Re Papaioannou; Papaioannou v Kronemann (No 2)
[2020] VSC 257
•11 May 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TESTATORS FAMILY MAINTENANCE LIST
S ECI 2018 02452
IN THE MATTER of an application pursuant to Part IV of the Administration and Probate Act 1958 (Vic)
-and-
IN THE MATTER of the Will and Estate of JEANNE PAPAIOANNOU, deceased
| CHRISTOS PAPAIOANNOU | Plaintiff |
| v | |
| MARIA KRONEMANN (in her capacity as Executor of the Estate of the abovenamed deceased) | Defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF RULING: | 11 May 2020 |
CASE MAY BE CITED AS: | Re Papaioannou; Papaioannou v Kronemann (No 2) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 257 |
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COSTS — Costs of application pursuant to Part IV of the Administration and Probate Act 1958 (Vic) — Calderbank offer made by plaintiff before trial — Offer rejected by defendant —Whether rejection of offer unreasonable in the circumstances — Whether costs payable by defendant executor personally — Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T Mah | Hartwell Legal |
| For the Defendant | Nicholas P Byrne, solicitor |
HER HONOUR:
Introduction
On 19 December 2019, the Court delivered reasons for judgment on the plaintiff’s application for further provision from the estate of his late wife, pursuant to Part IV of the Administration and Probate Act 1958.
The Court ordered further provision in favour of the plaintiff of 20 per cent of the deceased’s half interest in property situated at East Boundary Road, Bentleigh East (the ‘Boundary Road property’), as well as an extended portable life interest in the deceased’s remaining interest in the property.
The plaintiff seeks his costs of the proceeding, to be paid by the defendant on an indemnity basis without recourse to the estate.
The defendant seeks orders that the costs of the proceeding be paid out of the estate.
Background
Pre-commencement offers
Prior to the commencement of the proceeding, correspondence passed between the parties, which included two offers to compromise the dispute without the need to commence a proceeding.
On 15 October 2018, the defendant’s solicitor wrote to the plaintiff’s solicitors offering to jointly sell the Boundary Road property. The defendant’s offer did not appear to contemplate any alteration to the terms of the will, nor did it have regard to the fact that the plaintiff lived in the Boundary Road property at the time.
On 9 November 2018, the plaintiff’s solicitors wrote a lengthy letter to the defendant’s solicitor that foreshadowed an application for further provision from the estate. The plaintiff offered to compromise his claim on the following terms:
(a) he would purchase the deceased’s entire interest in the Boundary Road property for a sum of $100,000 to be paid by ‘Christmas 2018’;
(b) he would pay the defendant’s expenses as executor, including legal costs, without reimbursement from the estate; and
(c) he would pay his own legal costs.
The letter provided detailed particulars of the plaintiff’s claim, and foreshadowed an application for indemnity costs in the event that the plaintiff was successful in his foreshadowed claim.
The 9 November 2018 offer was open until 10.00am on 26 November 2018. The offer was rejected by the defendant.
Commencement of the proceeding and mediation
On 26 November 2018, the plaintiff initiated the proceeding by originating motion.
At the first return of the proceeding on 20 December 2018, the plaintiff stated that he sought further provision to the extent of 100 per cent of the estate, that is, the deceased’s entire interest in the Boundary Road property. The proceeding was referred to mediation.
The mediation took place on 19 March 2019 but the proceeding did not resolve.
The defendant’s 4 July 2019 offer
On 9 April 2019, orders were made for the production of a joint trial document. By letter dated 4 July 2019, the defendant made a further offer to settle the proceeding on the basis that she would consent to a suitable fixed twelve-month tenancy of the Boundary Road property, from which the plaintiff would receive the net rental income. Again, this offer disregarded the plaintiff’s residence at the property. The offer was rejected by the plaintiff.
Following lengthy correspondence exchanged between them, the parties were unable to agree on the content of the joint trial document and the proceeding was listed for further directions on 26 July 2019. At the directions hearing, the parties estimated that the costs of the proceeding, including trial, would be $60,000 for the plaintiff and $50,000 for the defendant. The Court noted its concern with the reasonableness of those costs estimates and reminded the parties that costs would not necessarily be paid from the estate. The Court listed the proceeding for trial on 15 October 2019.
The plaintiff’s 5 August 2019 offer
By letter dated 5 August 2019, the plaintiff made a further offer to settle the proceeding. The 5 August 2019 offer repeated the terms of the plaintiff’s 9 November 2018 offer, but increased the price as consideration for his purchase of the deceased’s interest in the Boundary Road property to $150,000. The offer foreshadowed an application for indemnity costs in the event that the plaintiff achieved a better outcome at trial.
The 5 August 2019 offer was open until 4.00pm on 19 August 2019. No response was given to the offer and it expired. Expiration of the offer was acknowledged by the defendant’s solicitor by telephone.
The defendant’s 9 September 2019 offer
By letter dated 9 September 2019, the defendant made a further offer to settle the proceeding on the basis that, in the event that the plaintiff requires a residential care facility and there is a shortfall between the value of his share in the Boundary Road property and the costs of such care, she would consent to funding such shortfall by way of an interest free loan from the estate to the value of $150,000, secured against the plaintiff’s interest in the property.
The defendant’s offer remained open until 5.00pm, 15 September 2019. The offer was rejected by the plaintiff.
The plaintiff’s 3 October 2019 offer
On 3 October 2019, the plaintiff filed and served his written opening submissions for trial. By those submissions, the plaintiff narrowed the relief sought to between 10 and 20 per cent of the deceased’s share in the Boundary Road property, and an extended life interest over the remainder.
The same day, the plaintiff made a further offer to settle the proceeding on the following terms:
(a) he receives 10 per cent of the deceased’s interest in the Boundary Road property;
(b) he receives an extended portable life interest in the deceased’s remaining interest in the Boundary Road property; and
(c) the parties’ legal costs be paid from the deceased’s interest in the Boundary Road property upon its sale, fixed at $50,000 in respect of the plaintiff and $30,000 in respect of the defendant.
The 3 October 2019 offer was open until 4.00pm, 10 October 2019. By letter dated 9 October 2019, the plaintiff’s offer was rejected. The defendant’s written opening submissions were filed the following day, 10 October 2019.
Trial
The trial of the proceeding commenced on 15 October 2019. The Court reiterated its concerns with the costs of the proceeding and warned the defendant that, if the plaintiff was successful, costs would usually follow the event. The Court also reminded the parties of their obligations under the Civil Procedure Act 2010 (‘CPA’) and warned that costs would not necessarily be paid from the estate. Those warnings were acknowledged by the defendant’s solicitor, who appeared on her behalf.
Plaintiff’s submissions
The plaintiff submits that the defendant ought to pay the costs of the proceeding from its commencement until 11 October 2019 on a standard basis, and thereafter on an indemnity basis. The plaintiff makes those submissions by reference to his success in the proceeding, the defendant’s conduct, as well as the 3 October 2019 offer.
Alternatively, the plaintiff submits that if the defendant is entitled to recover her costs from the estate, that such recovery should be delayed until after the death of the plaintiff so as not to impact upon his extended life interest.
The plaintiff’s submissions were supported by an affidavit of his solicitor, Ms Katerina Peiros, affirmed 3 March 2020.
The defendant’s conduct
The plaintiff submits that the defendant has conducted the proceeding in a manner that was contrary to her obligations under the CPA to take steps to narrow the issues in dispute, and to ensure that costs are reasonable and proportionate. He says that she has defended the proceeding as an interested beneficiary to the estate, rather than as an independent and neutral executor.
He submits that the defendant has pursued the litigation with a focus upon several issues that were not at all relevant to the plaintiff’s claim. In particular, the plaintiff says that the defendant placed unwarranted focus upon the question of whether the plaintiff was residing in the Boundary Road property and the purported existence of a mutual will arrangement. The defendant also sought to adduce evidence which was inadmissible or ultimately not relied upon at trial, including evidence as to the value of the Boundary Road property at the time of the plaintiff’s marriage to the deceased in 1990.
The plaintiff submits that the parties’ obligations under the CPA are heightened in this case, in light of the size of the estate and the parties’ respective financial positions. Ms Peiros deposes that in the course of the proceeding the defendant’s solicitor sent approximately 105 letters to the plaintiff’s solicitors. She says that the volume of correspondence has inflated the plaintiff’s costs as she was required to consider, seek instructions and reply to each piece of correspondence, much of which was focused upon the irrelevant issues identified above.
Settlement offers
The plaintiff submits that it was unreasonable for the defendant to reject the 3 October 2019 offer. He says that at the time of the offer the defendant was aware of the plaintiff’s narrowed case and ought to have been aware of evidence and authorities on which he relied. The plaintiff has received an outcome that is greater than that which was the subject of the 3 October 2019 offer. He says that, on that basis, the defendant ought to pay costs on an indemnity basis from 11 October 2019, being the day after the 3 October 2019 offer expired.
The plaintiff says that none of the offers presented by the defendant were reasonable, particularly in light of his extant life interest in the Boundary Road property and his intention to live there for the remainder of his life. He says that all three offers evidence the defendant’s intention to prevent any erosion of the deceased’s interest in the Boundary Road property and therefore her own interest in the estate. In any event, the outcome achieved by the plaintiff was better than that which he would have received under any of the defendant’s offers.
Defendant’s submissions
The defendant accepts that, on the principle that costs follow the event, the estate will be liable for the plaintiff’s costs to some extent. She submits, however, that the plaintiff ought not be entitled to recover all of his costs of the proceeding. She says that costs ought to be payable from the estate upon a reduced scale of costs, alternatively fixed at the discretion of the Court.
The principal basis for the defendant’s submission is that the relief sought by the plaintiff at trial was substantially narrowed from that which was sought at the outset of the proceeding. The defendant submits that she ought not be liable for costs incurred in defending the plaintiff’s broader case.
The defendant further submits that, notwithstanding her rejection of the 3 October 2019 offer, an order for costs on an indemnity basis ought not be made because:
(a) she has acted ‘fairly, reasonably and conscientiously in the interest of the estate’ and honestly believed that the deceased had fulfilled her moral duty;
(b) she is an aged pensioner with limited income;
(c) she made several counter-offers to the plaintiff; and
(d) having received further provision which is greater than that proposed in the offer, the pursuit of indemnity costs against the defendant personally ‘may be perceived as vindictive by the plaintiff’.
Defendant’s further submissions
An affidavit of the defendant’s solicitor, Mr Nicholas Byrne, sworn 20 April 2020, responded to the plaintiff’s submissions and to the affidavit of Ms Peiros. Mr Byrne’s affidavit, which took the form of submissions rather than evidence, was difficult to follow and added little to the question of costs. The thrust of the affidavit was that Ms Peiros presented a misleading picture of the correspondence that has been exchanged between the parties. However, Mr Byrne did not specifically refer to or exhibit any further correspondence which might cast doubt upon her evidence. Furthermore, Mr Byrne’s affidavit appeared to suggest that the plaintiff should have pursued a professional negligence claim against the deceased’s former solicitor, rather than the Part IV claim. That assertion is entirely irrelevant to the question of costs of this proceeding. The further submissions add nothing to the defendant’s position.
Applicable principles
Costs of and incidental to legal proceedings are a matter for the discretion of the Court, unless otherwise provided by an Act or the Rules.[1] The usual order as to costs is that a successful party to litigation is entitled to an award in its favour, likewise, an unsuccessful party bears the liability for the costs of the unsuccessful litigation.[2] That is, costs follow the event. The relevant ‘event’ is success in the action or on particular issues.[3] The central guiding principle is that the Court ought make an order that is fair and just between the parties in the circumstances of each case.[4]
[1]Supreme Court Act 1986 (Vic) s 24(1).
[2] Oshlack v Richmond River Council (1998) 193 CLR 72, 97 [67] (McHugh J).
[3]Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin(1997) 186 CLR 622, 624 (McHugh J); Seng Hpa v Walker [2017] VSC 320, [77] (McMillan J).
[4]Earnshaw v Loy (No 2)[1959] VR 252, 253 (Sholl J). See also GE Dal Pont, Law of Costs (LexisNexis Butterworths, 4th ed, 2018) 158–9 [6.15].
The prima facie position in respect of costs in litigation is for standard costs to be ordered by the Court, with the Court having the discretion to award costs other than on the standard basis.[5] A special order for costs will only be made where there is some special or unusual feature in the proceeding, or special circumstance, which justifies it. Each proceeding must be considered on its own facts and, specifically, whether those facts support the making of a special order for costs.
[5]Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.28.
The rejection of an offer is a matter to which the Court should have regard when considering whether to order indemnity costs. In Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (‘Hazeldene’),[6] the Court of Appeal identified six matters to which the Court ought have regard in considering whether the rejection of an offer of compromise was unreasonable:
[6](2005) 13 VR 435 (‘Hazeldene’).
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed to the offeree to consider the offer;
(c) the extent of the compromise offered;
(d) the offeree’s prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed; and
(f) whether the offer foreshadowed any application for indemnity costs in the event of the offeree’s rejecting it.[7]
[7]Ibid 442 [25] (Warren CJ, Maxwell P and Harper AJA).
Although it is the prima facie position that a defendant executor may be indemnified from the estate for the costs of the proceeding, the usual order may be modified in the exercise of the Court’s discretion in circumstances where, for example, reasonable and realistic offers were rejected, where the litigation has been unnecessarily prolonged or where the executors of the estate are entitled to the whole of the available asset pool.[8]
[8]Re McKenzie (No 2) [2018] VSC 238, [37] (McMillan J); Forsyth v Sinclair (No 2) (2010) 28 VR 635, 641–2 [25]–[26] (Neave and Redlich JJA, Habersberger AJA).
Consideration
The Court repeatedly observed to the parties that the costs involved in the proceeding will be a significant issue. At the directions hearing on 26 July 2019 and on the first day of trial, the Court warned both parties that they could not assume that costs would be paid from the estate.
There can be no doubt that the plaintiff was successful in the proceeding. He obtained the entirety of the relief sought at the opening of his case. The defendant accepts that the plaintiff is entitled to his costs. The narrowing of the plaintiff’s case closer to the trial of the proceeding does not necessarily diminish his entitlement to costs. It is not uncommon for parties to obtain a clearer focus on the case closer to trial as all of the evidence is then available to them. Such a course is entirely consistent with the obligations imposed by the CPA. Notwithstanding his earlier case, the plaintiff has been successful in the proceeding and is entitled to his costs.
The remaining issues are whether the plaintiff’s costs ought to be paid on an indemnity basis, and whether they ought to be paid out of the estate or by the defendant personally.
The plaintiff made three offers to settle the proceeding. The offers dated 9 November 2018 and 5 August 2019 were made at a time when the relief claimed by the plaintiff was the whole of the deceased’s share in the Boundary Road property. In light of the plaintiff’s narrowed case at trial, the Court does not consider that those offers are an appropriate comparison from which to assess whether a non-standard costs order ought to be made. In any event, the plaintiff does not rely upon those offers in his application for indemnity costs.
The 3 October 2019 offer was made less than two weeks before the trial of the proceeding. The offer was made the same day that the plaintiff’s submissions were filed, and one week before the defendant’s submissions were filed. By that time, all of the evidence had been filed and the parties were well placed to assess the strengths and weaknesses of their respective cases. Further, the offer was made at a time when the parties would save substantial costs associated with the trial had it been accepted.
The defendant was allowed one week in which to consider the 3 October 2019 offer. There is no prescribed time that must be given to an opposing party in which to consider an offer. Although more time is generally preferred, the appropriate time allowed will depend on the prevailing circumstances. The 3 October 2019 offer was made less than two weeks before the trial. The one-week time-frame in which to respond was appropriate in order to allow the defendant to consider the offer and also to ensure that there was sufficient time for both parties to prepare for trial.
The compromise contained in the 3 October 2019 offer was significant. The interest claimed in the deceased’s half share in the Boundary Road property was reduced by fifty per cent and the costs of the proceeding were to be fixed. Assessed as at the date of the offer, the plaintiff had a strong chance of obtaining relief which was at least equivalent to that which was contained in the offer. Two weeks from trial, the defendant ought to have been aware of the plaintiff’s prospects and assessed his offer accordingly.
The offer was clear in its terms and properly foreshadowed an application for indemnity costs in the event of the plaintiff’s success at trial.
The Court is not satisfied that any of the matters raised by the defendant weigh against an award of costs on an indemnity basis. The belief that the deceased had fulfilled her moral duty and the defendant’s position in life are typically not matters to which the Court would have regard in determining whether the rejection of a legitimate offer to settle proceedings was reasonable. Furthermore, the submission that the plaintiff ought not be awarded indemnity costs because he has done better following the trial entirely disregards and contradicts the well-established Calderbank principle as the basis upon which a party might seek non-standard costs.
Although the defendant made several offers of her own, no counter offer was made to the 3 October 2019 offer. The offers made by the defendant on 15 October 2018, 4 July 2019 and 9 September 2019 were entirely unreasonable. As was submitted by the plaintiff, those offers disregarded the plaintiff’s existing life interest in the Boundary Road property, as well as his intention to continue residing in the house on the property. The defendant’s 9 September 2019 offer to loan funds to the plaintiff in order to fund the costs of an aged care facility did not involve genuine compromise of the proceeding. The offers reflect the defendant’s unwillingness to compromise the deceased’s share in the Boundary Road property at all.
In the circumstances, the Court considers by reference to the Hazeldene factors that the defendant unreasonably rejected the plaintiff’s 3 October 2019 offer and ought properly pay the costs of the proceeding after the expiration of the offer on an indemnity basis.
The Court also considers that the costs of the proceeding ought to be paid by the defendant personally, without recourse to the estate. The defendant has pursued the proceeding with little regard to her obligations under the CPA. She has approached the proceeding in a manner consistent only with the protection of the value of the residuary estate, including her own interest. That approach is reflected in the settlement offers made by the defendant. The estate is small, valued at between $390,000 and $450,000 and the issues determined at trial were not complex. The defendant has complicated the litigation by raising several ultimately irrelevant issues, creating a large amount of correspondence, making unreasonable and unjustified settlement offers to the plaintiff and unreasonably failing to accept the 3 October 2019 offer. The interests of the other beneficiaries to the residue of the estate should not be burdened with the costs of the proceeding in those circumstances.
There is one further matter to be mentioned by the Court. That matter concerns the conduct of the defendant’s solicitor, Mr Byrne, in the proceeding. As a result of the parties being unable to agree on the costs of the proceeding, the affidavit of Ms Peiros exhibited certain correspondence between the practitioners. In that correspondence there are several letters and emails from Mr Byrne that contain inflammatory and unnecessarily aggressive remarks directed towards the plaintiff’s solicitors, as well as the plaintiff. The correspondence was at times difficult to understand and, as noted, raised several issues that were entirely irrelevant to the proceeding. Although he suggested that Ms Peiros had presented a misleading view of the correspondence, Mr Byrne did not exhibit any correspondence of his own and maintained that the communications ‘were all appropriate for the protection of the interests of the Estate, both before the issue of proceedings and the reasonable conduct of its defence after the Plaintiff had instituted these proceedings.’
Mr Byrne also directed an excessive amount of correspondence to chambers in the course of the proceeding. The Court’s experience of that correspondence was consistent with that of Ms Peiros. That is, it was often unnecessary and was difficult to understand.
The provisions of the CPA reflect broader public concerns about the cost and efficiency of litigation as well as case management principles in the context of the administration of justice and the just and efficient resolution of cases. Pursuant to s 8 of the CPA, the Court is required to give effect to the overarching purpose in exercising its powers in relation to civil proceedings, defined as ‘the just, efficient, timely and cost-effective resolution of the real issues in dispute’.[9]
[9]CPA s 7(1).
Part 2.2 of the CPA requires a party to conduct a proceeding in a manner that is consistent with the overarching obligations set out in Part 2.3. A party’s legal practitioner must take into account his or her overarching obligations and assist the client to comply with their duties.[10] Where any of the overarching obligations are contravened, the Court is empowered to make certain orders, including orders for costs or any other orders in the proceeding, of its own motion or on the application of any party to the proceeding.[11]
[10]Ibid s 14.
[11]Ibid s 29; Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 5) [2014] VSC 400, [87] (Dixon J).
Furthermore, r 4.1.2 of the Australian Solicitors’ Conduct Rules provides that a solicitor’s ‘fundamental ethical duties’ include being ‘honest and courteous in all dealings in the course of legal practice’.
At all times Mr Byrne must be mindful of his obligations pursuant to Parts 2.2 and 2.3 of the CPA, as well as the Australian Solicitors’ Conduct Rules and to conduct himself in a manner that is consistent with his clients’ best interests, as well as the interests of justice more generally.
Orders
The Court orders as follows:
(a) The defendant pay the plaintiff’s costs of and incidental to the proceeding until 11 October 2019 on the standard basis, without indemnification from the estate.
(b) The defendant pay the plaintiff’s costs of and incidental to the proceeding thereafter on an indemnity basis, without indemnification from the estate.
(c) The defendant pay her own costs of the proceeding, without indemnification from the estate.
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