Whitehead v State Trustees Limited (No 2)

[2011] VSC 516

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

S CI 2009 8802

IN THE MATTER of Part IV of the Administration and Probate Act 1958

and

IN THE MATTER of the will and estate of BARRY ROBERT SAMSON (deceased)

KIM DIANE WHITEHEAD	First plaintiff
ALEX WILLIAM WHITEHEAD (by his litigation guardian LORRAINE WHITEHEAD)	Second plaintiff
v
STATE TRUSTEES LIMITED (ACN 064 593 148) (as the executor of the will of the deceased)	Defendant

JUDGE:	BELL J
WHERE HELD:	Melbourne
DATE OF HEARING:	On written submissions after judgment
DATE OF JUDGMENT:	19 October 2011
CASE MAY BE CITED AS:	Whitehead v State Trustees Limited (No 2)
MEDIUM NEUTRAL CITATION:	[2011] VSC 516

TESTATOR’S FAMILY MAINTENANCE – costs of successful plaintiffs – court orders for provision exceeded offer of compromise and Calderbank offer – whether plaintiffs entitled to standard order for solicitor-client costs out of the estate or indemnity costs – whether executor defendant had unreasonably rejected offers – whether had legitimate interest in defending will and full forensic examination at trial of unusual application – value of estate not known until after trial and exceeded expectations – costs of unsuccessful defendant – whether entitled to standard order for indemnity costs out of the estate or on some lesser basis – whether should be interest ordered on amounts ordered for provision – whether should start from or pre-date judgment - Supreme Court (General Civil Procedure) Rules2005, 26.08(2), Supreme Court Act 1986, s 24, Administration and Probate Act 1958, s 97(6).

APPEARANCES:	Counsel	Solicitors
For the first plaintiff	Mr R N J Young	Zeljko Stojakovic, Barristers & Solicitors
For the second plaintiff	Mr M McKenzie	Rosemarie Ryan Lawyers
For the defendant	Mr A G Southall QC with Mr A Bolkas	Legal Branch, State Trustees

HIS HONOUR:

1. By a judgment delivered on 2 September 2011, I granted the plaintiffs’ application for orders for provision out of the estate of the will of the deceased.[1]  I ordered provision of a legacy in the lump sum of $450,000 for the first plaintiff (Kim) and an amount of $400,000 payable to the senior master for the benefit of the second plaintiff (Alex). 

   [1]Whitehead v State Trustees Limited [2011] VSC 424.

1. It is now necessary to consider costs and interest.  These issues have been addressed in written submissions which were made by the parties after judgment was delivered. 

1. Kim’s written submissions make no application in respect of interest on the $450,000 legacy. She submits the interest accrued by the estate should be taken into account in relation to the question of costs. She seeks the payment of her own costs out of the estate on a solicitor-client basis up to the date of an offer of compromise which she made, being 8 October 2010, and on an indemnity basis thereafter. She relies on r 26.08(2) of the Supreme Court (General Civil Procedure) Rules2005 and submits the court should not make an order displacing the operation of that rule.  Those and other submissions were made by Kim in written submission dated 15 September 2011 and reply submissions dated 6 October 2011, which I have considered. 

1. Alex makes application for interest on the amount of $400,000.  He seeks his costs out of the estate on a solicitor-client basis up to the date of a Calderbank offer which he made on 24 November 2010 and on an indemnity basis after 29 November 2010 when that offer closed.  He relies on the principles governing the consideration of Calderbank offers.[2]  He also submits the defendant (State Trustees) should get its costs out of the estate on a party-party basis and not on a full indemnity basis.  These and other submissions were made on behalf of Alex in written submissions dated 16 September 2011 and reply submissions dated 7 October 2011, which I have considered. 

   [2]Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435, [20] and [23] (Warren CJ, Maxwell P and Harper AJA).

1. State Trustees submits there should be no order for the payment of pre-judgment interest to the plaintiffs, but does not oppose an order with respect to interest accruing from the date of judgment until the date of distribution of the amount payable to or for the benefit of the plaintiffs.  It submits the plaintiffs should have their costs paid out of the estate on a solicitor-client basis and its own costs should be had and retained out of the estate on an indemnity basis.  These and other submissions were made on behalf of the defendant in written submissions dated 30 September 2011, which I have considered.

1. According to the approach of this court, the standard order in proceedings under Part IV of the Administration and Probate Act 1958 is that the costs of a successful plaintiff should be paid out of the estate on a solicitor-client basis.[3] Further, the standard order is that the costs of an unsuccessful defendant should be had and retained out of the estate on an indemnity basis unless it has acted unreasonably in defending the application. However, under s 24 of the Supreme Court Act 1986 and s 97(6) of the Administration and Probate Act, the question of costs remains at all times within the court’s general discretion.  The individual facts and circumstances must be carefully considered. The standard approach accommodates and does not preclude giving proper consideration to the powerful public interest in encouraging both the settlement and the cost-efficient conduct of litigation.  This public interest applies equally to proceedings under Part IV of the Administration and Probate Act.[4] The general provisions of s 7 of the Civil Procedure Act 2010 and r 1.14(1) of the Supreme Court (General Civil Procedure) Rules reinforce the importance of this consideration.  This may lead to an order which is different to the standard order being made.

   [3]In the Will of Mailes [1908] VLR 279, 270 (A’Beckett J);  In Re Bennett [1909] VLR 205, 207 (A’Beckett J); In the Will and Codicils of Read, deceased [1910] VLR 68, 72 (A’Beckett J); Simpson v Buchan, Fraser and Neville (unreported, Supreme Court of Victoria, Cummins J, 14 October 1991) 8; In the Will of GG Sitch (deceased) (No 2) [2005] VSC 383, [2] (Gillard J); Re Bull, deceased (No 2) [2006] VSC 226, [3] (Byrne J).

   [4]Simpson v Buchan, Fraser and Neville (unreported, Supreme Court of Victoria, Cummins J, 14 October 1991) 8); Re Bull, deceased (No 2) [2006] VSC 226, [3] (Byrne J).

1. Under the specific provisions of r 26.08(2), a plaintiff making and getting a judgment in excess of an offer of compromise is entitled to an order for costs on an indemnity basis from the date of the offer unless the court orders otherwise. Where a plaintiff makes and gets a judgment in excess of a Calderbank offer, the court has regard to the offer when considering what costs orders to make, the critical question being whether rejection of the offer was unreasonable.[5] 

   [5]Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435, [20] and [23] (Warren CJ, Maxwell P and Harper AJA).

1. In the present case, prior to the trial there a number of settlement offers exchanged between the parties.  In chronological order, these were:

·State Trustees’ offer of compromise to Alex in the sum of $40,000 dated 27 May 2010

·Kim’s offer of compromise to State Trustees in the sum of $350,000 dated 9 November 2010

·Alex’s Calderbank offer to State Trustees in the sum $240,000 plus costs dated 24 November 2010

·State Trustees offer of compromise to Alex in the sum of $80,000 dated 24 November 2010

It will be seen that State Trustees did not make any offer with respect to the claim of Kim.  The plaintiffs obtained a judgment which exceeded their respective offers of settlement.

1. There being no reason not to make the standard order in respect of the plaintiffs’ costs, Kim and Alex are at least entitled to an order that their costs be paid out of the estate on a solicitor-client basis. Having obtained judgment in excess of the offer of compromise (Kim) and the Calderbank offer (Alex), they are in a strong position to seek the more advantageous order that their costs be paid on an indemnity basis from the date of the rejection of the offers. Such an order would serve the powerful public interest in the settlement and cost-efficient conduct of litigation which is reflected in the terms of r 26.08(2) and the principles governing Calderbank offers to which I have referred. It is very important that defendants in proceedings of this nature give proper consideration to offers of settlement and the court will examine the circumstances carefully to see that they have done so.

1. Accepting the differences between the operation of r 26.08(2) and the principles

governing Calderbank offers,[6] in the present case the critical question is whether State Trustees acted unreasonably in rejecting the plaintiffs’ offers.  That is so in relation to whether the court should make an order displacing the effect of order 26.08(2) and the application of the principles governing Calderbank offers.  In making a judgment about that matter, the nature of the issues in each individual case, as well as the state of the evidence about those key issues, must be taken into account.  Taking those matters into account in this individual case, I think State Trustees did not act unreasonably in rejecting the plaintiffs’ offers. 

[6]See generally Blackman v Gant (No 2) [2010] VSC 246, [10]-[15] (Vickery J).

1. As my reasons in the substantive judgment make clear, this was an unusual case.  Having regard to the issues and the state of the evidence prior to the commencement of the trial, State Trustees was legitimately entitled to defend the will and test the evidence of the plaintiffs generally and Kim’s evidence particularly, especially her evidence in relation to the diaries.  Because the plaintiffs succeeded, it is easy with hindsight to say they had a good case and State Trustees should have taken the opportunity to settle it.  It was only after the evidence had been forensically examined in full that the court was able to make the orders which it did.  State Trustees participation in the trial was a necessary element of that process. 

1. Further, the actual value of the estate was not known until after the trial finished.  The principal asset was the property of the deceased at Gap Road, Sunbury.  It was auctioned after judgment had been reserved for $1.55 million against an estimate of $950,000.  The judgment which the plaintiffs achieved was influenced in their favour by that outcome.  If the asset pool had been smaller, I would have taken that into account in determining what (if any) orders for provision should be made.  State Trustees had no basis for predicting (and certainly not in November 2010 when the offers were made) that the Gap Road, Sunbury property would realise the auction price which it did.  In my view, this is the kind of case referred to by Palmer J in Sherborne Estate (No 2)[7] in which the defendant was not manifestly unreasonable in rejecting the offers, having regard to the nature of the issues and the evidence in the case.   

   [7](2005) 65 NSWLR 268, [52]-[60].

1. There should therefore be a standard order for the costs of the plaintiffs to be paid out of the estate on a solicitor-client basis. That order will displace the application of r 26.08(2) in the case of Kim.

1. In relation to State Trustees costs, I have said the standard order is that the costs of an unsuccessful defendant should be had and retained out of the estate on an indemnity basis unless it has acted unreasonably in defending the application.  Costs remain within the general discretion of the court and an order which is different to that standard order will be made when that is called for.  One example would be when the defendant has unreasonably rejected an offer of settlement or has unreasonably conducted the litigation or the trial.  But in the present case there is no reason for making a different kind of order.  For the reasons which I have given, State Trustees has not acted unreasonably in defending the application.  Further, I do not accept Alex’s submissions that the administration of the estate and the conduct of the proceeding by State Trustees has been such as to disentitle it to a standard order.  As to the conduct of the proceeding and the trial, quite the contrary is the case.

1. In relation to interest, the written submission of Alex is that there should be an order for interest based on a fair apportionment of the interest earned on the estate having regard to the order for provision which the court made in his favour.  Four possible dates were identified: 

·from one year after the testator’s death (as referred to in r 78.05), which was not pressed

·from the commencement of the hearing in (say) the second week of December 2010 

·from the date of the funds from the land sales coming to hand until the date of distribution

·from the date of the decision by the court (2 September 2011) until the date of payment of the ordered amount to the senior master

1. The submissions of Alex canvassed a number of issues concerning the basis on which I made findings in relation to the value of the estate.  I will not go into those matters.  My judgment and the orders which I made speak for themselves.  The submissions of Kim were that I should take the interest earned by the estate into account in relation to the question of costs.  I do not accept that submission: interest is not relevant to costs, which are ordered according to different principles.

1. The orders for provision which I made were not orders directing an account of legacies as mentioned in r 78.05.  They were orders creating a legacy (Kim) or its equivalent (Alex).  The one year rule and the 8 per cent interest rate specified in r 78.05 have no relevance to these orders and the amounts payable under them.

1. The orders for a legacy of $450,000 for Kim and for the sum of $400,00 for Alex’s benefit represented the court’s determination of the amount of provision which should be made at the date of judgment.  The entitlement of the plaintiffs to be paid those amounts crystallised at that date.  No party raised interest as a particular matter which should be taken into account in relation to the value of the estate or in making orders for provision. 

1. An amount of interest which may have been earned by an estate will normally be represented in the books of account of the estate as a credit amount in a bank or other account (ie, a monetary asset) or its equivalent.   When the court determines the application for provision, it is taken into account as part of the value of the estate on that basis.  The court’s attention is not necessarily drawn to an interest component and there is no reason for the court to advert to any such component when determining the application.  What usually matters is the overall value of the estate, not the composition of the monetary holdings.  

1. In the present case, I made findings, which are specified in the judgment, in relation to the value of the estate.  Those findings were made on the basis of the evidence which was presented and the submissions which were made.  I made the orders for provision on the basis of those findings.  There is nothing in the process of reasoning which I followed which would justify making an order for the payment of interest in favour of Alex from a date which precedes the date of the judgment.

1. On the other hand, as State Trustees concedes, once judgment is given in favour of an applicant for provision, their interest in the estate crystallises in that amount.  On the general principle that the owner of the tree should enjoy its fruit, in proportion to the interest in the estate which the amount of provision represents, the successful applicant for provision should be paid interest from the date of the judgment.  On this principle, the amount which should be paid is the amount actually earned, not some rate of interest which is specified by the court. 

1. Following further inquiries by the court, the parties agreed there should be no disparity between the treatment of Kim and Alex in relation to interest.  I will make orders on that basis.

1. There will be orders as to costs accordingly.

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