Ross v Ross (No 2)
[2020] VSC 148
•31 March 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TESTATORS FAMILY MAINTENANCE LIST
S CI 2018 01163
IN THE MATTER of Part IV of the Administration and Probate Act 1958
-and-
IN THE MATTER of the estate of MARGARET EDITH ROSS, deceased
BETWEEN:
| LEANNE MARGARET ROSS | Plaintiff |
| v | |
| GREGORY KEITH ROSS (being sued as the Executor of the Estate of MARGARET EDITH ROSS) | First Defendant |
| - and - | |
| WAYNE HARRY ROSS (being sued as the Executor of the Estate of MARGARET EDITH ROSS) | Second Defendant |
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JUDGE: | MOORE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 13 February 2020 |
DATE OF JUDGMENT: | 31 March 2020 |
CASE MAY BE CITED AS: | Ross v Ross (No 2) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 148 |
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COSTS – Estate litigation – Unsuccessful Part IV claim – Where defendants ceased to press debt allegedly owing by plaintiff to the estate after commencement of litigation – Where plaintiff’s position improved relative to that at the commencement of litigation – Where Calderbank offer made by defendants – Where it was unreasonable of plaintiff to reject Calderbank offer – Supreme Court Act 1986 s 24 – Supreme Court (General Civil Procedure) Rules 2015 r 63.28 – Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2) (2005) 13 VR 435, applied – Mitchell v McLear [2020] VSC 25, considered.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr B Gillies | Marshalls+Dent+Wilmoth Lawyers |
| For the Defendants | Mr J Smith | Lyttletons Lawyers |
HIS HONOUR:
On 18 December 2019, the Court dismissed the plaintiff’s application for further provision to be made from the estate of her mother pursuant to Part IV of the Administration and Probate Act 1958.[1] The plaintiff had sought provision in the amount of $588,626 in addition to what was agreed at trial to be her entitlement under the deceased’s will, being $811,374.[2] The question of costs was reserved.
[1]See Ross v Ross [2019] VSC 820 (referred to hereafter as the primary decision).
[2]Ibid [4]–[5]. The solicitor for the defendants has, in relation to the question of costs, deposed that, had the deceased’s estate been distributed six months after the grant of probate, the plaintiff would have received $807,228.14 in cash funds and shares.
Despite the fact that she was unsuccessful in her application, the plaintiff seeks orders that she be awarded costs on an indemnity basis and that the defendants’ costs be paid from their own share of the estate.[3]
[3]Alternatively, the plaintiff seeks orders that the defendants pay her costs on an indemnity basis up until the time that they no longer pressed the debt to which reference is made below and in the primary decision, and then either no order as to costs or costs on a standard basis thereafter.
The defendants seek orders that their costs be had and retained from the estate on a trustee basis and that the plaintiff pay the defendants’ costs into the estate on a standard basis to 4pm on 9 November 2018 and on an indemnity basis thereafter.
Background – offers of settlement
In support of their respective applications for costs, the solicitors for the parties filed affidavits which exhibited correspondence in relation to the making of offers in settlement of the proceeding.
On 8 August 2018, the defendants offered to settle the proceeding on the basis that the plaintiff would be paid a total of $735,000 from the estate, comprised of $35,000 for costs and $700,000 on her claim and in lieu of her entitlements under the will. The offer was expressly made in accordance with Calderbank principles and was open for 12 days.
On 17 August 2018, the plaintiff offered to accept $1,035,000 in settlement of the proceeding, comprised of $1 million on her claim plus costs of $35,000.
On 11 September 2018, the defendants offered to settle the proceeding by payment to the plaintiff of a total amount of $820,000 in lieu of her entitlements under the deceased’s will.
On 1 October 2018, the plaintiff restated her previous offer made on 17 August 2018.
On 26 October 2018, the defendants made a further open offer to the plaintiff. The offer was expressed to be open for acceptance for 14 days and to be made under Calderbank principles. It had the following principal elements:
(a) that the plaintiff receive $800,091.28 from the estate, being an amount equal to her entitlement under the deceased’s will at the time;
(b) payment to the plaintiff of $45,000 for her legal fees;
(c) that the defendants would forgo approximately $7,000 in respect of various expenses which the plaintiff was said to owe the estate; and
(d) that the plaintiff retain any chattels in her possession belonging to the deceased said to be owing if the estate was distributed.
The letter in which this offer was conveyed also stated, for the first time, that the defendants would not press the debt of $881,337.74 which they alleged the plaintiff owed the estate.[4]
[4]This alleged debt is referred to in [97]–[100] of the primary decision.
On 12 November 2018, the plaintiff offered to settle the proceeding on receipt of a total amount of $1,205,000.
This offer was rejected by the defendants on 16 November 2018. On the same day, the defendants renewed their offer of 26 October 2018. They also drew the plaintiff’s attention to statements made by McMillan J at a directions hearing in the proceeding held that day in which her Honour stated that the plaintiff’s claim ‘was not a strong claim’, that the plaintiff’s costs were excessive and that the plaintiff should not assume that she will get an order for her costs.
On 15 March 2019, the plaintiff offered to settle the proceeding on receipt of a total amount of $1,263,056.22.
On 29 March 2019, the defendants made a further offer on substantially the same terms as the offer made on 26 October 2018, save that the overall value of the plaintiff’s entitlements was calculated at $830,395.39 by reason of the calculation of the value of the estate and the plaintiff’s entitlement as at 19 December 2017 and the sum offered for costs was increased to $50,000. The total offer was accordingly rounded to $890,000.
Principles - costs
Subject to any applicable legislative provisions and the Supreme Court (General Civil Procedure) Rules 2015, the Court has a general discretion as to costs.[5] Since 1 January 2015, costs in family provision claims are to be determined in the exercise of that general discretion.[6] As stated by the Court of Appeal in Sinclair v Forsyth:[7]
We consider that it is a matter of concern that in many family provision cases the amount available for distribution among the competing beneficiaries is significantly reduced by legal costs. Parties should not assume that litigation can be pursued safe in the belief that costs will always be paid out of the estate. Every effort should be made to resolve the dispute before the costs get out of proportion. However, it takes two to settle a dispute and unless sensible offers of settlement are made in a form which can be referred to subsequently, it is very difficult for the court to allocate responsibility for the dispute not settling. All that can be done is to conclude that where costs have been incurred unreasonably, as here, they must be borne personally.
[5]Supreme Court Act 1986 s 24(1).
[6]With the repeal of ss 97(6) and (7) of the Administration and Probate Act 1958 effected by the Justice Legislation Amendment (Succession and Surrogacy) Act 2014.
[7](2010) 28 VR 635, 642 [27].
In Oshlack v Richmond River Council,[8] McHugh J discussed the meaning of the expression the ‘usual order as to costs’. His Honour observed that it:
… embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.
[8](1998) 193 CLR 72, 97 [67].
Where awarded, costs will ordinarily be determined on a standard basis. The Court has a discretion, however, to award costs determined on an indemnity basis, or such other basis as the Court may direct.[9] The unreasonable rejection of a Calderbank offer by a party is a relevant factor in determining whether to depart from the ordinary rule as to costs. In Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2),[10] the Court of Appeal identified that the following factors would ordinarily be relevant in considering whether the rejection of a Calderbank offer was unreasonable:[11]
[9]Supreme Court (General Civil Procedure) Rules r 63.28.
[10](2005) 13 VR 435.
[11]Ibid 442 [25].
(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;
(f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree’s rejecting it.
Plaintiff’s submissions
Counsel for the plaintiff emphasised two interrelated points in support of her proposed orders as to costs and in opposition to the defendants’ proposed orders.
First, counsel focused upon the defendants’ conduct in asserting, only after the plaintiff made her claim for further provision, that the plaintiff owed the estate a debt of $877,692 and then not pressing the existence of the debt shortly before the commencement of the trial. I considered this issue in the primary decision and concluded:[12]
However, the manner in which Wayne and Gregory approached this aspect of their duty as executors was unsatisfactory and reflects poorly on them. The loan was only raised after Leanne made clear her intention to ‘challenge the will’ and then ultimately abandoned on the eve of the trial. The inconsistency in their approach to the loan combined with their admissions in evidence enable me to find that their approach to this issue was driven by a desire to improve their negotiating position with Leanne in relation to the dispute over the deceased’s estate by creating a risk of financial jeopardy to Leanne in the event that she pressed her claim. In acting in this way, they wrongly elevated their personal interests over their duties as executors of the estate.
[12]At [97]–[100].
In the hearing on costs, counsel for the plaintiff submitted that the defendants’ conduct was at the very least disingenuous, if not dishonest, as it involved the swearing of a false oath when making the inventory of assets and liabilities. The defendants’ conduct was submitted to be inexcusable; they should not be entitled to swear to the existence of a debt which they had a fiduciary duty to determine and then withdraw that debt after mediation and shortly before the commencement of the trial. The plaintiff referred to the following observation by McMillan J in Mitchell v McLear:[13]
As executor, the defendant acted in a fiduciary capacity vis-à-vis the estate. It has been observed that the executor of an estate is ‘bound by a most direct trust to deal properly with the assets and to apply them in due course of administration of the estate’. A corollary of the defendant’s fiduciary duty to the estate is his duty to account to the beneficiaries under the will. Accounts kept by an executor must be sufficiently accurate, unambiguous, clear and distinct as to provide the beneficiaries with sufficient information to inform them as to the state of the administration. In keeping adequate accounts, it is necessary for an executor to maintain documentation such as receipts as evidence of each transaction.
[13][2020] VSC 25, [13].
It was submitted that the Court should mark its disapproval of the defendants’ conduct by making the orders sought by the plaintiff.
Secondly and critically, it was submitted that, in the face of the defendants’ wrongful conduct in asserting the existence of the debt said to be owed by the plaintiff, the plaintiff had no alternative but to commence the proceeding. That is because, as the plaintiff submitted, taking into account this debt, she would only be entitled to receive $251,101.80. That was the reality which was said to confront the plaintiff with the consequence being that she had no realistic alternative but to commence the proceeding.
It also followed from the above that, even though her application for further provision was dismissed, the plaintiff is substantially better off than if she had not commenced the proceeding; she has an entitlement under the will of approximately $811,374, in comparison to the vastly smaller amount referred to above.
Consideration
Counsel for the defendants challenged the accuracy of the basis upon which the plaintiff has calculated the amount of $251,101.80, being the amount which it was submitted she was entitled to receive once the asserted loan was taken into account. These criticisms are well-founded.[14] It is unnecessary, however, to further consider the detail of those calculations in light of the concession properly made by counsel for the defendants that, at trial, the plaintiff had improved her position overall compared to her entitlements to the estate determined before the commencement of the proceeding. In other words, before she commenced the proceeding, the plaintiff would have received less than what was agreed at trial to be her entitlement under the will.
[14]The plaintiff’s calculations are in error at least insofar as they are erroneously premised on the assumption that the plaintiff had a one third interest in the Mount Martha property.
In light of this, I do not consider that, having regard to the conduct of the parties prior to the commencement of the litigation, there is a proper basis for the defendants to seek their costs for the period prior to the expiry of their Calderbank offer made on 26 October 2018. To the contrary, having improved her position following the defendants’ conduct in relation to the loan of which I have been critical, I consider that the plaintiff is entitled to her costs prior to that date. The question then is whether those costs should be determined on a standard or indemnity basis.
In considering that question, I do not consider that it is appropriate or necessary to make further findings in relation to the propriety of the defendants’ conduct in relation to the loan said to have been made to the plaintiff. For the reasons I set out in the primary decision, that conduct was deserving of censure.
Although the defendants’ unsatisfactory conduct in relation to the loan is relevant in considering whether special circumstances exist for the awarding of indemnity costs, that consideration must be seen in the broader context of the case. In that regard, a key element of the context is whether or not, as contended on behalf of the plaintiff, she in effect had no choice and was otherwise driven to commence the proceeding because of the defendants’ conduct in relation to the loan.
I do not accept the plaintiff’s submission in this regard. In particular, I have concluded that, despite the defendants’ conduct in relation to the loan, the plaintiff intended to seek further provision from the estate by commencing the proceeding in any event. That conclusion is supported by the fact that, before and at trial, the plaintiff’s claims for further provision were substantially in excess of the sum to which she was entitled under the will, aside from the loan. At trial she sought a total sum of $1.4 million being nearly $600,000 more than that what she would have received if the estate was distributed in accordance with the will as agreed at the commencement of the trial. In the months before the trial, she made offers of settlement in the range of $1.2 million. I infer from these offers that, despite the defendants’ conduct in relation to the loan, the plaintiff intended to seek further provision in any event.
For these reasons, I consider that the plaintiff is entitled to her costs on a standard basis until the expiry of the defendants offer made on 26 October 2018, with such costs to be paid from the defendants’ share of the estate. In that offer the defendants indicated, for the first time, that they would not press repayment of the loan to the estate.
The position of the plaintiff after the expiry of the above offer is, however, radically different. From that point, the defendants’ poor conduct in relation to the loan was no longer relevant because they indicated that they would not press the plaintiff for repayment of the loan.
Further, I consider that, objectively, the plaintiff’s claim was likely to fail. The will provided the plaintiff with a benefit worth in excess of $800,000. This can only be viewed as a substantial sum given that the plaintiff: (a) owns a valuable and unencumbered property which was in large part effectively gifted to her by her parents; (b) is in full-time employment and can expect to remain in employment until retirement; and (c) has no dependants.
Furthermore, as determined in the primary decision, the deceased was in the best position to balance the various considerations relevant to the exercise of her testamentary discretion and she did so in a careful and deliberate way. There were meticulous and detailed records maintained by her late husband which disclosed an intention to account and adjust for the value of benefits provided to each of the children. The plaintiff knew that her father was careful and very thoughtful in relation to financial matters.
In light of the above considerations, once the issue of the alleged loan owing by the plaintiff was removed, there was no good basis for the plaintiff to reject the Calderbank offer made on 26 October 2018. That offer had other attractions, namely it:
(a) provided to the plaintiff her entitlements under the will;
(b) provided for the sum of $45,000 in costs, being the plaintiff’s costs to mediation;
(c) calculated the plaintiff’s entitlement in accordance with the deceased’s will based on the value of the estate at the time before any litigation costs had been deducted, resulting in the quantum of the plaintiff’s proposed entitlement not being reduced by the litigation costs of either party. If the plaintiff had accepted the offer, both the defendants’ costs and the $45,000 allocated to the plaintiff’s costs would have been borne out of the defendants’ shares of the estate; and
(d) provided for additional relatively minor concessions.[15]
[15]It was proposed that the estate would forgo $2,675 advanced for the plaintiff’s mediation costs and $1,089 for repairs after her vandalism of the estate property and that the plaintiff would retain any of the deceased’s chattels in her possession.
Given these matters, I consider that it was unreasonable for the plaintiff to reject the offer. Further, sufficient time was provided for consideration of its terms which were clear and which foreshadowed an application for indemnity costs.
Accordingly, the defendants are entitled to an order that their costs be had and retained from the estate on a trustee basis and that the plaintiff pay their costs into the estate on an indemnity basis in respect of the period after 9 November 2018.
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