Porker v Richards (No 2)
[2017] SASC 11
•14 February 2017
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
PORKER v RICHARDS & OTHERS (NO 2)
[2017] SASC 11
Judgment of The Honourable Justice Blue
14 February 2017
PROCEDURE - COSTS - GENERAL RULE - COSTS FOLLOW THE EVENT - COSTS OF ISSUES
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS
Principal reasons for judgment delivered on 1 July 2016 in Porker v Richards [2016] SASC 98.
The first and second defendants seek reimbursement and exoneration for legal costs and other expenses claimed to have been incurred as executors of the estate.
Questions arise as to interest on the principal amounts of the judgments to be entered against the first and third defendants.
Questions of costs of action arise between the parties.
Held:
1. The second defendant is entitled to indemnity out of the estate for non-legal expenses incurred as executor of $6,843 and exoneration for legal costs incurred as executor of $18,964 (at [18]).
2. The first defendant is entitled to indemnity out of the estate for non-legal expenses incurred as executor of $17,829 and for legal costs incurred as executor of $6,302 (at [24]).
3. Liberty to any party to apply within 21 days in respect of estate legal costs incurred by or allowed to the first or second defendant (at [58]).
4. The estate is entitled to interest of $10,659 against the first defendant (at [26]).
5. The first defendant is entitled to interest against the third defendant of $4,118 (at [27]).
6. Judgment is granted in favour of the first and second defendants as executors of the estate against the first defendant in her personal capacity for $53,503 inclusive of interest and net of the first defendant’s entitlement to indemnity against the estate (at [61]).
7. The first defendant is entitled to judgment against the third defendant for $16,870 inclusive of interest (at [62]).
8. The following amounts be paid out of the monies (excluding interest) that were paid into the suitors’ fund in this action:
(a) $68,324 to Public Trustee on trust for Garry;
(b) $30,691 to Stephanie;
(c) $94,131 to Marjory;
(d) $51,504 to Bryan.
(at [65] and [66]).
9. Interest earned on the monies in the suitors’ fund is to be calculated and paid in equal portions to the plaintiff and the first, second and third defendants (at [66]).
10. The first defendant is to pay the plaintiff’s costs of action on a party and party basis up to 27 October 2015 and thereafter on a solicitor and client basis (at [36]).
11. The first defendant is to pay the second defendant’s costs in respect of the March 2016 affidavits of the first defendant and Benjamin Walker, the first defendant’s costs of giving evidence at trial and the costs of appearance of her lawyer on the first day of trial (at [43] to [45]).
12. The first defendant is to pay the third defendant’s costs of the first defendant’s cross claim against him from 13 March 2016 on a solicitor and client basis (at [49]).
Evidence Act 1929 (SA) s 67C; Supreme Court Civil Rules 2014 (SA) r 130(5), r 263(1), r 264(2); Supreme Court Civil Supplementary Rules 2014 (SA) r 208, referred to.
Australian Securities and Investments Commission v West (2008) 100 SASR 496; Calderbank v Calderbank [1975] 3 All ER 333; Citicorp Australia Limited v Cirillo (No 4) [2001] SASC 233; Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; Pascoe Ltd (in Liq) v Lucas (1999) 75 SASR 246; Pope v Pope [2001] SASC 26; Porker v Richards [2016] SASC 98; Rayner v Pethick (2006) 243 LSJS; Sheahan v Northern Australia Land & Agency Co Ltd (No 2) (SASC, Full Court, No S5363, 18 December 1995, unreported); The Public Trustee as Litigation Guardian for Imre Pinter v Newman [2012] SASCFC 18; Walters v Woodbridge (1878) 7 Ch D 504, considered.
PORKER v RICHARDS & OTHERS (NO 2)
[2017] SASC 11Civil:
BLUE J:
On 1 July 2016, I delivered reasons for judgment in Garry Porker’s derivative action on behalf of the deceased estate against Stephanie Richards for rent and Stephanie’s cross action against the estate for monies paid and work done and against Bryan Porker for contribution and damages.[1]
[1] Porker v Richards [2016] SASC 98.
I concluded that the estate is entitled to judgment against Stephanie for gross rent of $71,990 less $2,830 rent paid less $17,829[2] expenses incurred less any Mellor Olsson costs incurred by Stephanie as executor. The rent calculation was erroneously based on 313 weeks when it should have been based on 303.5 weeks (13 November 2008 to 1 September 2014). The correct calculation of gross rent is $69,805 and net rent is $66,975.
[2] All dollar figures are rounded to the nearest whole dollar unless otherwise shown. All dollar figures include GST where applicable.
I concluded that Stephanie is entitled to judgment against Bryan for $12,752.
These reasons address indemnities for executor expenses, interest, judgments to be entered, the payment out of the monies paid into court, and costs of action.
Indemnity for executor expenses
Stephanie and Marjory each seek reimbursement and exoneration for expenses claimed to have been incurred as executors of the estate.
Marjory
Marjory seeks reimbursement of funeral expenses of $5,600, house insurance of $690 and $54, council rates and emergency services levy of $389 and a legal expense of $110 (VAJ Byrne & Co). The other parties accept that these expenses totalling $6,843 should be reimbursed out of the estate.
Marjory seeks exoneration for legal costs incurred with von Doussas of $61,025 comprising $60,000 professional costs and $1,025 disbursements. These are the costs included in an invoice rendered by von Doussas to Marjory dated 16 August 2016. These costs relates to work undertaken between 20 July 2007 and 9 August 2016. von Doussas produced a work in progress printout which showed amounts calculated at hourly charge out rates for professional work totalling $63,426. von Doussas did not charge for nine amounts totalling $1,641 and I disregard those items. In addition, von Doussas discounted the total charge for professional work by an additional $1,785 to give a total of $60,000. In view of the arbitrary nature of the discount, it is appropriate to apply the discount pro rata as between those items that are allowed for one purpose or another and those items that are not allowed. In addition, von Doussas charged $1,025 for disbursements but generally did not identify the date of the disbursement or characterise its purpose. In the circumstances, it is appropriate to apply the disbursements pro rata as between those items that are allowed for one purpose or another and those items that are not allowed. The combination of the adjustments referred to above results in a net multiplication factor applied to a specific amount shown in the work in progress printout of 0.988 (the multiplication factor).
In addition, Marjory seeks exoneration for legal costs incurred with von Doussas of $13,500 comprising $13,463.59 professional costs and $36.41 disbursements. These are the costs included in an invoice rendered by von Doussas to Marjory dated 7 December 2016. These costs relate to work undertaken between 16 August and 7 December 2016. In addition, Marjory seeks exoneration of further costs incurred since 7 December 2016 not yet invoiced.
The work undertaken by von Doussas can conceptually be divided into two components: work in and associated with the action (which for ease of reference I call action costs); and work relating generally to the estate undertaken independently of the existence of the dispute which is the subject of the action (which for ease of reference I call estate costs). In practice, it may be difficult to categorise some items of work as falling within one or other of these two categories because ongoing steps were taken towards the marketing and sale of the house property concurrently with the action and steps taken in it.
Marjory seeks exoneration from the estate for estate costs. In respect of action costs, Marjory’s primary claim is that an order should be made that Stephanie pay her costs of action which encompass these costs. Marjory only seeks exoneration as executor of the estate in respect of these costs in the alternative. I therefore defer consideration of Marjory’s contingent exoneration claim in respect of action costs until I have dealt with her claim against Stephanie.
The represented parties, Marjory, Garry and Bryan, ask the Court to make a broad axe assessment of costs rather than a detailed assessment or adjudication. This is in the interests of avoiding the further cost and delay associated with a detailed assessment or adjudication.
The work undertaken by von Doussas can be divided up into five time periods.
The first period is from 20 July 2007 to 7 September 2010. On the former date, Marjory and Stephanie met with von Doussas. On the latter date, Garry instituted this action seeking orders for the sale of the house. The costs shown in von Doussas’ work in progress printout in respect of this period total $11,413. The principal work undertaken by von Doussas was to apply for and obtain probate on behalf of Marjory; negotiate the rental agreement with Mellor Olsson on behalf of Stephanie; receive rent and pay various expenses; and communications with Mellor Olsson on behalf of Stephanie. The communications with Mellor Olsson related primarily to the potential sale of the house and payment of rent, and to a lesser extent to requests by Mellor Olsson for information concerning Marjory’s dealings as executor. Towards the end of this period, the work also included communications with the Crown Solicitor on behalf of Garry and dealings with Westpac and RAA insurance. Marjory contends that all of these costs fall into the estate costs category and Garry and Bryan do not oppose Marjory being exonerated in this amount. I allow the amount of $11,413 adjusted by the multiplication factor.
The second period is from 8 September 2010 to 30 October 2013. On the latter date, the Crown Solicitor reinvigorated the action and applied to join Marjory and Bryan as additional defendants to the action. The costs shown in von Doussas’ work in progress printout in respect of this period total $3,999. The principal work undertaken by von Doussas was to engage in communications with Treloar & Treloar on behalf of Stephanie and the land agent Garry Daw and towards the end of the period with the Crown Solicitor on behalf of Garry. I do not have in evidence most of the communications with the Crown Solicitor. They might arguably be characterised as communications by an executor with a beneficiary which in principle are recoverable; as communications with a party exercising subrogated rights of the executor which in principle are not recoverable; or as having a dual capacity. Marjory contends that all of these costs fall into the estate costs category and Garry and Bryan do not oppose Marjory being exonerated in this amount. The fact that the action was on foot is of limited significance because no substantive steps were taken in the action during this period. I allow the amount of $3,999 adjusted by the multiplication factor.
The third period is from 31 October 2013 to 9 March 2016. The costs shown in von Doussas’ work in progress printout in respect of this period total $24,715. The principal work undertaken by von Doussas was taking steps in the action, engaging in communications with the other parties to the action and meetings with a view to resolving the matter. The only work falling outside this category is a relatively small amount of work dealing with the real estate agent Ben Walker and dealing with council rates, community water invoices, emergency services levy and insurance in respect of the house property, for which I allow $1,002 calculated as shown in Annexure A adjusted by the multiplication factor. The rump of the work undertaken was work undertaken on behalf of Marjory in her capacity as a defendant to the action either as an executor whose rights were being exercised on a subrogated basis by the plaintiff or as a beneficiary.
The fourth period was from 10 to 15 March 2016 being the week leading up to and the first day of trial. The costs charged by von Doussas in respect of this period total $12,364. The principal work undertaken by von Doussas was taking instructions for, drafting, arranging the affirmation of, and filing and serving of the affidavits by Marjory and Ben Walker. The work falling outside this category is dealing with the real estate agent Ben Walker in relation to the contract for the sale of the house property and dealing with insurance in respect of the house property, for which I allow $341 calculated as shown in Annexure A adjusted by the multiplication factor. The rump of the work undertaken was work undertaken on behalf of Marjory in her capacity as a defendant to the action.
The fifth period is from 16 March 2016 onwards being the second and third days of trial and thereafter. The costs charged by von Doussas in respect of this period total $26,418. Over this period, the principal work undertaken by von Doussas was taking steps in the action including attending for judgment and costs arguments. The work falling outside this category is dealing with the real estate agent Ben Walker in relation to the contract for the sale of the house property, work associated with the sale and settlement of the house property and dealing with creditors of the estate, for which I allow $2,439 calculated as shown in Annexure A adjusted by the multiplication factor. I have not included work associated with calculating estate costs because von Doussas should have maintained two separate files and rendered two separate invoices for estate and action costs. The rump of the work undertaken was work undertaken on behalf of Marjory in her capacity as a defendant to the action.
The total amount recoverable from the estate for legal costs excluding action costs is $19,194 subject to adjustment by the multiplication factor of 0.988 which is $18,964. Together with non-legal expenses of $6,843, the total amount recoverable from the estate is $25,807.
Stephanie
Stephanie seeks reimbursement in respect of legal costs incurred with Mellor Olsson between 3 December 2008 and 14 July 2010 totalling $13,479 and with Treloar & Treloar between 20 December 2010 and 13 May 2015 totalling $14,300. The Mellor Olsson bills include a short description of each item of work but do not show the amount charged for each item.
The work undertaken by Mellor Olsson and Treloar & Treloar can be broadly divided up into three time periods.
The first period is from 3 December 2008 to 29 April 2009. The former date is the date on which Mellor Olsson were instructed by Stephanie. The latter date is the date by which Stephanie had been granted double probate and von Doussas had replied to Mellor Olsson’s letter seeking details of receipts and payments. The costs charged by Mellor Olsson in respect of this period total $6,010. The principal work undertaken by Mellor Olsson was to apply for and obtain probate on behalf of Stephanie; communications with von Doussas on behalf of Marjory concerning the estate and negotiating the rental agreement with von Doussas on behalf of Marjory. A minority of the work was undertaken for Stephanie in her personal capacity as tenant of the house property and prospective purchaser of the house property and is not recoverable from the estate. I cannot calculate the amounts charged for non-recoverable work because Mellor Olsson’s bill does not show itemised amounts and correspondence between Mellor Olsson and von Doussas often addressed both recoverable and non-recoverable matters. Making a broad axe assessment, I deduct 20 per cent of the total and allow $4,808.
The second period is from 30 April 2009 to 7 September 2010 when Garry instituted this action seeking orders for the sale of the house. The costs charged by Mellor Olsson in respect of this period total $7,469. The principal work undertaken by Mellor Olsson was communications with von Doussas on behalf of Marjory and the Crown Solicitor on behalf of Garry. The communications with von Doussas related primarily to the potential sale of the house and payment of rent, and to a lesser extent to requests by Mellor Olsson for information concerning Marjory’s dealings as executor. The substantial majority of the work was undertaken for Stephanie in her personal capacity. I cannot calculate the amounts charged for non-recoverable work because Mellor Olsson’s bill does not show itemised amounts and correspondence between Mellor Olsson and von Doussas often addressed both recoverable and non-recoverable matters. Making a broad axe assessment, I allow 20 per cent of the total being $1,494.
The third period is from 8 September 2010 to 13 May 2015. The costs charged by Treloar & Treloar in respect of this period total $14,300. The work undertaken by Treloar & Treloar was to represent Stephanie in the action. This is not recoverable from the estate.
The total amount for legal costs recoverable from the estate is $6,302. In addition, I previously determined that Stephanie is entitled to recover other expenses incurred on behalf of the estate totalling $17,829. The total amount recoverable from the estate is $24,131.
Interest
Estate claim against Stephanie
Garry seeks simple interest on the rent payable to the estate by Stephanie calculated at five per cent per annum on the balance of rent outstanding as at 31 December of each year from 31 December 2009 onwards. This is a conservative calculation of rent because the usual practice is to allow interest at the cash rate of interest set by the Reserve Bank of Australia[3] (calculated every six months) plus four per cent[4] and to calculate interest based on the principal on a semi-annual, quarterly or monthly basis. Accordingly, it is appropriate to award interest against Stephanie in favour of the estate in the manner sought by Garry. Interest calculated on this basis to 14 February 2017 is $15,844 as shown in Annexure B.
[3] The cash rate in December 2009 was 3.75% and now it is 1.5%. The rate claimed of 5% is lower than the cash rate plus 4% over the entire period.
[4] Supreme Court Civil Supplementary Rules 2014 (SA) rule 208.
Garry accepts that interest payable by Stephanie should be reduced to reflect the setoff to which Stephanie is entitled for expenses incurred in her capacity as executor. Garry submits that it is appropriate to reduce the interest payable by Stephanie by the ratio of the total setoff (now established to be $24,131) and the total net rent ($66,975). However, the rent accrued at a more or less constant rate between November 2008 and August 2014; whereas the expenses incurred by Stephanie as executor were not incurred at a uniform rate over that period. It is appropriate to offset the total of the expenses incurred by Stephanie up to 31 December of each year from 31 December 2009 onwards and calculate interest on the balance of the rent payable less expenses paid. This results in interest payable by Stephanie to the estate of $10,659 as shown in Annexure B.
Stephanie claim against Bryan
Stephanie is entitled to interest against Bryan on the amount of $12,752 payable by him to Stephanie. As Stephanie’s claim against Bryan is predominantly for contribution towards rent payable by her to the estate, it is appropriate to calculate interest in favour of Stephanie against Bryan on the same basis as interest in favour of the estate against Stephanie. This results in interest payable by Bryan to Stephanie of $4,118 as shown in Annexure B.
Costs of action
Garry claim against Stephanie
Garry seeks an order that Stephanie pay his costs of action on a solicitor and client basis, or alternatively on a party and party basis, up to 27 October 2015 and on a solicitor and client basis thereafter.[5]
[5] This date (27 October 2015) is 14 days after the settlement agreement reached between the parties on 13 October 2015. The 14 days mirrors the 14 days provided for under rule 188A for acceptance of formal offers and before the pre-existing costs regime applies.
The starting point is that the general rule is that costs follow the event.[6] While there are various potential reasons why it may not be appropriate in a particular case to follow the general rule, none of those reasons apply in this case. Stephanie should pay Garry’s costs of action.
[6] Supreme Court Civil Rules 2014 (SA) rule 263(1).
The general rule is that costs are awarded on a party and party basis.[7] However, costs may be awarded on a solicitor and client basis in special circumstances, such as when a party, properly advised, should have realised that the party’s case was manifestly hopeless[8] or when a party’s conduct has unreasonably caused the incurring of costs by the party’s opponent.[9]
[7] Supreme Court Civil Rules 2014 (SA) rule 264(2).
[8] Sheahan v Northern Australian Land & Agency Co Ltd (No 2) (SASC, Full Court, No S5363, 18 December 1995, unreported) at 6 per Olsson J (Mohr J and Nyland J agreeing); Pascoe Ltd (in Liq) v Lucas [1999] SASC 519, (1999) 75 SASR 246 at [320]-[324] [313]-[321] per Lander J (Millhouse J and Duggan J agreeing); Citicorp Australia Limited v Cirillo (No 4) [2001] SASC 233 at [21]–[24] per Lander J.
[9] Pope v Pope [2001] SASC 26 at [41]-[43] per Bleby J (Doyle CJ and Duggan J agreeing); Australian Securities and Investments Commission v West [2008] SASC 111, (2008) 100 SASR 496 at [216] per Gray J; Citicorp Australia Limited v Cirillo (No 4) [2001] SASC 233 at [21]–[24] Per Lander J; The Public Trustee as Litigation Guardian for Imre Pinter v Newman [2012] SASCFC 18 at [9] per Gray, Kourakis and Blue JJ.
Garry contends that Stephanie’s defence of the action was manifestly hopeless and that she is guilty of delay in the action which unreasonably caused the incurring of costs. As to the first ground, while I have found that Stephanie had a contractual liability to pay rent, I am not persuaded that Stephanie’s defence was manifestly hopeless. While objectively Stephanie ought to have taken steps to sell the house at least before the action was rejuvenated in October 2013, I am not persuaded that her conduct is such as to justify a solicitor and client costs order. As to the second ground, while Stephanie has been responsible for very substantial delay in the action, I am not persuaded that a solicitor and client costs order is justified in all of the circumstances.
In the alternative, Garry contends that Stephanie unreasonably rejected a settlement offer made to her by the other three parties to the action in October 2015. On 13 October 2015, there was a meeting of the four parties (or their lawyers) which discussed a potential resolution of the issues in the action. Ordinarily, evidence of a communication made in connection with an attempt to negotiate the settlement of a civil dispute is inadmissible pursuant to subsection 67C(1) of the Evidence Act 1929 (SA). However, this is subject to a party explicitly stating that a settlement offer is made without prejudice save as to costs, in which case evidence may be adduced of the offer after the substantive determination of the case and for the purpose only of costs.[10]
[10] See Calderbank v Calderbank [1975] 3 All ER 333; Rayner v Pethick [2006] SASC 70, (2006) 243 LSJS 471 at [31]-[34] per Bleby J.
Mr Siow, the solicitor for Bryan, deposed that an in principle (non-legally binding) settlement was reached between the parties at a settlement conference attended by all parties on 13 October 2015. Mr Lawton, the solicitor for Garry, deposed that he attended the settlement conference and said to Stephanie that, if the settlement failed and the Court eventually decided on a settlement in similar terms or terms more favourable to Garry, he would ask the Court for costs against her since 13 October 2015 and would give evidence of her refusal of the settlement to support his application for costs. In the circumstances, it is appropriate that I admit evidence of the offer made on 13 October 2015. Effectively, Mr Lawton said that the offer embodied in the in principle settlement agreement was made without prejudice save as to costs.
On 13 October 2015, a consent order was drafted making the terms of a compromise attached to the consent order a rule of the Court. The parties initialled the consent order and the attached terms of compromise. The terms of compromise provided for the sale of the house at 40 Adelaide Road, Mount Barker. They provided that Stephanie pay to the estate $45,000 on account of rent and the estate reimburse Stephanie for reasonable testamentary expenses incurred by her including outgoings and capital expenses incurred in respect of the house. They provided that Bryan pay to the estate $15,000 on account of rent and $3,500 to Stephanie on account of utilities and damage to the house. They provided for an equal distribution to the four parties of the monies in the estate after these adjustments. It was endorsed on the consent order that any ambiguity was to be rectified on Wednesday (meaning 14 October 2015).
The effect of the offer made by Garry to Stephanie embodied in the draft order was that Stephanie pay $60,000 to the estate by way of rent, with Stephanie to obtain a contribution from Bryan of $15,000 (to be paid directly by Bryan to the estate) so that Stephanie was to pay net rent of $45,000. In the result, the estate has succeeded in establishing an entitlement to rent of $66,975 together with interest of $10,659. The net rent payable by Stephanie, after taking into account Bryan’s contribution, is $56,475. The estate has succeeded in establishing an entitlement in excess of the amount that was offered to Stephanie to settle the action.
In the circumstances, my discretion is enlivened to order that Stephanie pay Garry’s costs of action since 27 October 2015 on a solicitor and client basis. I consider that I ought to exercise that discretion.
Marjory claim against Stephanie
Marjory seeks an order that Stephanie pay her costs of action on the same basis as that sought by Garry.
Garry instituted and prosecuted the action as a derivative action to enforce the rights of the executors against Stephanie. Ordinarily, the executors of an estate are the proper plaintiffs in an action brought on behalf of the estate to assert rights of the estate against a third party. In the present case, because the action was brought against Stephanie, who is a co-executor of the estate, clearly Stephanie could not be a plaintiff. This left Marjory with the ability to bring the action in her sole name as the other executor of the estate. However, Marjory did not bring the action in circumstances in which she ought to have done so. It was necessary that proceedings be brought to procure the sale of the house and the recovery of rent from Stephanie. Garry was only entitled to bring the action because Marjory failed to do so. In so doing, Garry incurred legal costs which should now be paid by Stephanie on the basis identified above.
Garry was required to join Marjory in her capacity as executor as a defendant because he was seeking to enforce derivatively her rights as executor on behalf of the estate against Stephanie. However, the mere fact that Marjory was joined in her capacity as executor for this reason obviously does not entitle her to recover her legal costs incurred in the action. When Garry instituted the action upon Marjory failing to do so, Marjory was confronted with a choice. She could have become a plaintiff and effectively taken over the conduct of the action from Garry. Alternatively, she could have simply agreed to abide the event of the action. She chose not to take over the conduct of the action from Garry. However, she also chose not to simply abide the event but to take an active role in the action. In the circumstances, there is no reason why Stephanie should pay two sets of costs, being Garry’s costs of instituting and prosecuting the action and Marjory’s costs of participating in it.
Garry also joined Marjory, together with Bryan, in her capacity as a beneficiary of the estate because orders were sought for the division of the net proceeds of the estate. However, there is no reason why Stephanie should be ordered to pay Marjory’s costs of action (or indeed Bryan’s costs of action) merely because she was joined in a capacity as a beneficiary. Again, she could have agreed to abide the event and only been heard concerning the division of the net proceeds of the estate at the conclusion of the matter.
Marjory contends that her participation in the action was in her capacity as executor because Stephanie had advanced claims for reimbursement of expenses incurred by the estate. However, the response to those claims was substantively made by Garry during the trial and Marjory merely adopted the position articulated by Garry. In the circumstances, the incremental work undertaken by Marjory’s solicitor in respect of those claims does not justify a differential order for costs.
Marjory points to the fact that in Stephanie’s defence Stephanie accused Marjory of breaching her duties to the estate as executor and this justified Marjory’s representation in the action and at trial. However, Stephanie did not bring a cross action against Marjory alleging breach of duty to the estate. Stephanie’s defence was only filed on 16 March 2016 on the eve of trial and it was apparent by the conclusion of Marjory’s evidence that whether Marjory breached her duties as executor as alleged by Stephanie was not going to be an issue at trial. The mere fact that Stephanie made accusations in those circumstances does not entail that Stephanie should pay Marjory’s costs of action.
Accordingly, I decline to order that Stephanie pay Marjory’s costs of action. Nevertheless, it was necessary for Garry to prove at trial the communications between Marjory in her capacity as executor and Stephanie in her capacity as tenant and the communications between the land agent, Benjamin Walker, and Stephanie in relation to sale of the house. Shortly before trial, Garry’s solicitors wrote to Marjory’s solicitors by email requiring Marjory to produce an affidavit and attend at the trial to give evidence. Marjory’s solicitors prepared affidavits by Marjory and Mr Walker and arranged for them to be affirmed, filed and served. If they had not prepared these two affidavits, the same work would have had to have been undertaken by Garry’s solicitors. Marjory and her husband also gave evidence, which was completed on the first day of trial. It was appropriate for her to be represented by her solicitor/counsel while she and her husband gave evidence. In the circumstances, it is appropriate to order that Stephanie pay Marjory’s costs of preparing, affirming, filing and serving the affidavit by Marjory affirmed on 14 March 2016 and the affidavit by Mr Walker affirmed on 15 March 2016, Marjory’s own costs incurred to attend court to give evidence (namely a witness fee and travelling expenses) and the costs of Marjory’s solicitor appearing on the first day of trial (excluding negotiations for settlement).
Marjory relies on Stephanie’s rejection of the offer made on 13 October 2015 referred to above to support an order that Stephanie pay Marjory’s costs of action after that date or alternatively that such costs as are payable by Stephanie to Marjory after that date be adjudicated on a solicitor and client basis. The mere fact that Stephanie did not accept this offer does not afford any reason why Stephanie should pay Marjory’s general costs of action: this does not affect the fundamental consideration that Stephanie should not pay two sets of costs and Marjory should not recover her general costs of action in circumstances in which Garry was exercising derivatively her right of action and she chose not to abide the event. There remains no reason to make an order that Stephanie pay Marjory’s general costs of action.
On the other hand, the costs incurred by Marjory in adducing evidence by affidavit and oral evidence by Marjory and Mr Walker would otherwise have been incurred by Garry and would otherwise have been recoverable on a solicitor and client basis for the reasons given above. In the circumstances, the costs to be ordered to be paid by Stephanie to Marjory outlined above should be on a solicitor and client basis.
Stephanie claim against Bryan
The starting point is that generally costs follow the event meaning that ordinarily the starting point would be that Bryan pay Stephanie’s costs of the cross action. However, Stephanie did not file the cross action until 16 March 2016 when she filed the “Defence – Reply to Third Defendant” that I treated as a cross claim against Bryan. Stephanie was acting as a litigant in person when she filed the cross claim and at all times thereafter. Stephanie has not incurred substantive legal costs that would be recoverable against Bryan on an adjudication.
Bryan seeks an order that Stephanie pay his costs of action on an indemnity basis because Stephanie’s conduct of the action caused substantial delays and he was willing to resolve Stephanie’s claims against him on a basis more favourable to Stephanie than that on which she ultimately succeeded. I do not consider that there is any basis for ordering that Stephanie pay Bryan’s general costs of action incurred by him as a beneficiary of the estate (that is, his costs in relation to the issues between the estate and Stephanie as opposed to discrete issues between Stephanie and himself).
On 13 October 2015, as noted above, the parties reached an in principle settlement agreement pursuant to which Bryan was willing to pay a total of $18,500. During the discussions, Mr Siow told Stephanie that, if a trial was necessary and she did not obtain a better outcome than that offered out of court, Bryan had given him instructions to seek an order that she pay all of his costs of action.
Stephanie has recovered from Bryan in February 2017 $16,870 (including interest of $4,118). This is less than the amount offered by Bryan in October 2015 of $18,500.[11] In the circumstances, an order should be made that Stephanie pay Bryan’s costs of Stephanie’s cross action from 16 March 2016 on a solicitor and client basis. Bryan should otherwise bear his own costs of action, including costs incurred by him as a beneficiary of the estate (that is, his costs in relation to the issues between the estate and Stephanie as opposed to the discrete issues between Stephanie and himself).
[11] The amount of interest recovered by Stephanie from Bryan since October 2015 is about $885. Bryan’s offer valued as at February 2017 is therefore $19,385, which exceeds the amount recovered by Stephanie of $16,870.
Stephanie contends that Bryan unreasonably rejected an offer made by her on 18 August 2014 at a settlement conference held at Court presided over by Master Withers. I proceed on the assumption that an in principle agreement, not legally binding, was reached at that meeting. However, the Court’s records show that on 7 November 2014 Master Withers closed the settlement conference on the basis that the matter could not be resolved. Stephanie was represented by Treloar & Treloar at that stage.
The settlement negotiations at the settlement conference are not admissible by reason of section 67C of the Evidence Act 1929 (SA) for the reasons given above. This is also the effect of rule 130(5) of the Supreme Court Civil Rules 2006 (SA).
There is no suggestion that Stephanie’s solicitors conveyed a without prejudice save as to costs offer to Bryan’s solicitors to resolve Stephanie’s potential claim against Bryan in terms of the in principle settlement agreement. In these circumstances, evidence of the settlement communications is inadmissible and I do not have regard to them.
Indemnity for executor expenses
As noted above, Marjory seeks exoneration for her general costs of action as expenses incurred as executor of the estate in the alternative to her claim against Stephanie in respect of those costs.
Marjory is not entitled to exoneration by the estate for her general costs of action for essentially the same reasons that no order should be made that Stephanie pay her general costs of action and in particular that Marjory failed to institute or take over the conduct of the action and declined to abide by the event. There is no reason why the estate should bear her costs of action.
Marjory contends that, if an executor or trustee incurs costs in an action in a dual capacity as executor or trustee on the one hand and beneficiary on the other hand, the executor or trustee is entitled to exoneration out of the trust fund or estate.[12] However, this principle does not apply when the executor or trustee fails to institute proceedings and a derivative action is brought against a third party, joining the executor or trustee as an additional defendant.
[12] Walters v Woodbridge (1878) 7 Ch D 504 at 509-510 per Jessell MR and at 510 per James LJ; Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395 at [259] per Giles JA (with whom Meagher JA agreed).
Marjory would be entitled to exoneration in respect of her costs of preparing, affirming, filing and serving her affidavit and the affidavit of Mr Walker, but she does not seek exoneration in respect of matters for which she obtains a costs order against Stephanie.
My assessment at [18] above is that Marjory is entitled to exoneration from the estate of $18,964 in respect of legal costs. This is approximately $6,752 less that the costs Marjory submitted should be allocated to estate costs as opposed to action costs. My assessment is necessarily a broad axe assessment made without information concerning specific items of work other than shown in von Doussas’ work in progress printout and in some cases correspondence exhibited to affidavits. I will give to Marjory liberty to apply if she wishes to contend that additional items should be allocated as estate costs and the other parties liberty to apply if they wish to contend that items I have allowed should not be recoverable from the estate. However, if a party exercises liberty to apply and this does not result in a substantial change to the amount allowed, that party will be required to pay the other parties’ costs of the application.
In addition, I have adopted a broad axe approach in my assessment of the entitlement of Stephanie to indemnity in respect of legal costs incurred with Mellor Olsson. I will give to Stephanie and the other parties liberty to apply in respect of estate costs incurred by Stephanie on the same terms as in respect of estate costs incurred by Marjory.
I will direct that $10,000 of estate funds be retained in court pending determination of any application made under the liberty to apply.
Potential claim by Stephanie against Marjory for breach of duty
As noted above, Stephanie has made allegations in the action of breach of duty by Marjory. Any claim by Stephanie against Marjory for compensation for breach of duty is outside the scope of the action. If Stephanie wishes to pursue such a claim against Marjory for breach of duty, she will need to institute a separate action against Marjory making those allegations.
Orders to finalise action
The estate is entitled to judgment against Stephanie for $53,503 being $66,975 for rent less $24,131 for legal and other expenses incurred as executor, plus interest of $10,659.
Stephanie is entitled to judgment against Bryan for $16,870 being $12,752 plus interest of $4,118.
The net proceeds of the sale of the house, being $255,601, were paid into the suitors’ fund. Interest has been accruing on those monies and will continue to accrue until they are paid out.
This gives a total value of the estate of $309,104 (plus interest earned in the suitors’ fund) inclusive of the judgment to be granted in favour of the estate against Stephanie. An amount of $25,807 is to be paid out of the estate by way of reimbursement and exoneration of expenses incurred by Marjory. An amount of $10,000 is to be retained pending any applications under the liberty to apply.
The net total value of the estate of $273,297 (plus interest earned in the suitors’ fund) should be paid equally to the four beneficiaries to whom equal shares in the estate were left. The total amount payable by Bryan to Stephanie of $16,870 should be offset against his share of the estate on the basis that this will be in full satisfaction of the judgment to be granted in favour of Stephanie against him. The total amount payable to the estate by Stephanie of $53,503 less the amount due to her by Bryan of $16,870, giving a net amount of $36,633, should be offset against her share of the estate on the basis that this will be in full satisfaction of the judgments to be granted in favour of the estate against her and in her favour against Bryan.
Conclusion
I make the following orders:
1.Declaration that Marjory is entitled to reimbursement out of the estate of $6,843 in respect of expenses incurred in her capacity as executor of the estate and exoneration in the sum of $18,964 in respect of legal costs incurred to von Doussas making a total of $25,807.
2.Declaration that Stephanie is entitled to reimbursement out of the estate of $24,131 in respect of expenses incurred in her capacity as executor of the estate.
3.Liberty to any party to apply within 21 days in respect of estate legal costs incurred by or allowed to Marjory or Stephanie.
4.$10,000 of the funds in court be retained in court pending the hearing and determination of any application under the liberty to apply contained in order 3.
5.Judgment is granted in favour of the Marjory and Stephanie as executors of the estate against Stephanie in her personal capacity in the sum of $53,503 inclusive of interest and net of Stephanie’s entitlement to indemnity against the estate.
6.Judgment is granted in favour of Stephanie against Bryan in the sum of $16,820 inclusive of interest.
7.The following amounts be paid out of the monies that were paid into the suitors’ fund in this action (excluding interest):
(a) $68,324 to Public Trustee on trust for Garry;
(b) $30,691 to Stephanie;
(c) $94,131 to Marjory;
(d) $51,504 to Bryan.
8.Interest earned on the monies in the suitors’ fund is to be calculated and paid in equal portions to Garry, Stephanie, Marjory and Bryan.
9. Stephanie is to pay Garry’s costs of action on a party and party basis up to 27 October 2015 and thereafter on a solicitor and client basis, such costs to be adjudicated if not agreed.
10.Stephanie is to pay Marjory’s costs of preparing, affirming, filing and serving the affidavits of Marjory affirmed on 14 March 2016 and Benjamin Walker affirmed on 15 March 2016, Marjory’s costs of giving evidence at trial and costs of the appearance of her lawyer on the first day of trial (excluding negotiations for settlement), such costs to be adjudicated if not agreed.
11. Stephanie is to pay Bryan’s costs of Stephanie’s cross claim against him (but not Bryan’s costs of Garry’s action) from 13 March 2016 on a solicitor and client basis, such costs to be adjudicated if not agreed.
ANNEXURE A
Marjory costs incurred with von Doussas allowed as estate costs.
Date Amount Period 1 20/7/07 to 7/9/10 $11,413.00 Period 2 7/9/10 to 30/10/13 $3,999.00 Period 3 28/7/14 $55.00 4/8/14 $19.25 29/9/14 $7.70 29/9/14 $7.70 29/9/14 $44.00 1/12/14 $22.00 12/2/15 $35.75 24/2/15 $35.75 25/2/15 $22.00 25/2/15 $22.00 15/9/15 $35.75 28/9/15 $35.75 20/10/15 $22.00 22/10/15 $22.00 4/11/15 $35.75 4/11/15 $35.75 4/11/15 $22.00 12/11/15 $7.70 19/2/16 $7.70 2/3/16 $44.00 2/3/16 $220.00 2/3/16 $44.00 2/3/16 $22.00 3/3/16 $22.00 4/3/16 $44.00 7/3/16 $44.00 8/3/16 $22.00 9/3/16 $44.00 Subtotal $1,002 Period 4 10/3/16 $44.00 10/3/16 $88.00 10/3/16 $88.00 15/3/16 $121.00 Subtotal $341 Period 5 21/3/16 $30.25 21/3/16 $30.25 21/3/16 $22.00 21/3/16 $30.25 21/3/16 $30.25 22/3/16 $90.75 22/3/16 $30.25 22/3/16 $0.00 22/3/16 $0.00 22/3/16 $30.25 22/3/16 $22.00 22/3/16 $22.00 23/3/316 $44.00 23/3/16 $88.00 23/3/16 $22.00 24/3/16 $44.00 24/3/16 $22.00 24/3/16 $44.00 24/3/16 $44.00 29/3/16 $44.00 31/3/16 $22.00 4/4/16 $132.00 6/4/16 $44.00 6/4/16 $44.00 6/4/16 $44.00 7/4/16 $30.25 7/4/16 $110.00 7/4/16 $44.00 7/4/16 $44.00 7/4/16 $66.00 7/4/16 $44.00 7/4/16 $22.00 7/4/16 $44.00 11/4/16 $44.00 12/4/16 $22.00 12/4/16 $44.00 13/4/16 $30.25 13/4/16 $22.00 13/4/16 $22.00 14/4/16 $22.00 14/4/16 $22.00 20/4/16 $44.00 22/4/16 $44.00 26/4/16 $0.00 2/5/16 $44.00 13/5/16 $22.00 13/5/16 $22.00 13/5/16 $30.25 13/5/16 $30.25 16/5/16 $38.50 16/5/16 $38.50 16/5/16 $22.00 16/5/16 $22.00 20/5/16 $30.25 23/5/16 $90.75 23/5/16 $22.00 23/5/16 $22.00 23/5/16 $22.00 27/5/16 $44.00 27/5/16 $22.00 27/5/16 $44.00 6/6/16 $22.00 6/6/16 $22.00 7/6/16 $22.00 7/6/16 $22.00 8/6/16 $22.00 8/6/16 $22.00 20/6/16 $22.00 20/6/16 $22.00 Subtotal $2,439 Total $19,194
ANNEXURE B
Interest on judgment against Stephanie
Period Principal Interest Offset Net Amount Interest 1.1.10-31.12.10 $10,970 $549 $11,080 $-110 $-5 1.1.11-31.12.11 $22,930 $1,147 $14,678 $8,252 $413 1.1.12-31.12.12 $34,890 $1,745 $17,596 $17,294 $865 1.1.13-31.12.13 $46,850 $2,343 $22,539 $24,311 $1,216 1.1.14-31.12.14 $59,040 $2,952 $24,131 $34,909 $1,745 1.1.15-31.12.15 $66,975 $3,349 $24,131 $42,844 $2,142 1.1.16-31.12.16 $66,975 $3,349 $24,131 $42,844 $2,142 1.1.17-14.2.17 $66,975 $413 $24,131 $42,844 $2,142 Total $15,844 $10,659
Interest on judgment against Bryan
Period Principal Interest 1.1.10-31.12.10 $6,900 $345 1.1.11-31.12.11 $10,500* $525 1.1.12-31.12.12 $12,580 $629 1.1.13-31.12.13 $12,580 $629 1.1.14-31.12.14 $12,752 $638 1.1.15-31.12.15 $12,752 $638 1.1.16-31.12.16 $12,752 $638 1.1.17-13.2.17 $12,752 $77 Total $4,118 * $11,500 - $1,000 paid by Bryan to Stephanie
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