Re Hobbs (No 2)
[2017] VSC 611
•12 October 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S PRB 2016 05959
IN THE MATTER of the Will of CHRISTA RENATE HOBBS, deceased (in the Will called Christal Renate Hobbs)
| KURT RUDIGER FRAHM | Plaintiff |
| v | |
| JANICE MARY DAVIS | Defendant |
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JUDGE: | Garde J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 12 October 2017 |
CASE MAY BE CITED AS: | Re Hobbs (No 2) |
MEDIUM NEUTRAL CITATION: | [2017] VSC 611 |
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WILLS AND ESTATES – Costs – Offers of compromise – Award of costs in probate cases – Legal principles – Exceptions to an order that costs follow the event – Application of exceptions – Second exception applies – No order as to costs.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr P T Vout of Counsel | Tisher Liner FC Law |
| For the Defendant | Mr R B Phillips of Counsel | Hicks Oakley Chessell Williams |
HIS HONOUR:
Introduction
The plaintiff, Rudi Frahm, seeks an order that the defendant, Janice Davis, pay the costs of the proceeding in which he propounded the will of Ms Christa Renate Hobbs dated 1 May 2008 (‘2008 Will’). Mr Frahm is the executor named in the 2008 Will. His application for probate was opposed by Ms Davis. Ms Davis contended that probate should be granted in relation to one of two informal documents purportedly signed by Ms Hobbs dated 21 December 2008 (‘first document’) and 15 February 2009 (‘second document’). On 27 July 2017, I determined that probate should be granted of the 2008 Will, but not the informal documents.[1]
[1]Re Hobbs [2017] VSC 424 (‘Re Hobbs’).
The parties have subsequently filed written submissions as to costs.[2] An affidavit of Mr Frahm has been filed concerning the offers of compromise and correspondence about settlement that passed between the parties.[3]
[2]Plaintiff’s Submissions on Costs dated 24 August 2017; Defendant’s Submissions on Costs dated 6 September 2017; Plaintiff’s Submission in Reply on Costs dated 8 September 2017.
[3]Affidavit of Kurt Rudiger Frahm sworn 23 August 2017.
Offers of compromise
On 28 November 2015, Mr Frahm’s solicitors sent an offer of compromise to the solicitors then acting for Ms Davis with a view to settling the dispute. The offer of compromise was in the amount of $125,000 and was endorsed ‘without prejudice save as to costs’. It was made in full and final satisfaction of the proceeding and of three classes of claim that Ms Davis might have. The first was a claim for an entitlement under the last or any previous will of Ms Hobbs. The second was any claim pursuant to Part IV of the Administration and Probate Act 1958 (Vic) (‘Act’) for further provision to be made for the maintenance and support of Ms Davis out of the estate of Ms Hobbs. The third related to any other claims or rights which Ms Davis had, has or may hereafter have in relation to the estate of Ms Hobbs. This would embrace any claim in equity which Ms Davis may have in relation to any property in Ms Hobbs’ estate. The offer of compromise contained a term which provided for the settlement sum under the offer of compromise to be paid by way of a distribution out of the estate of Ms Hobbs within 90 days of the grant of probate. It also provided for Ms Davis to indemnify Mr Frahm, among other things, against claims made within six months of the grant of probate against the estate claiming an interest in the estate, and the costs of defending any claims, on an indemnity basis. Each party was to pay its own costs. By a letter from her solicitors dated 11 January 2016, Ms Davis rejected this offer.
On 29 April 2016, Mr Frahm made a second offer of compromise in the sum of $175,000. This offer was in a similar form to the first offer of compromise. This offer expired on 16 May 2016 without acceptance.
Mr Frahm now seeks the costs of the proceeding, including costs on an indemnity basis resulting from the first offer of compromise from 22 December 2015, or alternatively from the second offer of compromise from 3 May 2016. He contends that the outcome of the proceeding is less favourable to Ms Davis than the terms of each offer of compromise. He submits that a presumption as to liability for costs arises under r 26.08 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’) and is not easily displaced.[4]
[4]Referring to Simonovski v Bendigo Bank(No 2) [2003] VSC 139 [17].
In relation to the first offer of compromise, Ms Davis submits that as at 28 November 2015, there was no proceeding before the Court. She had not then lodged any grounds of objection, and the terms of the actual dispute were unknown. At that time, no affidavits had been served on Ms Davis. Ms Davis submits that the offer is not tied to a specific proceeding, that the issues and matters in the proceeding are undefined, and that there is no judgment on the face of the offer that either party could obtain if the offer had to be enforced. Finally, she submits that the offer purports to settle all claims that Ms Davis may have in relation to Ms Hobbs’ estate, including a possible Part IV claim.
As to the second offer of compromise, Ms Davis submits that by 29 April 2016, Mr Frahm had applied for a grant of probate of the 2008 Will. However, no grounds of objection or detailed affidavits had been filed.
Rule 26.08.1 of the Rules provides that a pre-litigation offer can be made to compromise ‘any claim made in the proceeding on the terms specified in the offer’. If the offeror obtains an order or judgment in respect of the claim ‘no less favourable to the offeror than the terms of the offer’, the Court takes the offer into account in determining the order for costs to be made in the proceeding.
Offers of compromise made in a proceeding are governed by r 26.02. Under r 26.02(2), an offer of compromise in respect of a claim may be on terms that take into account any other claim made in the proceeding between parties. If an offer of compromise is made by a plaintiff and not accepted by a defendant and the plaintiff obtains a judgment on the claim no less favourable to the plaintiff than the terms of the offer, unless the Court otherwise orders, the plaintiff is entitled to favourable costs orders in the terms of r 26.08(2)(a)–(b).
Rule 26.02(1) refers to the service of an offer of compromise ‘in respect of any claim in a proceeding’. Under r 26.02(2), it is permissible for the offer of compromise to be ‘on terms that take into account any other claim made in the proceeding between the parties’. In the case of pre-litigation offers, r 26.08.1(1)(a) provides for an offer in writing to be made to another party before a proceeding is commenced, and for the offer in writing ‘to compromise any claim made in the proceeding in the terms specified in the offer’. Rule 26.08.1(1) then requires the Court to take certain matters into account in determining what order for costs to make in respect of the costs of the proceeding.
Neither r 26.02 or r 26.08.1 provide in their terms a legal framework for a costs order in this proceeding. This is because the specific amounts offered in the offers of compromise collectively relate not only to this proceeding but also to any amount that may be awarded in other proceedings which may be brought in the future but have not as yet been brought.
I am in no position to determine, and cannot speculate on, whether Ms Davis would be successful in any other proceedings if they were brought. This would involve an assessment of whether she would be successful in a claim against Ms Hobbs’ estate under Part IV of the Act, or whether she has any other claim.
Conclusion regarding offers of compromise
I accept the submissions by Ms Davis that the claim for indemnity costs based on the offers of compromise must fail because it is not possible at this time to conclude that the plaintiff will obtain a result no less favourable than the terms of the offer in any other claim. It is too early to tell. Under s 99 of the Act, an application to the Court for a family provision order may be made within 6 months of the grant of probate of the will. A Court may extend this period, provided that the application is made before final distribution of the estate. However, I wish to make it clear that nothing I say in this judgment is intended to encourage further litigation or express any view as to the merit of possible claims.
It is highly desirable that the parties resolve the disputes without the need for contested legal proceedings, particularly as the estate is not large. Mr Frahm and his legal advisers are to be commended for seeking to resolve the claims and disputes between the parties without the need for protracted and expensive legal proceedings. Nonetheless, the offers of compromise relate not only to the application for probate, but also to a claim under Part IV of the Act and other claims such as a claim arising in equity against the estate of Ms Hobbs. They also seek an indemnity of Mr Frahm by Ms Hobbs in the terms set out in the offers of compromise.
Given that I cannot conclude that the claims embraced by the first or second offers of compromise would, if brought, give rise to a result no less favourable than the terms of the offer, the first or second offers of compromise do not constitute a basis for the award of costs against Ms Davis. Even if I take the offers of compromise into account in exercising the Court’s general discretion as to costs, the making of the first and second offers of compromise attracts little (if any) weight because it is not possible to express any final or definitive view about the likely outcome of the proceedings embraced by the offers.
Legal principles
These conclusions lead me to turn to the legal principles that ordinarily govern the award of costs in probate proceedings. The usual rule as to costs is that costs follow the event.[5] This rule also applies in probate proceedings.[6]
[5]Ritter v Godfrey [1920] 2 KB 47, 52–53; Milne v A-G (Tas) (1956) 95 CLR 460, 477; Cates v Glass [1920] NZLR 37, 59–60.
[6]Twist v Tye [1902] P 92, 97–98; Spiers v English [1907] P 122, 123; Middlebrook v Middlebrook (1962) 36 ALJR 216, 217; Nicholson v Knaggs (No 3) [2009] VSC 328 [38].
In probate cases, there are well recognised exceptions to the general rule that costs follow the event. In Nicholson v Knaggs (No 3),[7] Vickery J conveniently summarised these categories in the following manner:
(a) where the testator has been the cause of the litigation, the costs of unsuccessfully opposing probate may be ordered to be paid out of the estate;[8]
(b) second, where the circumstances lead reasonably to an investigation concerning the testator’s will, costs may be left to be borne by those who have incurred them, even if they fail to sustain the issue which they raise;[9] and
(c) third, where a putative beneficiary, by improper conduct, is responsible for suspicious circumstances necessitating litigation, the costs of the litigation may be ordered to be paid out of that part of the estate in which the party is interested, even if he or she is successful in the litigation.[10]
[7][2009] VSC 328 [43].
[8]See: Middlebrook v Middlebrook (1962) 36 ALJR 216, 217; Re Green [1969] WAR 67; In the Estate of Hodges: Shorter v Hodges (1988) 14 NSWLR 698, 709; Perpetual Trustee v Baker [1999] NSWCA 244 [13]–[14]; Shorten v Shorten (No 2) [2003] NSWCA 60 [14]–[15]; Re Estate Late Hazel Ruby Grounds; Page v Sedawie [2005] NSWSC 1311 [30]; Becker v Public Trustee of New South Wales [2006] NSWSC 1146 [12] (cases cited in original).
[9]See: Middlebrook v Middlebrook (1962) 36 ALJR 216, 217; Re Green [1969] WAR 67; In the Estate of Hodges: Shorter v Hodges (1988) 14 NSWLR 698, 709; Perpetual Trustee v Baker (1999) NSWCA 244 [13]–[14]; Shorten v Shorten (No 2) [2003] NSWCA 60 [14]–[15]; Re Estate Late Hazel Ruby Grounds; Page v Sedawie [2005] NSWSC 1311 [30]; Becker v Public Trustee of New South Wales [2006] NSWSC 1146 [12] (cases cited in original).
[10]In the estate of Osment [1914] P 129, 133–134; Nock v Austin (1918) 25 CLR 519, 529; Daulizio v Trust Company of Australia & Ors [2005] VSCA 215 [27]–[30] (cases cited in original).
Further explanation of the scope and application of the exceptional categories is found in previous decisions which have considered the exceptional categories:
(a) As to the first exception, Sir J P Wilde said in Mitchell v Gard:[11]
[11](1863) 164 ER 1280.
If the fault lies at the door of the testator, his testamentary papers being surrounded with confusion or uncertainty in law or fact, it is just that the costs of ascertaining his will should be defrayed by his estate.[12]
[12]Ibid 1281.
(b) As to the second exception, Dixon J said in Middlebrook v Middlebrook:[13]
[13]36 ALJR 216.
It is only as a result of investigation that the reasons for finding affirmatively in favour of the testator’s testamentary capacity distinctly appear. In these circumstances the proper course is to apply the principle “if the circumstances lead reasonably to an investigation of the matter then the costs may be left to be borne by those who have incurred them.”[14]
[14]Ibid 217 (citations omitted).
(c) The third exception was considered by the Court of Appeal in Daulizio v Trust Company of Australia & Ors[15] where Nettle J said:
I consider that [Nock v Austin[16]] stands as a statement of general principle that where a putative beneficiary is responsible for suspicious circumstances necessitating litigation, the costs of the litigation may be ordered to be paid out of that part of the estate in which the party is interested, even if he or she is successful in the litigation.[17]
(d) Finally, as to the application of the principles in the exercise of the discretion of the Court, Vickery J outlined in Nicholson v Knaggs (No 3)[18] that it is necessary to consider the particular circumstances of the case, the degree of blame to be imputed to the testator and the respective parties in incurring the costs of the litigation.[19]
[15][2005] VSCA 215.
[16](1918) 25 CLR 519.
[17]Daulizio v Trust Company of Australia & Ors [2005] VSCA 215 [29].
[18][2009] VSC 328.
[19]Ibid [48] quoting Mitchell v Gard (1863) 164 ER 1280, 1281.
Application of the principles
As to the first exception, Ms Hobbs was of advanced age and suffered from serious long term mental health issues. She suffered from serious cognitive and memory loss and was by December 2008 and later an ill and vulnerable person. She was highly exposed to influence by other persons.[20]
[20]Re Hobbs [90]–[91], [94].
While it was not seriously disputed that the overwriting on the first and second documents was that of Ms Hobbs and that the first and second documents bore her initials and signature, there was no evidence or information as to how they came to be completed or executed. There was no independent verification of the dates written on the documents. There was no evidence at all apart from what was written as to her wishes and intentions when the first and second documents were prepared.[21] There is evidence that Ms Hobbs was requesting legal assistance when according to Mr Davis she handed over the documents on 25 July 2015.[22]
[21]Ibid [95], [96].
[22]Ibid [115].
Although there are two informal documents, I am not satisfied that the first exception should be applied. As stated above, Ms Hobbs was an ill and vulnerable person highly exposed to the influence by others. I am not satisfied that she was the principal driving force behind the first and second documents. She may well have been influenced by others when she wrote and signed those documents.
As to the second exception, I am satisfied that there were circumstances that led reasonably to an investigation concerning the first and second documents. On the evidence of Mr Davis, those circumstances included the provision to him during a visit by him and Ms Davis to the nursing home of an envelope addressed to Gair and Brahe that contained a signed handwritten note and a typed document as well as two unsealed envelopes.[23] The envelopes contained the first and second documents, They contained overwriting of a copy of an earlier will made by Ms Hobbs in 1980. The amendments were signed or initialled by Ms Hobbs.[24]
[23]Ibid [41].
[24]Ibid [42]–[45].
The dates on the first and second documents were themselves cause for investigation, being over 6 years after they were apparently overwritten and signed by Ms Hobbs.[25] A further circumstance requiring investigation is the loss of the original of the second document.[26] There were suspicious circumstances, and the genesis and provenance of each document had to be investigated.
[25]Ibid [56].
[26]Ibid [79]–[81].
Ultimately, after investigating the first and second documents, I was of the view that the claims made on behalf of Ms Davis in relation to the first and second documents were improbable and unrealistic. I had serious doubt that the version of events advanced on behalf of Ms Davis was correct.[27]
[27]Ibid [118], [121].
I am satisfied that the circumstances of the case resemble or sufficiently resemble those necessary to attract the second exception. As a result, in exercising my discretion it is reasonable and appropriate that Mr Frahm’s costs of the proceeding be paid out of the estate, and that the costs of the proceeding otherwise be borne by the parties.
In my view, the facts of the case do not go so far as to attract the third exception. There is no evidence as to the circumstances under which Ms Hobbs came to handwrite and sign the first and second documents. While the Court has suspicions about what may have occurred for the reasons given in the judgment, this does not amount to a finding by the Court that Mr or Ms Davis is guilty of misconduct or inappropriate conduct. Rather, the Court’s suspicion as to what may have transpired was not allayed by the evidence of Mr and Ms Davis. I accept the submissions made on their behalf that the Court’s concerns do not translate into findings of fact made against them. This is not a case where the Court has positively found that a putative beneficiary was responsible for the suspicious circumstances so as to attract an adverse costs order.
Finally, having considered the particular circumstances of the case, the conduct and degree of blame to be attributed to all concerned in incurring the costs of the litigation, it is fair and just for the Court to order that Ms Davis bear her own costs of the proceeding. The Court will make orders to the effect that:
(a) The plaintiff’s costs of the proceeding be had, or retained out of the estate of the late Ms Hobbs; and
(b) The parties otherwise bear their own costs of the proceeding.
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