Fry v Fry

[2015] NZHC 2716

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-001072 [2015] NZHC 2716

IN THE MATTER

of the estate of LAWRENCE WILLIAM

FRY

BETWEEN

JASON LAWRENCE FRY Appellant

AND

CAROL MIZPAH FRY Respondent

Hearing:	17 September 2015
Counsel:	N Penman-Chambers for Appellant B Carter for Respondent K Muir for Estate
Judgment:	4 November 2015

JUDGMENT OF ASHER J (Appeal on costs decision)

This judgment was delivered by me on Wednesday, 4 November 2015 at 11 am pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel: Hesketh Henry, Auckland.

Morgan Coakle Lawyers, Auckland. B Carter, Auckland.

FRY v FRY [2015] NZHC 2716 [4 November 2015]

[1]      This is an appeal against a detailed cost decision made in the Family Court by Judge D A Burns on 23 February 2015.1   It does exactly what the cost provisions of the Family Court, District Court and High Court Rules are designed to prevent.  It traverses a lengthy and expensive argument about costs, which is undoubtedly uneconomic for all parties. A day was spent on argument.

[2]      The background to these proceedings is that the deceased in his last will left his entire estate to his second wife, the respondent.   Mr Fry is one of the three children of the deceased.  He considered that provision should have been made for him, and claimed the deceased had promised to bequeath him an interest in the family business.   On 7 April 2010 Mr Fry issued proceedings in respect of his father’s estate under the Family Protection Act 1955 (the FPA) and the Law Reform (Testamentary Promises) Act 1949 (the TPA).

[3]      The value of the estate at the date of the trial was $1.4 million.   The trial proceeded on 11–13 February 2014.  In a judgment of 15 April 2014 Judge Burns dismissed both causes of action.2    Costs were not determined on the Family Court proceedings at that point.

[4]      Mr Fry appealed the FPA part of the decision.  There was no appeal against the dismissal of the TPA claim.   In a decision delivered on 17 September 2014, Moore J allowed the appellant’s appeal and awarded him $175,000 under the FPA together with costs and disbursements in the High Court on a 2B basis.3    Moore J made no order as to costs for the Family Court proceedings, and when the parties sought directions he determined that the issue should be remitted to the Family Court

to be determined by the trial Judge.

[5]      Memoranda as to costs were subsequently filed by all parties in the Family

Court.   Judge Burns delivered the decision that is the subject of this appeal on

23 February 2015.   In that decision the Judge dismissed Mr Fry’s application for

costs and ordered that Mrs Fry in a personal capacity be awarded costs and disbursements on the TPA claim on a 2B basis.  Each party was to bear their own

1      Fry v Fry [2015] NZFC 1461.

2      Fry v Fry [2014] NZFC 2650.

3      Fry v Fry [2014] NZHC 2256.

costs and disbursements on the FPA claim. The disbursements incurred were apportioned two-thirds to the TPA claim and one-third to the FPA claim.

[6]      Costs were also awarded to Mrs Fry in her capacity as executor and trustee on a 2B basis on the TPA claim, together with disbursements applicable to that claim.  There were no costs or disbursements awarded in relation to the FPA claim. Again, the disbursements incurred were apportioned two-thirds to the TPA claim and one-third to the FPA claim.

[7]      Judge Burns made these decisions because Mrs Fry in both capacities was successful in defending the TPA claim, but was unsuccessful on appeal in defending the FPA claim.  He found that the FPA claim would have taken one day to hear, and the  TPA  claim  two  days,  meaning  that  the  two-thirds/one-third  ratio  fairly apportioned the “time and energy” expended on each claim.  That was because there had been disputes about the value of the shares and argument about the size of the estate which required expert opinion, and the TPA claim had added costs to the

valuation exercise. He observed:4

I do not consider it appropriate to order that the estate bear the costs of the applicant because this would effectively amount to the respondent as residuary beneficiary bearing those costs.   I do not consider it appropriate that the applicant be awarded costs in the FPA proceedings.   He was not successful in the Family Court.  While a successful appeal in my view gives a good argument to prevent costs being made against the applicant, it is a shield not a sword and it would produce an injustice to the respondent if I was to award costs in favour of the applicant when in the Family Court the applicant was not successful.

[8]      Overall he considered that having costs lie where they fall produced a fair outcome in the FPA proceedings given that the appeal had been successful.  He took into account the Calderbank offer and stated:5

Whilst the award was greater than the offer, taking costs into account, I

consider the Calderbank offer defeats any claim for costs by the applicant.

[9]      He was not prepared to find either party was more significantly at fault than the other.  He considered that if there had been only FPA proceedings brought it was

possible that the case could have settled, and that the TPA proceedings increased the costs.6    He noted that the actual costs were significantly in excess of scale and he could see no reason for going beyond the scale set by in the District Court Rules.

Approach

[10]     The scenario that has unfolded in this case is not uncommon.  A deceased leaves his or her estate to the surviving partner.   Children or a child of a former marriage who receive nothing challenge that decision.   If the parties do not settle, protracted litigation can result.

[11]     In  such  proceedings  there  is  generally  a  need  for  the  executor  to  be represented in the proceedings as the notional defendant, and so that the net assets of the estate and any other issues relating to the estate can be properly put before the Court.  It is often the case that in such proceedings there is no actual appearance for the executor at the trial, the executor having provided the necessary information and abiding the decision of the Court.  The general approach in such cases is that the actual costs of the executor come out of the estate.

[12]     The approach is less settled as to how costs are dealt with in respect of the plaintiff who challenges the will and the beneficiary who seeks to uphold it.  In the past, like the practice for payment of the executor’s costs, there may have been something of a practice for all costs accrued from a reasonably pursued claim to come out of the estate.  This position is reflected in the Court of Appeal’s statement

in Keelan v Peach that:7

It is indeed the general practice in Family Protection Act proceedings for costs to be carried by an estate, although there are of course exceptions. Usually an unsuccessful claim will have failed on its merits rather than on issues of standing and often there will be reluctance on the part of the Court and,  sometimes  the  parties,  to  exacerbate  family  rifts  by  personal  costs orders. …

This practice was why it was not infrequent, even though a party might have failed, to order that costs lie where they fell.8

[13]     However, as time has worn on the comparatively increased cost of legal services has made such an outcome quite unfair for small to middle-sized estates because the legal costs are quite capable of gobbling up the entire value of the estate. There is no longer a general rule that the costs of all parties should be paid out of the estate in a family protection claim.9

[14]     Thus, over the years an approach that more reflects the philosophy behind the present costs rules in the High Court Rules and District Court Rules has developed, whereby the estate does not bear the costs, and scale costs are awarded, payable by parties in accordance with established costs principles.  The consequence of this is that the estate does not bear all the burden of all the actual costs, and limited costs in the amounts prescribed by the scale are awarded between the contesting parties. However, there is by no means a settled practice.

[15]     This position is reflected in the commentary in McGechan on Procedure

where it is stated:10

The traditional, but never invariable, practice was to order the costs of all parties to be paid out of the residue of the estate.  However, such an order can impact unfairly on the residuary beneficiary, particularly if the estate is not large.  Perhaps for that reason, the court, in a defended Family Protection proceeding, often left costs to lie where they fell, with the result that the parties had to meet their own costs out of their respective shares of the estate.

More recent cases suggest costs in Family Protection cases should not be excluded from r 1.42 costs principles, in particular the principle that costs should follow the event.

An order that costs follow the event was departed from where, for example, a plaintiff with a small share of a substantial estate is unsuccessful, but had a claim that was arguable and had some merit.  Vincent v Lewis HC Auckland CIV-2002-404-2440, 26 April 2006 was such a case.

8      Vincent v Lewis HC Auckland CIV-2002-404-2440, 26 April 2006 at [5], and Weir v Hotham HC Auckland CIV-2005-404-5300, 1 August 2006 at [21].

9      Re Miller (costs) (2001) 20 FRNZ 459 (HC) at [6]; Critchley v Saunders [2014] NZHC 1113 at

[19].

10     Andrew  Beck  and  others  McGechan  on  Procedure  (online  looseleaf  ed,  Brookers)  at

[HRPt14.16].

Recent cases are helpfully collected by Asher J in Barker v Barker HC Auckland CIV-2006-404-181, 7 December 2006 at [18].

[16]     The modern approach to the allocation of costs is reflected in the statement of the Court of Appeal in Packing In Ltd (in liquidation) v Chilcott where it was stated:11

Success or failure in this context is better assessed by a realistic appraisal of the end result rather than by focusing on who initiated what step, and the extent to which that step succeeded or failed.

[17]     The following observations can be made about the allocation of costs in circumstances such as these:

(a)      The executor’s full costs are paid by the estate, unless the executor has acted unreasonably.  Often no specific award of costs is required in this regard as the executor will be in a position to charge the costs to the estate with or without an order for costs.   If, however, the executor has acted unreasonably then this approach may not apply.

(b)The Family Court Rules apply to TPA and FPA proceedings in the Family Court.  Under r 207(1) costs are at the discretion of the Court, and under r 207(2) most of the cost rules in the District Court Rules

2014 apply, so far as applicable and with all necessary modifications. These rules are now largely the same as the High Court Rules, and so for all intents and purposes the same cost regime applies in the Family Court and High Court.

(c)      The general principle is that the party who “fails” with respect to a proceeding  “should  pay costs  to  the party who  succeeds”.12     The Court may refuse to make an order for costs that would be otherwise payable for the various reasons that are set out in r 14.7 of the District Court Rules. These include:

…

11     Packing In Ltd (in liquidation) v Chilcott (2003) 16 PRNZ 869 (CA) at [6].

12     District Court Rules 2014, r 14.2(a).

(d)   although the party claiming costs has succeeded overall, that party has failed in relation to a cause of action or issue that significantly increased the costs of the party opposing costs; or

(e)   the party claiming costs has contributed unnecessarily to the time or expense of the proceeding or step in the proceeding by—

(i)   failing to comply with these rules or a direction of the court; or

(ii)  taking or pursuing an unnecessary step or an argument that lacks merit; or

(iii) failing,  without  reasonable  justification,  to  admit  facts, evidence, or documents or accept a legal argument; or

(iv) failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or any other similar requirement under these rules; or

(v)   failing, without reasonable justification, to accept an offer of settlement, whether in the form of an offer under rule

14.10  or  some  other  offer  to  settle  or  dispose  of  the

proceeding; or

(f)   some other reason exists that justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.

[18]     The system of awarding costs will break down if the examination of the facts and circumstances of the conduct of the case is minute in detail.   Judges have to approach the issue of costs in a broad way, looking at the end result and the key developments during the course of the proceeding that have led to that result.

Application of principles to this case

[19]     The overriding principle to be applied in this case is that the party who fails with respect to “a proceeding” should pay costs to the party who succeeds. “Proceeding” is not defined by the Family Court Rules, but is defined by the District and High Court Rules as meaning any application to the Court for the exercise of the civil  jurisdiction  of  the  Court  other  than  an  interlocutory  application.     This proceeding was an application on notice for orders under the TPA and FPA.  It was a single proceeding.   Mr Fry succeeded.   Whereas he was to get nothing from the estate, he has been awarded $175,000.  Mrs Fry opposed him getting any award.

[20]     Contrary to the view of the learned Judge, the fact that the success was achieved  following  an  appeal  is  irrelevant.    The  consequence  of  the  successful appeal is that Mr Fry has been successful in his Family Court proceeding, and the starting position is that he is entitled to costs.

[21]     These  principles  that  are  set  out  in  the  Family  Court  Rules  were  not considered or applied in the Family Court.  The judgment allowing the appeal meant that the appellant should have succeeded in the Family Court.   The Judge should have started by taking into account Mr Fry’s success in the proceeding.  Instead of doing this he focused on areas in which Mr Fry failed, and the fact that there had been an appeal.  The former were relevant, but only as a basis for reducing costs, and the latter was irrelevant.

[22]     The Judge considered that the Calderbank offer defeated any claim for costs by Mr Fry.   This also was an error.   As the Judge acknowledged, the award of

$175,000 was greater than the offer of $100,000.   The effect of the making of a Calderbank offer has on the question of costs is at the discretion of the Court.13   A party is entitled to costs on steps taken after an offer if the offer exceeds the amount of the judgment, or if the offer was more beneficial than the judgment,14  and may still be taken into account if it is close to the value or benefit of the judgment.15   This offer fell into neither category.  It was very considerably short of the judgment and should have been disregarded.

[23]     I reject a submission that in carrying out this assessment of the value of the judgment in comparison to the Calderbank offer it is necessary to consider and deduct the costs involved in obtaining the judgment.  The assumption implicit in the rules is that costs are recovered through the application of the scale.  “Judgment” in r 14.11 means “judgment sum”, not “judgment sum minus actual litigation costs”.

[24]     Given this errors in approach it is necessary to assess the allocation of costs afresh.

13     Rule 14.11(1).

14     Rule 14.11(3).

15     Rule 14.11(4).

Decision as to costs

[25]     Mr Fry has succeeded in his claim and the starting point is that he is entitled to costs for the Family Court hearing.  This was a case of normal complexity and involving a normal amount of time, and 2B was the appropriate scale.

[26]     There has to be a reduction in the costs for the significant amount of time spent on the unsuccessful TPA claim.  In terms of r 14.7(d) this claim undoubtedly significantly increased Mrs Fry’s costs.  There was also time wasted on arguments as to the value of the estate, where Mr Fry raised objections that were ultimately not successful, in particular in unsuccessfully cross-examining Mr Hagen, the accountant called by the estate, on certain issues.  I accept Judge Burns’ assessment of the time spent  at  the  hearing  of  two-thirds  and  one-third  for  the  TPA and  FPA claims respectively.   Indeed the parties did not contest it.   A straightforward FPA claim, which would not have involved oral evidence, was turned into a significant hearing with cross-examination on contested factual issues.

[27]     Despite Mr Fry’s success in the proceeding as a whole, I consider two-thirds to be a reasonable reduction, taking into account Mr Fry’s failure on the TPA cause of action.  It did take a lot of time, and was a discrete issue where Mr Fry failed.

[28]     I determine therefore that Mr Fry should have been awarded 2B costs at scale reduced by two-thirds, payable by Mrs Fry in her personal capacity.

The executor’s costs

[29]     Executor’s costs will come out of the estate.  Mr Muir for Mrs Fry supported the order that costs for the estate against Mr Fry.  He had been obliged to appear for part of the hearing, because of Mr Fry’s refusal to accept the valuation of the estate. Judge Burns accepted that submission and awarded costs in favour of Mrs Fry in her capacity as executor and trustee on a 2B basis  applying a two-thirds, one-third apportionment as discussed above.

[30]    This award again overlooks the fact that Mr Fry was successful in the proceeding.  If, as is usual, the estate had provided all the necessary information to

the Court and then been in a position to not participate in the hearing and abide the decision of the Court, no costs order in favour of Mrs Fry as executor to be paid by Mr Fry would have been appropriate.  The costs would have had to come from the estate. They should not have been increased by the TPA proceedings.

[31]     However, I accept Mr Muir’s submission that Mr Fry acted unreasonably when he required the estate’s accountant Mr Hagen to be called to give evidence about aspects of the value of the estate.  He was cross-examined at some length, but in the end his figures were accepted.   For parts of the hearing including the time Mr Hagen gave evidence Mr Muir attended in person.

[32]     These are unusual features of this case, and the Court’s overall discretion can be invoked to achieve a just result.  It seems to me that the part of Mr Hagen’s fee that can be attributed to Mr Fry’s refusal to accept the estate’s accounts should be at his cost.  Similarly there should be some allowance for the time Mr Muir spent in Court when Mr Hagen unnecessarily gave evidence.

[33]     In my view this is best dealt with by ordering Mr Fry to pay two-thirds of Mr Hagen’s fee, and a one-off sum of $3,000 to Mrs Fry as executor of the estate, on account of the wasted costs of calling Mr Hagen.

Result

[34]     The appeal is allowed and the orders made by Judge Burns on 23 February

2015 in relation to costs are set aside. [35]      In substitution:

(a)      Mr Fry is entitled to one-third of the costs and disbursements on a 2B basis for the proceeding.  Those costs are payable by Mrs Fry in her capacity as a beneficiary.

(b)Mrs Fry in her capacity as an executor is entitled to costs and disbursements from the estate (I appreciate that these effectively will come out of the money available to her as beneficiary).  Nevertheless

Mr Fry is to pay two-thirds of Mr Hagen’s fee and the sum of costs of

$3,000 to Mrs Fry in her capacity as an executor to recognise in terms of r 14.7(e)(ii) and  (iii)  the unnecessary objection  to  Mr Hagen’s evidence.

……………………………..

Asher J