New South Wales Supreme Court CITATION : Cropley v Cropley (No 2) [2002] NSWSC 818 CURRENT JURISDICTION: (1) Equity Division - Probate List (2) Equity Division - FILE NUMBER(S) : SC 100191/01; 4029/01 HEARING DATE(S) : 23/05/02, 27/06/02, 04/07/02, 31/07/02 JUDGMENT DATE : 10 September 2002 (1) Elizabeth Anne Cropley - Plaintiff Richard Oswald Cropley - Defendant PARTIES : (2) Geoffrey David Cropley - Plaintiff Elizabeth Anne Cropley - Defendant JUDGMENT OF : Barrett J (1) Mr P J Blackburn-Hart - Plaintiff COUNSEL : Mr P Hallen SC - Defendant (2) Mr P Hallen SC - Plaintiff Mr P J Blackburn-Hart - Defendant (1) Teece Hodgson & Ward - Plaintiff SOLICITORS : Holding Redlich - Defendant (2) Holding Redlich - Plaintiff Teece Hodgson & Ward - Defendant CATCHWORDS : PROCEDURE - family provision - costs LEGISLATION CITED : Family Provision Act 1982 CASES CITED : Fiorentini v O'Neil (unreported, NSWCA, 4 December 1998) DECISION : See paragraphs 16 and 17 - 12 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J TUESDAY, 10 SEPTEMBER 2002 100191/01 – ELIZABETH ANNE CROPLEY v RICHARD OSWALD CROPLEY & ORS – ESTATE OF DAVID OSWALD CROPLEY (NO 2) 4029/01 – GEOFFREY DAVID CROPLEY v ELIZABETH ANNE CROPLEY – ESTATE OF DAVID OSWALD CROPLEY (NO 2) JUDGMENT 1 The outcome of both these proceedings, in accordance with judgment delivered by me on 26 April 2002 (Cropley v Cropley [2002] NSWSC 349), was as follows: A. An application by Elizabeth Anne Cropley ("Mrs Cropley") for a grant of probate of the deceased's will dated 22 November 1999 ("the 1999 will") and a document dated 23 May 2000 ("the May document") was unsuccessful. B. I did find, however, that by the May document the deceased, while living, effected an equitable assignment of part of the total debt owing to him by a son, Mr Richard Cropley ("Richard"), so that the right to be paid $55,000 thereof by Richard passed to Mrs Cropley. C. An application by Richard for a grant of probate of the 1999 will and a document dated 23 January 2000 ("the January document") was successful. D. An application by Mrs Cropley for further provision out of the estate pursuant to the Family Provision Act 1982 was successful, in that I decided that an annual sum should be provided to Mrs Cropley out of a fund to be set aside for the deceased's four children pursuant to the January document. E. An application by Richard for further provision out of the estate pursuant to the Family Provision Act was unsuccessful. F. An application by another son, Mr Geoffrey Cropley ("Geoffrey"), for further provision out of the estate pursuant to the Family Provision Act was also unsuccessful. 2 It remains to settle the orders to be made to give effect to these decisions, and also to deal with the issue of costs. I have had both written and oral submissions on these matters. The oral submissions were made on 31 July 2002 by reference to competing draft short minutes. 3 For all practical purposes, there are two parts to the estate. The first is, in effect, a fund consisting of debts owing to the deceased by Richard and Geoffrey. It is convenient to refer to this as "the separate fund". The result of the deceased's testamentary dispositions in relation to the separate fund is that it is to be enjoyed by the deceased's four children in equal shares. The effect of my judgment is that that enjoyment of the corpus is to be postponed for Mrs Cropley's life and that the separate fund is to be the source of payments to her for life in accordance with item D above. The aggregate principal of the debts is $375,000 (being $220,000 owing by Richard and $155,000 owing by Geoffrey). 4 The second part of the estate is the residue which, as disclosed by Mrs Cropley's evidence, amounted to $189,308.91 at the date of death. 5 I found that Mrs Cropley required a disposable after tax income of $45,000 according to cost of living rates now prevailing, representing a pre-tax income of $61,000. I found that Mrs Cropley had a current pre-tax income from her own assets of some $24,000 and that the residuary estate of $189,308.91 plus the $55,000 assigned by the May document would produce pre-tax income of about $13,800, making a total of, say, $38,000 and leaving a deficiency of $23,000 to be made up to produce the required $61,000 before tax. My decision was that this $23,000, adjusted for future movements in the consumer price index, should be provided to Mrs Cropley annually out of the fund passing to the deceased's children, with the income of the fund being the source of these payments in the first instance and resort being had to corpus only to the extent that income was insufficient. 6 These calculations made no allowance for the possibility that either part of the estate (or both parts) might be diminished by costs orders made in these proceedings. That possibility now needs to be addressed. The appropriate course, as I see it, is to determine what costs orders should be made and then to review the best way of securing the additional income to Mrs Cropley. 7 I consider first the costs of the probate proceedings, that is, items A and C above. There was a clear need for the testamentary status of both the January document and the May document to be determined by the court. Had it not been for those two informal documents, probate of the 1999 will alone would have been a straightforward matter. The complications arising from the January document and the May document may be traced directly to conduct of the deceased. The costs of each of Mrs Cropley and Richard of and incidental to so much of the proceedings as encompassed items A and C should therefore be paid out of the estate, and this should be on the indemnity basis. This will also comprehend such costs as may be identifiable as referable to item B above, that being part and parcel of the determination of the status of the May document. 8 As to item D (Mrs Cropley's successful Family Provision Act claim) and items E and F (her successful defence of the Family Provision Act claims of Richard and Geoffrey), it is clear that Mrs Cropley is entitled to some order for costs. The questions are: against whom; and on what basis? 9 Generally speaking, costs of a successful claimant will be awarded in such a way as to fall on the residue of the estate. Here, however, Mrs Cropley is entitled to the residue and such an order would effectively mean that she bore the burden of the costs awarded to her. That is one reason for not following the usual course in this case. According to submissions made on Mrs Cropley's behalf, another reason (which may, in a sense, be another way of saying the same thing) is that the Family Provision Act aspects of the litigation were, in substance, an inter partes dispute between Mrs Cropley on the one hand and Richard and Geoffrey on the other: Fiorentini v O'Neil (unreported, NSWCA, 4 December 1998). Mrs Cropley contended that she should have an order under the Act while Richard and Geoffrey contended that she should not. They, for their part, also contended that they should have orders under the Act and Mrs Cropley contended that they should not. I accept this as a correct characterisation of the substance of the matter. 10 On the basis that the matter should be approached as an inter partes dispute, the general rule that costs should follow the event means that Mrs Cropley's costs of the proceedings, other than those referred to at paragraph 7 above, should be borne in an appropriate way by Richard and Geoffrey. The way I consider to be appropriate is that one-half of those costs be paid out of the separate fund (one-half recognising that the deceased's two children other than Richard and Geoffrey have an interest in the separate fund) and the balance of those costs be paid by Richard and Geoffrey, they having been represented by the same counsel and solicitors in such a way that they presented a united front. 11 It was submitted on behalf of Mrs Cropley that, because of offers of compromise made by her but rejected by Richard and Geoffrey, her costs referable to subsequent periods should be on the indemnity basis. I note, however, that the offers were based on lump sums and therefore cannot meaningfully be compared with the result which is framed in terms of an annual payment. It is therefore not appropriate to award costs on the indemnity basis. Assessment should be on the party and party basis. 12 Payment of costs in the manner I have outlined will deplete the residue of the estate and therefore its income producing capability taken into account by me in fixing $23,000 as the annual sum (subject to cost of living adjustment) to be sourced from the separate fund. There is accordingly a need for the $23,000 to be appropriately adjusted. 13 The basis on which I saw $23,000 as the appropriate income supplement for Mrs Cropley regarded $13,800 as the annual income from the $244,308.91 aggregate of the residue of $189,308.91 and the $55,000 assigned by the May document. On an approximate proportional basis, therefore, the assumed income from the residue alone is 189 244 x $13,800 = $10,700 approx. When the residue is reduced by sums paid out to satisfy costs orders, the reduced assumed income will become 189,000 – C x $10,700 189,000 where "C" represents the reduction for costs. The sum by which this reduced assumed income is less than $10,700 should be added to the $23,000 to produce the initial annual sum to come from the separate fund. 14 Various other matters relevant to the orders to be made to give effect to my judgment were canvassed in submissions made on 31 July 2002. A number go to questions of fairness in relation to interest and timing. As a general matter, I accept the submissions made on behalf of Richard and Geoffrey to the effect that the regime of annual payments should begin when the orders are made. However, interest from the date of death at the rate applicable to legacies should be added to the first payment, with interest on the loans according to their terms running up to the time the first capital payments are made to the executors, which interest will enhance the fund out of which Mrs Cropley's future payments will come. 15 Of the various other matters, the only one I think I need address further is the interest that should be paid on the $55,000 the subject of the assignment, given that part of Richard's total debt carried interest at 10% per annum and part carried interest at 8% per annum. From his point of view as borrower, the overall interest will be the same, regardless of the fact that parts of the debt (and therefore parts of the overall interest) are payable in different directions. The choice is, however, important to Mrs Cropley and those interested in the fund. Given that neither party has, on the evidence, purported to identify, by reference to interest rate, the part of the debt that was assigned, I consider it appropriate to proceed on that basis that half ($27,500) carried interest at 10% per annum and half ($27,500) carried interest at 8% per annum. 16 Because all these matters are not without complexity, it is desirable that I afford the parties an opportunity to review the orders and directions I propose making. In formulating them, I have drawn on the draft short minutes submitted by each side. Any submissions going to matters of practicality and administration (as distinct from submissions seeking to re-visit matters of substance), as well as submissions as to the appropriateness of the orders to give effect to my earlier judgment and these present observations, may be made in writing, provided they reach my associate within 14 days from today. Unless I then perceive a need to list the matter for further mention (or a party so requests), I shall make orders and directions in chambers. 17 The proposed orders and directions are as follows: 1. DECLARE that the informal document dated 23 January 2000 embodies the testamentary intentions of the late David Oswald Cropley, having been intended by him to constitute an amendment to his Will dated 26 November 1999. 2. ORDER that probate in solemn form of the Will of the deceased of 26 November 1999 and of the informal Codicil of the deceased of 23 January 2000 be granted to Elizabeth Anne Cropley and Richard Oswald Cropley. 3. ORDER that the matter be remitted to the Registrar to complete the grant. 4. DECLARE that on or about 23 May 2000 the deceased validly assigned to Elizabeth Anne Cropley part of a debt then due to him by Richard Oswald Cropley, being an amount of $55,000. 5. ORDER that Richard Oswald Cropley pay to Elizabeth Anne Cropley within 28 days the sum of $55,000 and interest of $7,331.20 calculated to 31 July 2002 and $13.55 per day thereafter until payment. 6. ORDER that Richard Oswald Cropley and Geoffrey David Cropley do all things necessary to procure the release by Westpac Banking Corporation to the deceased's estate of the sum of $75,000 and any accrued interest, such sum held currently as security for advances by that bank to Geoffrey David Cropley or Titan Australia Pty Ltd or both. 7. ORDER that in addition to the provision made for her in the Will of the deceased, Elizabeth Anne Cropley receive benefits payable under clause 5 of the Will as though sub-clauses 5.1 to 5.3 inclusive and the terms of the informal document dated 23 January 2000 were omitted and the following substituted: 7.1 I direct my trustees to demand payment of and to recover the debts owed to my Estate in principal sums of $220,000 and $155,000 by Richard Oswald Cropley ("Richard") and Geoffrey David Cropley ("Geoffrey") respectively, together with all interest accrued but unpaid thereon, as follows: (a) the amount of $50,000 shall be paid by Richard and the amount of $100,000 shall be paid by Geoffrey, in each case on account of principal sum only, 28 days after the date of these orders; and (b) the balance of each principal sum, together with interest on the total principal sum accrued but unpaid up to the day which is 28 days after the date of these orders, shall be paid by six equal monthly instalments, the first such instalment to be paid two months after the date of these orders and each instalment to be paid together with interest thereon at the rate prescribed by the Supreme Court Act on unpaid judgments from the day which is 28 days after the date of these orders to the date of payment of the instalment, provided that each of Richard and Geoffrey may at any time pay (and my trustees must accept) any instalment required by paragraph (b) earlier than the date fixed for payment thereof under paragraph (b) together with interest as provided in paragraph (b) up to the date of payment only. 7.2 I direct that all moneys so recovered by my trustees be transferred by them to a trustee company (as defined by the Trustee Companies Act 1964) agreed by them in writing within seven days after the date of these orders and, in default of such agreement, to Trust Company of Australia Limited to be held by the trustee company upon trust to be invested in investments authorised by law for the investment of trust funds and to be applied as hereinafter provided. 7.3 Moneys so transferred shall, with accretions thereto, constitute a fund ("the fund") out of which there shall be paid to my wife Elizabeth Anne Cropley ("my wife") a sum referable to each year (from and including the year commencing on the date of these orders) during her life. 7.4 The sum to be paid to my wife in respect of the first such year (being the year commencing on the date of these orders) shall be $23,000 plus the amount produced by applying the formula: $10,700 – ( 189,000 – C x $10,700) ( 189,000 ) where "C" represents the total amount of the costs ordered by these orders to be paid out of my residuary estate. 7.5 The sum to be paid to my wife in respect of that first year shall be paid on the later of: (a) the day which is six months after the making of these orders; and (b) the day which is 14 days after costs of these proceedings ordered to be paid out of my residuary estate are assessed or agreed, together with interest thereon at the rate of 6% per annum from 8 June 2000 to the date of payment. 7.6 The annual sum for the year next following that first year ("the second year") shall be adjusted for cost of living changes and shall be the sum which bears to the annual sum for the first year the same proportion as the Consumer Price Index for the weighted average of six State Capital Cities for all groups on the first day of the first year bears to that Index on the day one year before the first day of the first year; and the annual sum for each subsequent year shall be the sum which bears to the annual sum for the immediately preceding year the same proportion as the said Index on the first day of that immediately preceding year bears to that Index on the day one year before that first day. 7.7 The annual sum for the second year and each subsequent year shall be paid by two instalments, one on the first day of the year in question and the other six months after that first day. 7.8 If at any time the Consumer Price Index is discontinued or varied in a way which, in the opinion of the trustee company, makes it an inappropriate measure of cost of living changes for the purposes of these provisions, the trustee company shall adopt and apply such other measure of cost of living charges as it thinks fit. 7.9 The last payment to be made to my wife is the payment or instalment payable most recently before her death. 7.10 Every annual sum and instalment thereof payable to my wife shall be paid in the first instance out of the income of the fund and only to the extent that income is insufficient shall resort be had to the corpus of the fund. 7.11 If the income of the fund for any year is more than sufficient to meet the aggregate of any sum to be paid to my wife and the costs of establishing and administering the fund, the excess shall be paid to such of my children as are living on the last day of that year (in equal shares if more than one) provided that if any child of mine has died before that last day leaving him or her surviving any child or children living at that last day, that child or those children shall take (in equal share if more than one) the share of the excess that his, her or their parent would have taken if living at that last day. 7.12 Upon the death of my wife, the said fund and any accrued income shall be paid to such of my children as are living at the death of my wife (in equal shares if more than one) provided that if any child of mine has died before the death of my wife leaving him or her surviving any child or children living at the death of my wife, that child or those children shall take (in equal shares if more than one) the share that his, her or their parent would have taken if living at the death of my wife. 7.13 The costs and expenses of establishing, managing and administering the fund shall be paid out of so much of the income of the fund as remains after payment to my wife and before any distribution of income to my children and their children and, as to any excess, out of the corpus of the fund. 7.14 Costs ordered by these orders to be paid out of the corpus of the fund shall be paid out of the corpus of the fund. 8. ORDER that the claim of Richard Oswald Cropley under the Family Provision Act 1982 in proceedings 100191 of 2000 be dismissed. 9. ORDER that the claim of Geoffrey David Cropley under the Family Provisions Act in proceedings 4029 of 2001 be dismissed. 10. ORDER that the costs of Elizabeth Anne Cropley and Richard Oswald Cropley of proceedings 100191 of 2000, other than in respect of the Family Provision Act claims, be paid from the residuary estate of the deceased on the indemnity basis. 11. ORDER that the costs of Elizabeth Anne Cropley of her Family Provision Act claim in proceedings 100191 of 2000 and of defending both the Family Provision Act claim of Richard Oswald Cropley in proceedings 100191 of 2000 and the Family Provision Act claim of Geoffrey David Cropley in proceedings 4029 of 2001 be paid on the party and party basis as to one-half thereof from the corpus of the fund and as to one-half thereof by Richard Oswald Cropley and Geoffrey David Cropley. 12. RESERVE liberty to each of Elizabeth Anne Cropley, Richard Oswald Cropley and Geoffrey David Cropley to apply on 7 days notice to enforce these orders, as they affect them, or generally. ********** Last Modified: 09/11/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.