8.1 — Costs in Estate Matters (Rule 263) [Supreme Court only]

    8.1The Judges have been concerned at the relatively high costs which are being run up in litigation involving estates, particularly when there are a number of separately represented parties. In the past the Court has often as a matter of course tended to allow costs as between lawyer and client on the full Supreme Court scale to all parties out of the estate. Practitioners are reminded that the Court will exercise its general discretion as to costs under Rule 263 as appropriate in the circumstances of a particular case, but having particular regard to:

    8.1.1  ordering costs against parties who have not succeeded;

    8.1.2  ordering costs in the light of whatever offers have been made under Rule 187;

    8.1.3  not giving full costs to separately represented parties where they could have properly been jointly represented;

    8.1.4 awarding less than full costs where the amount in issue is relatively small.

17. In my view, it better promotes the prudent settlement of family provision claims to limit the awards of costs of beneficiaries and claimants made out of the estate to party/party costs.  I therefore order that the defendants’ costs of defending the family provision claim in their capacity as beneficiaries be paid out of the estate on that basis.

18. In summary, I make the following orders:

    1.The defendants, in their capacity as executors, will have their costs paid on an indemnity basis from the estate.

    2.The defendants will have their solicitor’s costs on the counterclaim, to be taxed on a party/party basis.  I also fix a lump sum of $800 for counsel fees on that claim.

    3.The plaintiff will pay the defendants 15 per cent of their total costs of the litigation on a party/party basis.

    4.The defendants will have their costs of defending the family provision claim in their capacity as beneficiaries paid out of the estate on a party/party basis.