Supreme Court New South Wales Medium Neutral Citation: Stone & Anor v Pinniger [2011] NSWSC 1148 Hearing dates: 17.08.11 Decision date: 27 September 2011 Before: Nicholas J Decision: Par 39 Catchwords: COSTS - probate - contested action for grant of probate in solemn form - unsuccessful cross-claim that informed document was testamentary - whether unsuccessful defendant and cross-claimant should have costs out of the estate or pay costs personally - whether unsuccessful party should pay costs on indemnity basis - whether special costs order appropriate in the circumstances Legislation Cited: Civil Procedure Act 2005 Succession Act 2006 Cases Cited: Colgate Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248 Dawson v Peters & Ors (No. 2) [2007] NSWSC 1421 Drummond v Drummond [1999] NSWSC 923 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 Re Cutcliffe's Estate (1959) P 6 Re Estate of the late Hazel Ruby Grounds; Page v Sedawie [2005] NSWSC 1311 Re Hodges; Shorter v Hodges (1988) 14 NSWLR 698 Category: Costs Parties: Karen Patricia Stone - first plaintiff Kerry Ann Drabsch - second plaintiff Wayne Jon Pinniger - defendant Representation: Counsel: J Sandford - plaintiffs K Morrissey - defendant Solicitors: Matthews Williams - plaintiffs Coode & Corry - defendant File Number(s): 09/291134 Judgment 1In my judgment delivered 29 July 2011 I proposed orders that there be a grant to the plaintiffs of probate in solemn form of the will of the late Ian Landseer Pinniger (the testator) made 2 May 2008 (the will), and that the amended cross claim be dismissed. Dismissal of the cross-claim was the consequence of the finding that the unsigned, informal, hand written document was not testamentary and did not attract the application of s 8 Succession Act 2006 (the Act). 2This judgment deals with the remaining question of costs of these proceedings. The plaintiffs sought an order that the defendant/cross-claimant pay their costs on an indemnity basis. The defendant/cross-claimant sought an order that the costs of the parties be paid out of the estate on an indemnity basis. 3The Civil Procedure Act 2005, s 98 gives the Court full power to determine costs questions subject to the rules of court. UCPR Pt 42, r 42.1 provides that, ordinarily, costs follow the event unless, in the exercise of discretion, some other order should be made. In probate litigation two well recognised exceptions were stated by Powell J in Re Hodges; Shorter v Hodges (1988) 14 NSWLR 698 at p 709 to be: "1. where the testator has, or those interested in residue have, been the cause of the litigation, the costs of unsuccessfully opposing probate may be ordered to be paid out of the estate; 2. if the circumstances led reasonably to an investigation in regard to the document propounded, the costs may be left to be borne by those who respectively incurred them: see, eg, Mitchell and Mitchell v Gard and Kingwell (1863) 3 Sw & Tr 278; 164 ER 1280; Orton v Smith (1873) LR 3 P & D 23; Wilson v Bassil [1903] P 239; Spiers v English [1907] P 122; Kenny v Wilson ; In the Estate of Holtam; Gillett v Rogers (1913) 108 LT 732. To these exceptions to the general principle should, perhaps, be added the principle that, although a legal personal representative may be entitled to recover from a party to litigation costs only on a party and party basis, he, as a fiduciary, retains the right to an indemnity from the estate, and, thus, may have recourse to the estate for any difference between his costs on a trustee basis and the costs recovered from a party." 4With reference to these principles Campbell J in Re Estate of the late Hazel Ruby Grounds; Page v Sedawie [2005] NSWSC 1311 said: "32 ...in the caselaw concerning probate litigation, it can safely be said that a consistent theme in the cases is that the principles concerning costs which are applied to a person who seeks probate (whether successfully or not) are not the same as the principles which apply to the costs of a person who opposes probate (whether successfully or not). In probate litigation, it is not only who succeeds in the litigation which matters - which is the only factor operating in the "costs follow the event" rule. As well, the role which a particular party has played in litigation, whether as plaintiff or defendant, is relevant. Further, facts about the knowledge available to parties, and the reasonableness of their conduct in conducting the litigation, can be taken into account." 5In Dawson v Peters & Ors (No. 2) [2007] NSWSC 1421 Bryson AJ observed (par 7) that the operation in probate litigation of the general principle and the exceptions formulated by Powell J in Re Hodges is not prescriptive and the exercise of judicial discretion upon the facts and circumstances of each case should not be reduced to the simple application of the principle and the exceptions. 6In these proceedings the unsuccessful cross-claimant sought to bring himself within the exceptions formulated in Re Hodges , and asked the Court, in the exercise of its discretion, to depart from the ordinary rule that costs follow the event. 7The relevant history of the proceedings is as follows. 8On 30 March 2009 the cross-claimant attended Mr Buckley's office and was given a copy of the will. 9On 3 April 2009 the plaintiffs, the cross-claimant, and Mrs Pinniger attended a meeting with Mr Buckley in his office. Mr Buckley's affidavit of 22 July 2010 included the following: "29. At the meeting on 3 April 2009, I distributed copies of the Will, and copies of the transcription annexed to this affidavit and Marked "H". When I gave to each of the executors a copy of the transcription, I said to those present, words to the effect: 'This is a transcript of a list of assets that Ian gave to me so that you know what he had and where to find it.' I showed to those present the document annexed to this affidavit and marked "G" and said words to the effect: 'Ian gave me this document after he had made this Will. A few months later he came back in to see me and asked me to type it up and place it in his packet.' 30. ... My clear recollection is that I informed the executors that neither the assets owned by IWT, nor Yenlan, nor the testator's superannuation fund, formed part of the estate of the testator, and that I explained to them that the majority of the property which the testator controlled through his shareholding in IWT, and in Yenlan, was held by companies as trustees of the discretionary trusts. I further explained to the executors that, other than the testator's personal effects, the value of which remained to ascertained, the assets in the estate appeared to compromise the family home, 'Balmoral', the proceeds of the testator's personal bank accounts, and the shares that he held in public and private companies. Following this discussion, I advised the executors of the steps involved in making application for Probate of the testator's Will, and I sought their instructions, accordingly." 10By letter of 15 June 2009 from the cross-claimant's solicitors to the plaintiffs' solicitors (Mr Buckley) information was sought as to the creation of the document and its transcription, and whether these documents were to be included in the application for probate, and as to conversations and documents relevant to the testator's testamentary intentions. They requested that no further action be taken pending a response. 11By letter of 17 June 2009 Mr Buckley replied. A copy of the document from which the transcript was made was enclosed. The letter included: "... 2(d) Given to the writer by the deceased at or about the time the Will was made to be filed in the deceased's safe custody packet. No one else was present at the time. ... 3 No. It is not a testamentary document as it does not dispose of any of the deceased's assets. 4 The deceased's instructions were that the abovementioned documents were to assist the executors in identifying the deceased's assets. There are no other documents. ... Given the contents of your letter we assume your client will renounce as executor." 12On about 25 June 2009 the cross-claimant lodged a caveat against the grant of probate which, relevantly, stated: "I require that, (a) no grant be made in the estate ... unless I am given the opportunity to be heard on the question of whether a declaration as to the Court's satisfaction under s 8 of the Succession Act 2006 should be made in respect of a document made by the deceased. My interest is, that I am provided with an interest in the deceased's estate under the terms of the document ..." 13On 6 July 2009 the plaintiffs caused the publication of the notice of application for probate of the will in a local newspaper. 14On 4 September 2009 Mr Buckley sent the cross-claimant a notice of intended application for probate. 15By letter of 22 September 2009 to Mr Buckley the claimant's solicitors advised of their client's contention that the document and transcript were testamentary documents. 16On 2 November 2009 the statement of claim was filed seeking an order that probate of the will in solemn form be granted to the plaintiffs. 17On 23 December 2009 and 12 January 2010 the defence and cross-claim were filed, respectively, in which it was pleaded that the testator intended the document to form an alteration to, or a partial revocation of, the will. 18By letters of 11 and 13 January and 1 February 2010 to Mr Buckley, the cross-claimant's solicitors foreshadowed an application for an order referring the proceedings to mediation. 19On 13 January 2010 a subpoena was served on Mr Buckley by the cross-claimant requiring production of files, records and documents including those relating to the testator since 1 January 2000, and to Yenlan Pty Ltd (Yenlan) and International Wool Traders (Australia) Pty Ltd (IWT). A substantial number of documents were produced to the Court on 16 February 2010. 20By letter of 22 March 2010 to the cross-claimant's solicitors, Mr Buckley identified assets which were, and were not, assets of the estate. In particular, he advised that the properties held by Yenlan and IWT were trust properties and not assets of the estate. 21By letter of 6 April 2010 to Mr Buckley, the cross-claimant's solicitors pressed for the filing for a defence to the cross-claim and sought consent to the referral of the proceedings to mediation. 22On 12 May 2010 the defence to the cross-claim was filed. 23The cross-claimant's affidavits in chief were sworn on 13 May, 9 September and 8 October 2010. 24On 22 July 2010 Mr Buckley's affidavit was sworn. It included details of the circumstances in which the will was made and in which the document was given to him. At the hearing, his evidence on these matters was neither challenged nor contradicted. 25Separate applications to amend the cross-claim were heard and dismissed on 20 September and 1 November 2010. 26The exceptions formulated in Re Hodges are rules for the guidance of the Court in the exercise of its discretion with regard to the overall requirements of justice in the particular case. Accordingly, the question whether some special costs order should be made in favour of the unsuccessful cross-claimant falls for determination on the basis of whether there were circumstances which afforded reasonable grounds for his opposition to the grant of probate and for maintaining the claim that the document, or part of it, was of testamentary effect. 27With regard to the first exception, the cross-claimant submitted that the testator caused the litigation. It was put that the difficulty arose because the testator addressed the document to the three executors, and gave it to Mr Buckley to be kept with his will. Subsequently the testator obtained a transcript of the document and took it away with him. It was put that these activities are to be considered with regard to the statement he made in April 2008 to Miss Kerry Drabsch that "I am thinking of giving Wayne 10% of the hotel". It was put that it was open to conclude that the testator created the document intending it to have testamentary effect and thereby provide for the cross-claimant after his death. It was submitted that in the circumstances the testator's conduct invited the litigation. 28In my opinion it cannot be said that this litigation was caused by the testator. The explanation given by Mr Buckley to the executors at the meeting on 3 April 2009 as to the circumstances of the execution of the will and the making of the document was sufficient to dispel any confusion or suspicion as to the intended effect of the document. The explanation, and the very terms of the document itself, made plain that the purpose of the document was to inform the executors of what the testator had and where everything was to be found. The information that the trust assets were not part of the estate was confirmed in subsequent correspondence. It is reasonable to assume that the cross-claimant and his advisors considered the information with care. 29In the circumstances, the observations of Hodson LJ in Re Cutcliffe's Estate (1959) P 6 at p 19-20 are apt: "... While it would not be possible to limit the circumstances in which a testator is said to have promoted litigation by leaving his own affairs in confusion, I cannot think it should extend to cases where a testator by his words, either written or spoken, has misled other people and perhaps inspired false hopes in their bosoms that they may benefit after his death. It does not seem to me that the judges who, in the past, have laid down the practice that costs should be allowed out of the estate where the fault of the testator has led to the litigation, had in mind such a situation as that. The common situation is that which arises day by day in the courts of construction where the testator has used language which is difficult to understand, and where he, by himself or by his solicitor, has created the difficulty; and there the costs are normally borne by the estate. That rule applies particularly in probate actions where, for example, execution is on the fact of it in doubtful and where, as in Orton v Smith, the testator had patched up his signature in such a way as to make a handwriting expert suggest that the signature was a forgery and not the signature of the testator at all." 30With regard to the second exception, it was submitted that the circumstances led reasonably to an investigation concerning the testator's will, and that it was reasonable for the cross-claimant, as an executor, to raise the issue of the effect of the document for the Court's determination. 31In my opinion, the submission must be rejected. Once the cross-claimant had been provided with the information earlier referred to, which clarified the status of the document, and absent evidence to the contrary, there was no rational basis for not accepting that information. At an early stage the cross-claimant had been informed, inter alia, that the trust properties were not assets of the estate. Later a great deal more information concerning Yenlan, IWT, and the other entities referred to in the document was provided by Mr Buckley in answer to the subpoena. In my opinion, the cross-claimant failed altogether to demonstrate any reasonable basis for further investigation which would justify his opposition to probate of the will and his proceeding with the cross-claim. It was for the cross-claimant to establish the exception applied, and he did not do so. 32As a matter of substance and reality it cannot be doubted that the cross-claimant's opposition to the grant of probate and his claim under the cross-claim were maintained in furtherance of his personal interest to establish himself as a beneficiary. His stance was demonstrated by the caveat which, in turn, necessitated commencement of the proceedings for a grant of probate in solemn form. In these circumstances, the cross-claimant cannot expect to recoup the costs of the litigation from the estate simply on the basis that he is an executor ( Drummond v Drummond [1999] NSWSC 923, par 47). 33Accordingly, I am unpersuaded that either the first or second exception to the ordinary rule on costs should apply. In the result, the cross-claimant unsuccessfully opposed a grant of probate in solemn form of the will, and unsuccessfully claimed that the document was testamentary. It follows that the cross-claimant must pay the plaintiffs' costs of these proceedings. 34The plaintiffs contended that the cross-claimant should be ordered to pay their costs on an indemnity basis. They submitted that the defence and cross-claim were persisted in when there were no sufficient grounds for doing so. It was put that in the meeting on 3 April 2009 the cross-claimant had been informed by Mr Buckley, the testator's solicitor, that the document was not testamentary, and that it listed assets including those which were not the testator's to dispose of by his will. It was put that this information, coupled with that subsequently provided in Mr Buckley's affidavit of 22 July 2010, should have caused the cross-claimant, if properly advised, to recognise that his defence and cross-claim had no reasonable chance of success. They relied on the principles considered in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; Colgate Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248 at p 256, and Drummond pars 52-56. 35The reasonableness of the cross-claimant's conduct in commencing and maintaining the cross-claim is to be measured with regard to his knowledge of the circumstances in which both the will and the document were made. He was made aware of these matters at the meeting on 3 April 2009, and in correspondence thereafter. An important body of information was also provided to him in Mr Buckley's affidavit of 22 July 2010. 36From at least the time the proceedings were commenced the cross-claimant was obliged to evaluate carefully his prospects of success or failure if the litigation continued. Success in his case required establishing to the satisfaction of the court that the document was a testamentary document intended to govern the disposition of his property after death, and thus attract the application of s 8 of the Act. 37In my opinion, had a reasonable evaluation of the strengths and weaknesses of his case been made after receiving Mr Buckley's affidavit, it would have become apparent that the cross-claimant was without any evidence to prove the grounds upon which his defence and cross-claim were based. In all the circumstances I am satisfied that in maintaining his defence and cross-claim after consideration of this affidavit, he acted unreasonably in that he adhered to a position which was doomed to fail and thereby prolonged the case. Such circumstances justify departure from the usual rule, and the making of an order for indemnity costs. 38In my assessment, the weakness of the cross-claimant's case should have been realised by him and his advisors within about a month after receiving the affidavit. The appropriate order is that the cross-claimant pay the plaintiffs' costs on an indemnity basis from 1 September 2010, otherwise on the ordinary basis. 39Accordingly, it is ordered that: (1)The defendant/cross-claimant pay the plaintiffs/cross-defendants' costs of the proceedings up to and including 31 August 2010 on the ordinary basis, and thereafter on an indemnity basis. (2)To the extent the plaintiffs/cross-defendants' costs are not wholly reimbursed by order (1), such costs on an indemnity basis be paid out of the estate of the testator. ********** 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. Decision last updated: 27 September 2011