Re Molnar (No. 2)

Case [2016] SASC 159

SUPREME COURT OF SOUTH AUSTRALIA

(Testamentary Causes Jurisdiction)

In the Estate of ISTVAN MOLNAR (NO. 2)

[2016] SASC 159

Judgment of The Honourable Justice Stanley

30 September 2016

SUCCESSION - MAKING OF A WILL - STATUTORY POWER OF RECTIFICATION

LIMITATION OF ACTIONS - EXTENSION OR POSTPONEMENT OF LIMITATION PERIODS - TRUSTS AND DECEASED ESTATES

SUCCESSION - PROBATE AND LETTERS OF ADMINISTRATION - COSTS - WHERE LITIGATION CAUSED BY TESTATOR, EXECUTOR OR INTERESTED PERSONS - GENERALLY

In this matter the court granted an application for rectification of the will of Istvan Molnar (the deceased) dated 22 September 2010 and granted an extension of time within which to make the application for rectification pursuant to s 25AA of the Wills Act 1936 (SA). The application was brought by Mr Baker who sought orders rectifying the will in relation to provision for a binding option to purchase an asset of the estate, being property he leased on King William Street. The applications were granted in the face of opposition from the Michelons, parties with an interest in part of the testator’s estate, namely, the King William Street property.

The court has received submissions as to the costs of the matter from the parties who appeared on the application as well as the residuary beneficiaries of the estate. 

Each of the parties have sought an order for the payment of his or their costs.  At issue is whether orders should be made for payment of their costs and who should pay those costs. 

The court has also received submissions from one of the executors, Mr Lempens, the solicitor who drafted the deceased’s will, in his personal capacity, as to his liability for payment of the costs of Mr Baker, and the other parties. 

The residuary beneficiaries, who were not parties to the action, have made submissions that the estate should not be ordered to pay costs. 

The court has also separately received submissions on behalf of the estate. 

Held, per Stanley J:

1.  Mr Lempens pay Mr Baker 50 per cent of his costs of the action and pay the costs of the residuary beneficiaries. Mr Baker’s costs should be taxed as between party and party. The costs of the residuary beneficiaries are to be paid on an indemnity basis (at [56]).

2.  The executors are to repay any costs charged to the estate save and except for the costs of the preparation and filing of the affidavit of the circumstances of the administration of the estate; the affidavit of Mr Lempens concerning the circumstances in which the will was drafted and executed; and the costs that would have been incurred by counsel appearing at the commencement of the trial to announce that the executors would submit to the court’s decision. Those specific costs should be repaid to the estate by Mr Lempens.  Mr Lempens should indemnify the other executors, Mr Robinson and Mr Botten, in relation to the balance of the costs to be repaid to the estate (at [57).

Wills Act 1936

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Re Molnar (No. 2) [2016] SASC 159
Case
[2016] SASC 159
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CaseChat Overview and Summary

This case involved a dispute over the rectification of a will and the associated costs of litigation. The residuary beneficiaries applied for an extension of time to bring the application for rectification, and for rectification of the will. The Michelons opposed both applications. The court was required to determine who should bear the costs of the litigation, whether they should be paid out of the estate, and if so, by whom. The court also had to consider the role of the contradictors and whether they were entitled to costs.

The court found that the application for rectification arose from the error of the testator's solicitor, who was also an executor of the estate. The executors neither supported nor opposed the applications but submitted that rectification would be futile. The court did not accept this submission. The Michelons opposed both applications but failed, and sought an order for their costs to be paid by the estate. The court held that the role of the contradictors was desirable and appropriate, but they were not entitled to costs as they were unsuccessful in their opposition. The court also found that the need for rectification arose from the error of the testator's solicitor, and the residuary beneficiaries should not have their interest adversely affected by any costs orders.

The court ordered that Mr Lempens, the testator's solicitor and executor, should pay Mr Baker 50 per cent of his costs of the action and the costs of the residuary beneficiaries on an indemnity basis. The executors were to repay any costs charged to the estate except for certain specific costs, which should be repaid by Mr Lempens. Mr Lempens should also indemnify the other executors in relation to the balance of the costs to be repaid to the estate. The court held that the weight of authority supported the principle that on an application for rectification the costs of the parties are paid out of the estate unless the solicitor is at fault.

The court ordered that Mr Lempens pay Mr Baker 50 per cent of his costs of the action and pay the costs of the residuary beneficiaries on an indemnity basis. The executors were to repay any costs charged to the estate except for certain specific costs, which should be repaid by Mr Lempens. Mr Lempens should also indemnify the other executors in relation to the balance of the costs to be repaid to the estate.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

Mr Lempens should also pay the costs of the residuary beneficiaries. The need for them to make submissions and to incur legal costs arose by reason of the errors made by Mr Lempens in his failure to accept liability for any costs orders that may be made. Those costs should be paid on an indemnity basis otherwise the residuary beneficiaries will be unfairly prejudiced in circumstances where they were not at fault. Conclusion I would order that Mr Lempens pay Mr Baker 50 per cent of his costs of the action and pay the costs of the residuary beneficiaries. Mr Baker’s costs should be taxed as between party and party. The costs of the residuary beneficiaries are to be paid on an indemnity basis. The executors are to repay any costs charged to the estate save and except for the costs of the preparation and filing of the affidavit of the circumstances of the administration of the estate; the affidavit of Mr Lempens concerning the circumstances in which the will was drafted and executed; and the costs that would have been incurred by counsel appearing at the commencement of the trial to announce that the executors would submit to the court’s decision. Those specific costs should be repaid to the estate by Mr Lempens. Mr Lempens should indemnify the other executors, Mr Robinson and Mr Botten, in relation to the balance of the costs to be repaid to the estate.

Ratio Decidendi

Legal Principle Established

The weight of authority supports the principle enunciated in Kerr (No. 2) that on an application for rectification the costs of the parties are paid out of the estate unless the solicitor is at fault. Consideration In the present proceedings the application for rectification arose from the error of the testator’s solicitor, Mr Lempens, in drafting the will. As I have observed, Mr Lempens is one of the executors of the deceased testator’s estate. The executors appeared by counsel throughout the conduct of the trial. They adopted the formal position of neither supporting nor opposing the applications for rectification and an extension of time, but despite assuming that position formally, they submitted that rectification would be futile as it would not resolve the claim by the Michelons to a prior equity in the King William Street property. I did not accept that submission. Later in these reasons I will say something further about the conduct of the executors in the proceedings. There was no finding that the need for rectification arose from any error or misconduct on the part of the testator. In those circumstances there is no reason why the residuary beneficiaries should have their interest adversely affected by any costs orders. There should be no order that costs be paid out of the estate. The Michelons opposed the applications for an extension of time and for rectification. The Michelons acted as the contradictors to both applications. They were unsuccessful on both issues. They had a commercial interest in the outcome of the proceedings because they claimed a prior equity in the King William Street property. If an order for rectification was not made Mr Baker could not have asserted an entitlement to an option to purchase the King William Street property. If the estate was not bound to grant an option to Mr Baker then the dispute as to the prior equity would not arise. But the Michelons’ interest was not a direct legal interest in the rectification of the will. They had no immediate legal interest in the outcome of the action albeit they had a commercial interest. Their role as contradictors must be understood against that background. They submit that neither the question of whether to extend time or whether to order rectification were capable of being resolved on the papers. They submit the court was assisted by having the benefit of a controverter. Accordingly, the role they played was desirable and appropriate. Nonetheless, they failed in their opposition to both applications. Yet they seek an order for payment of their costs by the estate. Mr Baker seeks an order for the payment of his costs. He makes a number of submissions as to who should be liable to pay them. It is convenient to address discretely the costs of the application for an extension of time and the costs of the application for rectification. Consideration of the application for an extension of time occupied a not inconsiderable part of the trial. The terms of 6SCR 263(2)(b) provide that Mr Baker, as the applicant, should be liable for the costs of the application to extend time. But the time occupied on this issue would not have been as great but for the Michelons’ opposition to the court extending time within which to bring the application for rectification. The Michelons submit that their opposition was reasonable. They submit that there was no proper explanation for the delay. It was not an application capable of being resolved on the papers.