Re Estate of Zsuzanna Gray (No. 2)
[2010] VSC 269
•18 June 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
PROBATE DIVISION
S PRB 2008 9494
IN THE MATTER of Will and 2 Codicils of
ZSUZANNA GRAY, deceased
APPLICATION BY:
| PETER SZANTO (as Executor of Estate of ZSUSANNA GRAY, deceased) | Applicant |
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JUDGE: | DALY AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 27 May 2010 | |
DATE OF JUDGMENT: | 18 June 2010 | |
CASE MAY BE CITED AS: | Re Estate of Zsuzanna Gray (No. 2) | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 269 | |
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CLAIM FOR EXECUTORS COMMISSION – Costs – General rule – Impact of Calderbank offers.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr P. Pascoe | Thomson Playford Cutlers |
| For the Beneficiaries | Mr S. Newton | Joy Popovska & Associates |
HER HONOUR:
On 30 April 2010 I ordered that Mr Szanto be paid the sum of $20,755.58 from the estate of the late Zsuzanna Gray by way of executors commission. Further, I observed in my reasons for judgment that any liability imposed upon Mr Szanto for GST should also be reimbursed from the estate.[1] I also ordered that Mr Szanto be reimbursed from the estate the sum of $4,934.15, which is payable by Mr Szanto to the Law Institute of Victoria (“LIV”) in respect of the costs of an assessment carried out by the LIV of the work carried out by Mr Szanto in the performance of his executorial functions (“assessment”). The question of the costs of the application for executors commission was adjourned for further hearing on 27 May 2010.
[1]That observation is not reflected in the orders pronounced on that day, and the orders will be amended accordingly (those orders having not yet been authenticated).
On the return date, counsel for Mr Szanto sought the following orders with respect to the costs of the application:
1.The Applicant Executor’s costs of and incidental to his application for Commission, being the costs and disbursements of his retained solicitors Thomson Playford Cutlers be paid and retained out of the Estate, credit being given for amounts already paid and expressly reserving to the Estate Beneficiaries their statutory right under Division 7 of Part 3.4 of the Legal Profession Act 2004 to a third party review/taxation of such costs.
2.Alternatively to paragraph [1], the Applicant Executor’s costs of and incidental to his claim for Commission be taxed on a solicitor/own client basis (he having executed a Costs Agreement with Dibbs Abbott Stillman (later Thomson Playford Cutlers) on 29 January 2009), in default of agreement and when taxed be paid and retained out of the estate.
3.The Beneficiaries’ costs of and incidental to the Application for executors commission, being the costs and disbursements of their retained solicitor Joy Popovska, be paid and retained from the estate.
4.Alternatively to paragraph [3], the Beneficiaries’ costs of and incidental to the Application for executors commission be taxed on a solicitor/own client basis in default of agreement and when taxed be paid out of the estate.
Counsel for the beneficiaries submitted that Mr Szanto’s costs should not be payable from the estate, and that Mr Szanto should in fact pay the beneficiaries’ costs of the application, at least those costs incurred by them:
(a)after the service of a Calderbank letter on 23 March 2009 (“23 March letter”); or
(b)after the service of a Calderbank letter on 26 October 2009 (“26 October letter”).
Counsel for Mr Szanto submitted, in summary, that:
(a)Mr Szanto was successful in his application for executors commission, albeit not at the level of commission originally sought of 3.5%;
(b)the beneficiaries failed in their submission that Mr Szanto had conducted himself in a manner which disentitled him from receiving any executors commission;
(c)the numerical effect of the orders of 30 April 2010 (taking into account the GST component and the orders in respect of the costs of the assessment) was that Mr Szanto will receive the sum of $27,765.23, being well in excess of the offer of $22,982.00 contained in the 23 March letter, and only a small amount ($323, or even less having regard to interest) less than the offer of $28,088 contained in the 26 October letter;
(d)in any event, in applications such as these, the Court should not have regard to Calderbank offers; and
(e)there is no good reason not to follow the general rule that an executor’s costs of applying for commission should be treated as part of the costs of the administration of the estate.
In response, counsel for the beneficiaries submitted, in summary, that:
(a)I should not include the GST component and the payment for the assessment in comparing the offers made in the Calderbank letters with the award finally made by the Court, as there is some doubt as to whether GST would actually be payable upon the receipt of executors commission, and the payment to the LIV for the assessment is properly characterised as a disbursement.
(b)the offer in the 23 March letter was made before the assessment became available, and having regard to the matters in (a) above, the offer in the 26 October letter was clearly in excess of the ultimate award;
(c)there is no reason in principle why Calderbank offers should not be taken into account in determining the costs of applications such as these;
(d)there has been disentitling conduct on the part of Mr Szanto, in particular, his initial refusal to provide a detailed bill of costs, which made it difficult for the beneficiaries to engage in meaningful negotiations, and his use of estate funds to pay his legal costs to pursue the claim for executors commission; and
(e)given the disproportionate expenditure of legal costs by Mr Szanto in furtherance of this claim, it would be most unjust if the beneficiaries have to pay Mr Szanto’s costs of the application for executors commission.
After the hearing of the application, I sought clarification of the costs orders sought on behalf of the beneficiaries. A minute was forwarded to me by counsel for the beneficiaries which stated:
1.The applicant’s costs and incidentals to the application for executors commission incurred by him up to the 23rd March 2009 be paid from the estate of the deceased on a solicitor and client basis.
2.The costs of the beneficiaries of and incidental to the said application incurred after 23rd March 2009 be paid by the applicant on a party/party basis.
Counsel for Mr Szanto disagreed that these orders reflected the submissions made on behalf of the beneficiaries. I read the minute to read that Mr Szanto should pay the costs of the beneficiaries after the service of whichever Calderbank offer I found to be effective (if indeed I did so find).
Accordingly, the issues in this application are:
(a)whether, having regard to the fact that an award of executors commission was made, Mr Szanto should have his costs from the estate;
(b)whether Mr Szanto’s conduct in any way disentitled him from receiving part or all of his costs from the estate;
(c)whether the offers made in either or both of the Calderbank letters should affect any costs order I make, and if so, how; and
(d)if I were to make an award for costs, on what basis should they be payable, and what procedure should be adopted with respect to their assessment.
Counsel for Mr Szanto referred me to the case of Atkins v Godfrey[2], where His Honour Justice Le Miere stated:
In general, an executor’s costs of applying to be allowed commission should be treated as part of the costs of administration. The costs of each of the parties, including the plaintiff, should be paid out of the estate. Of course, the plaintiff will have to bring into account the sums which have already been paid of the estate towards his costs of this application for commission.
[2][2006] WASC 83 [17 May 2006] at [96]
I agree with this general proposition, and that, subject to consideration of the other issues in this application, that this general proposition should apply in this case. Having failed to reach an agreement with the beneficiaries, Mr Szanto was required to make an application to the Court to pass the accounts of the estate and apply for commission. He was entitled to do so under the terms of the Will. The Court has found that Mr Szanto should be paid an amount commensurate with the work he has done in furtherance of his executorial duties.
Further, I do not consider the conduct of Mr Szanto in the course of making his claim for executors commission should disentitle him from having his costs paid out of the estate. In paragraphs 32 to 34 inclusive of my judgment dated 30 April 2010, I set out the matters where I took into account when determining the amount of executors commission payable to Mr Szanto:
(a)the terms of the letter sent by Mr Szanto to the beneficiaries on 9 December 2008;
(b)the refusal of Mr Szanto to provide a detailed bill of costs to the beneficiaries; and
(c)utilising the funds of the estate for the payment of his legal costs to bring his claim for executors commission to this court.
I took these matters into account in forming my view that Mr Szanto’s “pains” in the discharge of his executorial function were substantially of his own making. This was one of the bases upon which I determined not to award Mr Szanto executors commission on account of his “pains”, or the anxiety and worry suffered by him in carrying out his executorial duties. Accordingly, I do not consider that Mr Szanto’s entitlements as executor should be further diminished as a result of these matters.
During the course of the hearing of the application with respect to costs, counsel for Mr Szanto drew my attention to the benign approach adopted by His Honour Justice Le Miere in Atkins v Godfrey to the prepayment of the legal costs and disbursements incurred by an executor in making his claim for commission from the estate concerned. At paragraph 76, the Court stated:
The plaintiff has already applied to the court to pass his accounts. The costs of that application have been allowed to the plaintiff. This application is for his commission alone and is contested by the beneficiaries of the estate. That is, the application is solely for the benefit of the plaintiff. Nevertheless, applying for an order that the executor be allowed commission is part of the administration of the estate and the executor does not commit a breach of trust or fiduciary duty by paying the costs of the application out of the estate. In any event I am satisfied that the plaintiff acted honestly in doing so. He honestly believed that the application for executors commission was part of the administration of the estate and it was proper to treat his costs in applying for commission as part of the costs of administration of the estate. In those circumstances the plaintiff’s action in paying the costs of the application out of the estate does not disentitle him to commission. However, the plaintiff must repay the difference, if any, between the costs he paid out of the estate and the costs he is allowed by the court.
This authority does not cause me to alter my view that in many cases it is unwise for executors to utilise estate funds to fund their claims for executors commission. Ultimately, the appropriateness of such conduct depends upon the circumstances of this case. One matter which caused me particular concern in this case was the amount of the legal fees paid from the estate: being $22,708.20 between January and June 2009, compared with the estimate in Mr Szanto’s letter of 9 December 2008 to the beneficiaries of $6,000 to $7,000. It is noteworthy that the costs paid from the estate in Atkins v Godfrey were less than $5,000.
However, upon review of the passage in Atkins v Godfrey reproduced above, along with an exchange with counsel in court, highlighted one matter that requires clarification: that is, I am satisfied that Mr Szanto acted honestly in the conduct of his executorship, and that he honestly believed that he was entitled to conduct the claim for executors commission in the manner he did. To the extent that my reasons for judgment raised any doubts about Mr Szanto’s honesty and probity, no such doubts were intended to arise or should arise.
Therefore, I consider that in the absence of any special circumstances, Mr Szanto should be entitled to the costs of his application for executors commission, and any conduct which was subject to criticism has been taken into account in determining the amount of executors commission payable to him. The issue which then arises is, what impact, if any, should the Calderbank offers contained in the 23 March and 26 October letters have on the terms upon which such costs are awarded?
The 23 March letter (sent some months prior to the issue of the application for commission) was headed “WITHOUT PREJUDICE SAVE AS TO COSTS”, and stated, relevantly:
I reiterate that my clients are prepared to pay your client:
·executors commission (inclusive of GST) at the rate of 2.5 per cent of the gross value of the estate;
·legal remuneration claimed by him in relation to the conveyancing file; and
·legal remuneration claimed by him in the form of a scale probate application fee.
Over and above this, my clients will not supplement the above with:
·GST on the agreed executors commission;
·your client’s costs in consulting with you about the propriety of his claim for commission under section 65 of the Administration and Probate Act 1958 at a rate of 3.5 per cent (exclusive of GST).
The letter of 26 October 2009 (some weeks prior to the hearing of the application) was also headed “WITHOUT PREJUDICE SAVE AS TO COSTS”. It states, relevantly:
I have instructions from the beneficiaries to make the following offer. My clients are prepared to pay:
1.Executors commission (plus GST) at the rate of 2.5% of the gross value of the estate.
2.Legal fees as previously agreed to namely, the probate application fee of $1,310.00 and the conveyancing fee of $2,276.55.
3.The costs of and incidental to the applications for the executors commission which are to be taxed on a solicitor/client basis.
Counsel on behalf of Mr Szanto submitted the following:
(a)this numerical effect of my judgment of 30 April 2010 is as follows:
Commission
$20,755.58
GST
$ 2,075.50
Cost assessment
$ 4,934.15
TOTAL
$27,765.23
(b)this amount is well in excess of the offer contained in the 23 March letter of $22,982.00 particularly given that no allowance was made for Mr Szanto’s costs in that offer; and
(c)this amount falls only marginally short of the sum of $28,088 in the offer made 26 October 2009, such that any shortfall ought to be disregarded.
Further, counsel submitted that it is not appropriate for the Court to have regard to Calderbank offers after having made an award for commission, for the following reasons:
(a)the conduct of the beneficiaries meant that Mr Szanto was required to make an application to the Court given that his position was that he sought commission in lieu of professional fees;
(b)the beneficiaries were not defendants to the proceeding, but simply had a right to be heard;
(c)related to the above, there are no “winners” and “losers” in such applications: the Court has simply adjudicated upon a statutory claim;
(d)giving effect to a Calderbank offer which exceeds the amount awarded will detract from the original award of commission;
(e)giving effect to a Calderbank offer would depart from the general rule that an executor’s costs of an application for commission will be paid from the estate; and
(f)given the absence of a scale for executors commission the task of determining whether or not it was unreasonable not to accept a Calderbank offer is problematic.
In my view, notwithstanding the general rule that an executor is entitled to the costs of his or her claim from the estate, there is no reason in principle why the making of Calderbank letters ought not be taken into account when the Court is exercising its discretion with respect to costs. The object of giving effect to Calderbank offers is to provide litigants with a means by which they can persuade the other parties to a dispute to resolve the matters between them without recourse to judicial determination. In this case, the executor and the beneficiaries were in heated dispute. This is not a case, such in the case of an application under Part IV of the Administration and Probate Act 1958, where an adverse award of costs against a partially successful plaintiff may detract substantially from the very object of the Court’s determination: that is, where an award is made to provide for the proper maintenance and support of the plaintiff. In the case of executors seeking commission, there is merely a dispute as to how much the executor ought to be compensated for his or her time and effort. I agree with the submissions made by counsel for the beneficiaries that if there was a general principle that Calderbank offers could not be taken into account on the question of costs an executor could proceed with impunity, secure in the knowledge that the legal costs of the claim would be funded from the estate. The fact that the beneficiaries are not formally parties to the proceeding is not particularly material: they are the proper contradictors to the application, and it is within their power to resolve the proceeding.
Accordingly, there is no reason why the Calderbank offers should not be taken into account when determining who ought to bear the costs of this application. In this case, I would need to consider whether the award made in the orders of 30 April 2010 exceeded or fell short of the offers contained in the 23 March letter or the 26 October letter. Further, if I find that the award fell short of the offers in one or both of the letters, was Mr Szanto’s refusal to accept the offer or offers unreasonable having regard to all of the relevant circumstances?[3]
[3]Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2) [2005] 13 VR 435, at 441.
Taking the 23 March letter first, it is not apparent that the award of 30 April 2010 falls short of the offer made at that time, which was for 2.5 per cent of the value of the estate (inclusive of GST), with no provision for the legal costs incurred by Mr Szanto at that time. While there remains some doubt as to whether GST is payable upon any commission awarded to Mr Szanto, the effect of my judgment of 30 April 2010 is that any GST liability ought to be borne by the estate. Accordingly, the offer in the 23 March letter is not relevant to my determination of the question of costs.
However, the position with the 26 October letter is different. The 26 October letter contained an offer to pay Mr Szanto commission of 2.5% of the value of the estate, plus GST, plus his legal costs of the application on a solicitor-client basis. Therefore, the beneficiaries offered to pay $28,088.00, plus costs.
Counsel for Mr Szanto submitted that the numerical difference between the offer in the 26 October letter and the ultimate award on 30 April 2010 was slight, given that I ordered that the fees payable by Mr Szanto to the LIV for the assessment should be paid from the estate. Counsel for the beneficiaries submitted that that component of the award should not be taken into account, as the fees for the assessment would ordinarily be payable by the estate as a disbursement rather than form part of the award of commission.
I agree with counsel for the beneficiaries. The order for the payment of the costs of the assessment was made to forestall any argument on a taxation hearing regarding whether the costs of the assessment were reasonably incurred by Mr Szanto in prosecuting his claim for executors commission. As such, I do not consider that they ought to be taken into account in comparing the amount awarded to Mr Szanto with the offer in the 26 October letter.
Accordingly, the amount awarded to Mr Szanto falls short of the sum offered in the 26 October letter of $28,088.00 (setting aside the question of interest and costs). The award is 81% of the amount offered in the 26 October letter, and the difference represents approximately 0.5% of the value of the estate. In my view, this is a material difference.
The question which then arises is, was it unreasonable for Mr Szanto to accept the offer in the 26 October letter having regard to all the relevant circumstances?
I consider that it was unreasonable for Mr Szanto to refuse to accept the offer in the 26 October letter. At the time of the making of the offer, Mr Szanto was aware of the value of the work carried out by him in the administration of the estate by reason of the assessment, and that the claim for 3.5 per cent of the value of the estate was well in excess of that sum. Further, the offer in the 26 October letter included substantial concessions on the part of the beneficiaries in respect of matters which had previously been significant barriers to settlement: that is, the estate’s liability for GST and Mr Szanto’s legal costs.
The latter concession is significant. The Thomson Playford Cutler accounts provided to the Court[4] show that, as at 30 October 2009 (a few days after the 26 October letter was served), Mr Szanto had incurred legal costs of some $56,497.30 in respect of his claim for executors commission. Not only was this sum substantially in excess of the estimate provided to the beneficiaries in the 9 December 2008 letter, but also was substantially in excess of the value of the claim for 3.5 per cent of the value of the estate plus GST ($39,323.90), let alone the amount finally awarded. In these circumstances, it was unreasonable for Mr Szanto to press on with his claim (with both parties continuing to incur legal costs), for the sake of a mere $10,000, presumably upon the assumption that those additional costs would be ultimately borne by the estate.
[4]Exhibit “TC-10” to the affidavit of Teresa Catalano sworn 8 December 2009.
In my view, it is not a sufficient response to submit that, as there is no scale for executors commission in Victoria, there is no yardstick by which the offer of 2.5 per cent plus GST and costs in the 26 October letter could be assessed so as to determine whether it would be unreasonable to reject that offer. Mr Szanto was represented by experienced solicitors and counsel, who are no doubt aware of the range of awards made by this Court in respect of such claims. The accounts tendered by Thomson Playford Cutlers for the period ending 30 October 2009 show numerous attendances by the solicitors upon counsel and Mr Szanto in the days after the 26 October letter was served, so I do not doubt that the terms of the offer were carefully considered before being rejected.
Therefore, I propose to make the following orders with respect to the costs of the application for executors commission.
(1)Paragraph 1 of the orders made on 30 April 2010 be amended pursuant to Rule 36.07 to include the following words after the word “commission”: “plus any liability imposed upon him for GST in respect of this payment”.
(2)The applicant’s costs of and incidental to his claim for executors commission up to and including 26 October 2009 be taxed on a solicitor-client basis (he having executed a costs agreement with Thomson Playford Cutlers on 29 January 2009) in default of agreement and when taxed be paid out of the estate.
(3)The applicant’s legal and professional costs of paragraph 2 of his affidavit sworn 8 December 2009 (including the costs of preparing the revised administration account which is “PS-12” to that affidavit and collating exhibits “PS-13” to “PS-18” inclusive) be taxed on a solicitor-client basis in default of agreement and when taxed be paid out of the estate.
(4)The beneficiaries’ costs of and incidental to the application for executors commission up to and including 26 October 2009, being the costs and disbursements of their retained solicitor Joy Popovska & Associates, be paid from the estate.
(5)The applicant pay the beneficiaries’ costs of and incidental to the application after 26 October 2009 on a party-party basis, to be taxed in default of agreement.
For completeness, I will make order (3) of the above orders on the basis that the preparation of the revised administration account and the other matters referred to in paragraph 2 of Mr Szanto’s affidavit of 8 December 2009 was necessitated by queries raised by the Court in the course of the directions hearing on 29 October 2009. While it is possible that these costs may not have needed to be incurred if the offer in the 26 October letter had been accepted, it may have been that the Court would not have accepted minutes of consent dismissing the application had those queries not been dealt with by Mr Szanto.
I will hear the parties on the question of the costs of the hearing of 27 May 2010: in particular, whether I should make any order other than that the parties’ costs of that hearing be paid from the estate on a solicitor‑client basis, to be taxed in default of agreement.
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