State Trustees Limited v Lisa Josephine Bedford (As representative of the Estate of Kim Diane Whitehead, deceased) (No 2)

[2012] VSCA 319

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2011 0144

STATE TRUSTEES LIMITED	Appellant
v
LISA JOSEPHINE BEDFORD (As representative of the Estate of KIM DIANE WHITEHEAD, deceased) & ANOR (No 2)	Respondents

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JUDGES	NEAVE and TATE JJA and DAVIES AJA
WHERE HELD	MELBOURNE
DATE OF HEARING	26 September 2012
DATE OF JUDGMENT	19 December 2012
MEDIUM NEUTRAL CITATION	[2012] VSCA 319
JUDGMENT APPEALED FROM	Whitehead v State Trustees Ltd [2011] VSC 424 (Bell J)

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COSTS — Testator’s maintenance claim — Unsuccessful appeal against orders for provision — Offers of compromise made by respondents before appeal — Consequences of rejection — Whether respondents entitled to costs on an indemnity basis — Whether costs should be awarded from deceased’s estate — Rejection of offers not unreasonable — Costs awarded to respondents on solicitor/client basis from deceased’s estate.

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Appearances:	Counsel	Solicitors
For the Appellant	Mr A G Southall QC with Mr A Bolkas	State Trustees Limited
For the First Respondent	Mr R N J Young	Zeljko Stojakovic
For the Second Respondent	Mr M C McKenzie	Rosemarie Ryan Lawyers

NEAVE JA:

1. These reasons relate to the costs of an appeal by the State Trustees against orders made by a trial judge that provision be made from the estate of the late Barry Robert Samson for the proper maintenance and support of Kim Whitehead and her nine year old son, Alex.[1]  The appeal was heard on 26 September 2012 and on 16 November 2012, the Court handed down its judgment in favour of the respondents.[2]  

   [1]Because Kim had died prior to the hand down of judgment, the Court also made orders that Kim’s sister, Lisa Bedford, be substituted in place of Kim as the first respondent to the appeal to represent Kim’s estate.

   [2][2012] VSCA 274.

1. The Court was immediately informed by counsel for Kim Whitehead that his client had, on 16 August 2012, made a Calderbank[3] offer to the State Trustees to compromise the appeal by accepting the sum of $425,000 plus costs taxed on a solicitor/client basis, in lieu of the $450,000 legacy which had been awarded to her at trial.  This offer was rejected by State Trustees.

   [3]Calderbank v Calderbank [1975] 3 All ER 333.

1. Counsel for the second respondent also informed the Court that his client (through his litigation guardian) had made a Calderbank offer on 7 September 2012, in which he agreed to accept the sum of $395,000 with costs to be taxed on a solicitor/client basis in lieu of the legacy of $400,000 which had been awarded to him at trial.  This offer was also rejected by State Trustees.

1. In these circumstances, counsel for both the first and second respondent sought an order that State Trustees pay their clients’ costs of the appeal to be taxed on a solicitor/client basis until the date of service of their respective offers of compromise, and thereafter on an indemnity basis. 

1. The Court directed the parties to provide written submissions on:

·the basis on which the costs of the appeal should be paid by State Trustees to the respondents; and

·whether the costs of the appeal should be paid out of the deceased’s estate, as counsel for State Trustees had submitted.

Should the costs be taxed on an indemnity  basis?

1. Rule 64.24(1) of the Supreme Court (General Civil Procedure) Rules 2005 provides that ‘[t]he Court of Appeal may make such order for the whole or any part of the costs of an appeal as it thinks fit.’

1. Rule 63.32(2) provides that:

the Court may order that costs be taxed on a solicitor and client basis where the Court makes an order for −

(a)       the payment to a party of costs out of a fund…

1. Under r 26.12, a party to an appeal may serve on another party ‘an offer to compromise the appeal’.  The cost consequences of a failure to accept such an offer is set out in r 26.12(3) as follows:

Where on an appeal —

(a) a party has made an offer in writing to the other party (whether or not expressed to be without prejudice) to compromise the appeal on the terms specified in the offer;

(b) the offer was open to be accepted for a reasonable time, but was not accepted; and

(c) the party making the offer obtains an order on the appeal no less favourable to that party than the terms of the offer —

the Court of Appeal shall take those matters, and also the stage of the appeal at which the offer was made, into account in determining what order for costs to make in respect of the appeal.

1. Under r 26.12(4), this Court has power to make an order for costs taxable ‘on a basis other than a party and party basis’, which includes costs on an indemnity basis.[4]

   [4]Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority(No 2) (2005) 13 VR 435 (‘Hazeldene’) 439 [13]. 

1. State Trustees argues that the Calderbank letters sent by the first and second respondents contained a ‘minimal discount’, and did not represent a ‘real and genuine’ attempt to compromise the dispute between the parties.

1. State Trustees argues that, because a written opinion from senior and junior counsel advised that there were arguable grounds of appeal, its rejection of the offers was reasonable, and that it should only be required to pay the respondents’ costs on the usual basis.  Neither the grounds of appeal relating to his Honour’s factual findings nor the grounds of appeal relating to the quantum of orders were so manifestly hopeless as to make it unreasonable to reject the offers.

1. In response, counsel for the first respondent contends that State Trustee’s rejection of the offer was unreasonable.  If it had accepted the offer, it would have saved the following:

·$25,000 from Kim Whitehead’s award of $450,000;

·interest of at least $16,914.90;

·the first respondent’s costs of the appeal from the date of the offer; and

·the appellant’s costs of running the appeal from 16 August 2012, which included the costs of senior counsel.

1. Counsel for the first respondent relies on the statement in the submission of State Trustees that senior and junior counsel had advised that they were ‘not optimistic’ about the likely success of an appeal.  In these circumstances, it would have been appropriate for State Trustees to accept the Calderbank offer. 

1. Counsel for the second respondent submits that State Trustee’s likelihood of success in the appeal against the order made in favour of the second respondent was even less than its chance of success against the first respondent.  In these circumstances, the second respondent’s offer of $395,000 constituted a realistic and genuine offer to settle the appeal, and if accepted, would have saved State Trustees:

·$5,000 from the award of $400,000;

·interest of $14,749.48; and

·thousands of dollars in legal costs incurred by running the appeal by both the appellant and the second respondent.

Conclusion on indemnity costs issue

1. In considering whether costs should be taxed other than on a party/party basis, the critical question is whether it was unreasonable of the State Trustees to reject the Calderbank offers.[5]  In making that assessment, the Court is required to have regard to the following:

   [5]Ibid 441 [23]; see also Fletcher Insulation (Vic) Pty Ltd v Renold Australia Pty Ltd (No 2) [2006] VSC 292 [13].

(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.[6]

[6]Hazeldene (2005) 13 VR 435, 442 [25].

1. In this case, the offers were made only shortly before the date when the appeal was listed for hearing, when most of the necessary work for preparation of the appeal would have been completed.  Both offers were open for acceptance for 14 days.  Although this gave the appellant a reasonable time to consider the offer, the time for acceptance expired only shortly before the hearing date. 

1. The factual circumstances of the case were unusual.  Whilst the offers made would have saved the appellant interest payable on the awards made to Kim and Alex Whitehead, the offer made on behalf of Kim was only $25,000 less than the amount awarded at trial.  In our view, the State Trustees had some chance of success in appealing against that award.  Although State Trustees’ chances of setting aside the order in favour of Alex were weaker, the offer made in his case was only $5,000 less than that award.  Indeed, it verged on the derisory.  Neither offer gave State Trustees much incentive to settle the appeal.   

1. The Calderbank letter sent by the solicitors for Alex Whitehead warned State Trustees that it would rely on the offer in support of an application for costs on an indemnity basis.  No similar statement was made in the letter sent by the solicitors for Kim Whitehead.  However, State Trustees would not have been unaccustomed to such litigation and it can be assumed that it would have been aware that the letter could be used for this purpose. 

1. Having regard to the relatively late stage at which the offers were made and the amounts offered, we do not consider that it was unreasonable for State Trustees to decline to accept the Calderbank offers and would not order that costs against them be taxed on an indemnity basis.

Should the costs be paid out of the deceased’s estate?

1. On the handing down of the substantive judgment, State Trustees sought an order that the costs of all parties be borne by the estate of Barry Robert Samson.  In support of that submission, it relied on the fact that it acted as a bare trustee, that all of the beneficiaries had, at various times, been represented by their own lawyers and that the beneficiaries were unanimous in the view that State Trustees should appeal against the trial division decision. 

1. At trial, different costs order are often made in applications under Part IV of the Administration and Probate Act 1958 from the costs orders usually made in civil litigation.  In Forsyth v Sinclair (No 2),[7] this Court noted that:

the costs of a successful applicant for family provision and the unsuccessful defenders of the will (whether executors or beneficiaries) have often been ordered to be paid out of the estate on a solicitor and client basis. This approach of allowing the costs of both parties to be paid out of the estate on a solicitor and client basis has also been followed in the case of a successful appeal by the family provision applicant.[8]

[7](2010) 28 VR 635.

[8]Ibid 640 [20].

1. State Trustees submits that, accordingly to generally accepted principles, the costs of all parties to the appeal should be paid out of the deceased’s estate, unless it can be shown that it acted unreasonably in bringing and prosecuting the appeal. 

1. However, in Australian Incentive Plan Pty Ltd v Attorney-General (Vic)(No 2),[9] Nettle JA (Tate JA and Davies AJA agreeing in the result) differentiated between the position of a trustee who is involved in proceedings at first instance and that of a trustee who appeals from the initial decision.  He said that:[10]

as Lord Esher MR said in Re Earl of Radnor’s Will Trusts,[11] if a trustee, after taking the advice of the court at first instance, appeals against the court’s determination, the trustee is ordinarily regarded as being in much the same position as any other appellant and so, if unsuccessful in the appeal, will be ordered to pay costs personally.

In Rosenthal v Rosenthal,[12] Higgins J referred to the latter rule as one of long standing that, although trustees are entitled to their costs out of the estate of getting the guidance of the court in cases of difficulty, they appeal at their own risk and ordinarily must take the usual consequences. More recently, the rule was applied by the Full Court of Western Australia in Re Bubnich[13] and was considered by this court in Forsyth v Sinclair (No 2).  Plainly, the purpose of the rule is that, but for its existence, estates would very frequently be frittered away in costs.

Of course, the rule is subject to exceptions or, perhaps more accurately, it is to be applied according to all the circumstances of the case.

[9][2012] VSCA 251 (‘Australian Incentive Plan’).

[10]Ibid [9]−[11].

[11](1890) 45 CH 402, 423.

[12](1910) 11 CLR 87, 98 in dissent, but not in point of principle.

[13][1965] WAR 138, 142−3 (Negus J).

1. Although Davies JA agreed with actual orders made in that case, her Honour considered that the Court should be reluctant to deprive an unsuccessful trustee of an order that the trustee’s costs should be paid out of the trust fund, when the appeal is pursued in the performance of the trustees’ duties.

1. Although Australian Incentive Plan and most of the cases cited in it were concerned with the construction of wills or trust deeds, the risk that an estate may be dissipated through unnecessary litigation also applies to proceedings under Part IV of the Administration and Probate Act 1958. If the costs of all parties are borne by the estate, there is a considerable risk that a person with a hopeless claim will appeal, because they will have little to lose if the appeal fails.  As this Court said in Forsyth v Sinclair (No 2):[14]

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.[15]

[14](2010) 28 VR 635.

[15]Ibid 642 [27].

1. At least in the context of Part IV claims, I do not share the reservations expressed by Davies AJA.  The trustee of a will is not bound to act in accordance with the instructions of the beneficiaries.  Even if some or all beneficiaries wish to appeal against a decision in Part IV proceedings, the trustee has an obligation to decide whether it is appropriate to do so.  If a trustee decides to appeal in accordance with the wishes of the beneficiaries (or some of them), it can make an arrangement to obtain an indemnity from them for costs incurred if the appeal is unsuccessful.  For these reasons, there should be no automatic assumption that costs in Part IV proceedings will  be borne by the estate.  

1. This case is close to the line.  One of the beneficiaries is intellectually disabled and State Trustees may have considered it appropriate to appeal to protect her interests.  Although State Trustees is not bound by the views of the beneficiaries, their unanimous view was that the appeal should be initiated.  The facts giving rise to the appeal were unusual and State Trustees was advised that there were arguable grounds of appeal.

1. In these circumstances, I would order that the costs of the respondents be taxed on a solicitor/client basis and that all costs be paid out of the estate.  Because of the size of the estate and the fact that both the respondents are entitled to receive fixed amounts, these orders will have no effect on the share that they receive.

TATE  JA:

1. I agree with Neave JA. 

DAVIES AJA:

1. I agree with Neave JA.

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