Supreme Court New South Wales Medium Neutral Citation: Brown & Anor v Grosfeld [2011] NSWSC 1429 Hearing dates: 24 August 2011 Decision date: 28 November 2011 Jurisdiction: Equity Division Before: White J Decision: Refer to para [38] of judgment. Catchwords: PRACTICE AND PROCEDURE - costs - family provision - whether plaintiffs' costs should be assessed on the indemnity basis - whether plaintiffs' costs should be capped - offer of compromise not more favourable than judgment obtained by plaintiff - executor did not act unreasonably in not accepting Calderbank offer - not possible to make just assessment of what would be a proper amount at which to cap plaintiffs' costs - plaintiffs' entitled to costs on ordinary basis as agreed or assessed - executor entitled to costs on indemnity basis to be paid out of estate - order that executor's costs be paid out of estate on indemnity basis does not affect right of beneficiaries to contend on passing of accounts that expense for legal costs should not be recoverable from estate because not properly incurred Legislation Cited: Family Provision Act 1982 Legal Profession Act 2004 Civil Procedure Act 2005 Probate and Administration Act 1898 Cases Cited: Moore v Moore [2004] NSWSC 587 Tobin v Ezekiel [2011] NSWSC 571 Jvancich v Kennedy (No 2) [2004] NSWCA 397 Re Sherborne Estate (No. 2); Vanvalen v Neaves [2005] NSWSC 1003; (2005) 65 NSWLR 268 Baychek v Baychek [2010] NSWSC 987 Brown v Grosfeld; Fitzpatrick v Grosfeld [2011] NSWSC 796 Skalkos v T & S Recoveries Pty Ltd [2004] NSWCA 281; (2004) 65 NSWLR 151 April Fine Paper Macau Commercial Offshore Ltd v Moore Business Systems Australia Ltd [2009] NSWSC 867; (2009) 75 NSWLR 619 Vasiljev v Public Trustee [1974] 2 NSWLR 497 Re S J Hall deceased (1958) 59 SR (NSW) 219 In the Estate of Lampard (Supreme Court of New South Wales, Hodgson J, 25 July 1995, unreported; BC9505168) Shave v Shave [2011] NSWSC 1356 Category: Costs Parties: Jennifer Brown (1st Plaintiff) Ian Chick (2nd Plaintiff) Johannes Theodorus Grosfeld (Defendant) Representation: M Meek SC (Plaintiffs) A Lakeman (Defendant) Carroll & O'Dea (Plaintiffs) Angela J Anthony & Associates (Defendant) File Number(s): 2009/288951 Judgment 1HIS HONOUR : In the Family Provision Act 1982 proceedings the plaintiffs contend that they were successful and costs should follow the event. They seek an order for indemnity costs from 27 April 2010, or alternatively from 9 November 2010. The plaintiffs seek an order that the costs up to 27 April 2010, or alternatively up to 9 November 2010, be paid out of the Education Fund. The plaintiffs seek an order that the costs incurred after those dates be borne by the defendant executor without recourse to indemnity from the estate. Alternatively, they contend that the costs should be charged against the Education Fund. The plaintiffs submit that there should be no order as to the defendant's costs, by which I understood the plaintiffs to submit that the defendant should not have his costs of the proceedings after 27 April 2010, or 9 November 2010, out of the estate. 2The defendant submits that the plaintiffs' costs should be paid from the estate on the ordinary basis and that his costs should be paid from the estate on the indemnity basis. Murray Chick and Kimberley Runia submit that an order should be made capping the plaintiffs' costs. They also sought an order that costs they incurred in assisting in the defence of the plaintiffs' proceedings should be included in a costs order in favour of the executor. 3The first question is whether the plaintiffs' costs should be assessed partly on the indemnity basis, whether they should be wholly assessed on the ordinary basis, or whether they should be capped. The plaintiffs' application for indemnity costs was based on an offer of compromise of 27 April 2010 and a Calderbank letter of 9 November 2010. The offer of compromise of 27 April 2010 was that each plaintiff receive $350,000 plus costs in lieu of his and her entitlement under the will. There was no response to this offer. The executor's solicitor deposed that the offer was forwarded to the other beneficiaries, but the solicitors for Murray Chick and Kimberley Runia denied receipt. 4The offer of compromise was made in accordance with r 20.26 of the Uniform Civil Procedure Rules 2005. The offer was not expressed in terms to be exclusive of costs, but that was its substance because if it had been accepted, the plaintiffs would have been entitled to their costs assessed on the ordinary basis up to the time the offer was made, unless the court otherwise ordered. It was not submitted that the offer was not exclusive of costs. The time for acceptance was not limited. The question is whether the plaintiffs obtained an order or judgment " no less favourable to the plaintiff than the terms of the offer " (Uniform Civil Procedure Rules, r 42.14). 5The order for provision I made was not in lieu of an entitlement under the will, but by way of legacy in addition to the plaintiffs' entitlement under the will. Whether the judgment obtained was no less favourable to the plaintiffs than the terms of the offer depends on whether their entitlements under the will, which they offered to give up, were, in the case of Jennifer Brown, worth more than $150,000, and in the case of Ian Chick, worth more than $200,000. That is to be assessed at the time the offer was made and before the distributable estate was diminished by further costs. Counsel for the plaintiff submitted that as at 27 April 2010 the value of the estate, after deduction of fees and expenses that the executor paid from the estate to that time, was $2,033,400. After deducting the legacy and interest payable to Mrs Fitzpatrick, and allowing for the plaintiffs' costs to be assessed on a party/party basis, the net estate after all costs at or about that time was, so it was submitted, approximately $1,633,745. Hence, it was submitted that the value to Ian Chick and Jennifer Brown of their ten per cent entitlements under the will was then about $163,000. Hence it was submitted that the offer of Jennifer Brown should have been accepted and that the combined offers of Jennifer Brown and Ian Chick were sufficiently " in the ball park " that the offers should have been accepted. 6The submission assumed that the value of the Abbotsford property was $2 million. This was the estimate of the value of the property made by the defendant at about that time. The property was submitted to auction on 7 August 2010 without success. The highest bid was $1.5 million. The property was sold in November 2010 for $1.85 million. The evidence of the sale, albeit seven months later than the time of the offer, is better evidence as to the value of the main asset of the estate than the defendant's estimate. 7In any event, the value of the plaintiffs' shares in the residuary estate at any point of time has to be assessed having regard to future contingencies to which the estate is subject. There is no reason not to value that contingency having regard to the actual facts as they were subsequently known. On that basis and otherwise applying the methodology adopted by the plaintiffs' counsel, the value to Ian Chick and Jennifer Brown of their ten per cent entitlement under the will was then about $145,000. It is not demonstrated that the amount for which they offered to compromise their claim was less than the amount to which either of them is entitled under the orders for provision that I made. 8Moreover, it was not submitted that the order for provision made in favour of Ian Chick bettered the offer made for him. There were not two separate offers of compromise. There was a single offer for the compromise of both claims. The defendant could not have accepted one offer but not the other. Even if the order for provision made in favour of Jennifer Brown was not more favourable than the offer she made, of which I am not satisfied, that would not provide a basis for a prima facie entitlement to an order for indemnity costs. 9The second offer relied on was contained in a letter marked without prejudice save as to costs sent to the solicitors for the executor and the other parties. It contained ten terms. It was proposed that each of the four children should receive a payment of $200,000 or ten per cent of the gross total of the realised assets of the estate, whichever was the greater; that Mrs Fitzpatrick be paid her legacy plus interest plus costs as agreed or assessed; that the legal costs for the four children be paid on the indemnity basis; that the executor's legal fees be paid on the indemnity basis and his other reasonable fees be agreed or assessed; and the balance of the estate be divided equally between the ten grandchildren named in the will. 10The executor sought instructions from the adult beneficiaries in regards to this offer but did not receive instructions. Instead the response came directly from a Mr Mario Azzopardi, the solicitor then acting for Murray Chick and Kimberley Runia. There was broad agreement with the plaintiffs' proposal, except Mr Azzopardi said that his clients did not agree that the executor's legal costs should be paid on the indemnity basis. There was no substantive response to the proposal that the executor's reasonable fees should be agreed or assessed. Mr Azzopardi also said that his clients' agreement to the other terms was conditional on Ian Chick and Jennifer Brown supporting the orders sought by Murray Chick and Kimberley Runia in their proceedings against the executor, and if necessary, supporting an application for removal of the executor and the appointment of a fresh executor. This would not have brought all of the litigation to a conclusion. 11The proposal made by Jennifer Brown and Ian Chick provided for a resettlement of the trusts of the will. It was not disputed that this could have been done by an order under the Family Provision Act . 12I do not think that any party can be found to have acted unreasonably in relation to the offers made. The offer from Jennifer Brown and Ian Chick was reasonable. They were prepared to accept substantially less from the estate than that to which they should be entitled under the orders I have made unless all of the remaining assets of the estate are consumed in costs. The proposal that the trusts of the will be changed so that the balance of the estate would be divided equally between the ten grandchildren was sensible, having regard to the deficiencies in the drafting of the clause for the provision of the education fund. 13The executor did not act unreasonably in not accepting the offer. He was aware that the offer had been communicated directly to the solicitors for Murray Chick and Kimberley Runia and he received no instructions from them in relation to the offer. It was not unreasonable for him to assume that there would first have to be agreement between the children before the matter could be taken further. That is not to say that the executor might not have sought to pursue the issue to see if agreement could be reached. But the same observation can be made in relation to the other parties. 14So far as Murray Chick and Kimberley Runia is concerned, their response would not have brought all of the litigation to an end. But given that their proceedings against the executor have not been determined, it cannot be said that they acted unreasonably in seeking to preserve what they perceive to be their rights against the executor. 15Because I do not conclude that the other parties acted unreasonably in not accepting the proposal made by the plaintiffs, the non-acceptance of their offer of 9 November 2010 does not warrant an order for indemnity costs. 16The next question is whether the plaintiffs' costs should be capped. 17The costs of all parties are out of proportion to the matters in dispute. The plaintiffs' costs of the proceedings under the Family Provision Act on a solicitor and client basis were said to be approximately $180,000. This does not include costs incurred in connection with other proceedings. 18The executor's costs of the Family Provision Act proceedings up to the date of the hearing were $226,000. That did not include costs incurred by the solicitors for Mrs Fitzpatrick and by the solicitors and counsel for Murray Chick and Kimberley Runia that were used in the executor's case. Some unidentifiable part of the sum of $20,000 to be paid to Mrs Fitzpatrick relate to such costs. The estimated costs incurred by Murray Chick and Kimberley Runia through their solicitors and counsel performing work which would otherwise have been done by the solicitors and counsel for the executor were estimated to be $24,750 inclusive of GST. In other words, on a solicitor and client basis, the defendant's costs are in excess of $240,000. (This does not include fees that the executor has charged for his time incurred in connection with the proceedings of approximately $177,000. However, that raises a separate question that is not relevant to the present issue as to whether the plaintiffs' costs should be capped.) 19In Moore v Moore [2004] NSWSC 587 Young CJ in Eq (as his Honour then was) said by way of general observations that were expressly obiter, that in Family Provision Act applications, judges would not allow more than $35,000 in costs to any party in the type of case that was before his Honour, unless there was some special justification (at [43]). His Honour also said that: " [46] Where there is a bill for $85,000, where probably the maximum that the plaintiffs could have received was about $150,000, principles of proportionality would mean that a court would not normally agree to any amount of costs like that coming out of the estate. " 20In Tobin v Ezekiel [2011] NSWSC 571 Brereton J suggested that taking into account the passage of time since 2004 in a two-day Family Provision Act case one might expect that costs on one side would be in the order of about $75,000 (at [16]). 21However, in Jvancich v Kennedy (No 2) [2004] NSWCA 397 Giles JA (with whom Handley and McColl JJA agreed) observed (at [6]): "[6] It has not been the practice in Australia for the Court to fix the amount of costs. Even if the Court were to do so, I respectfully do not think that a general ceiling can be stated, even one subject to exception where there is 'special justification'. Reasonableness of costs will always fall to be considered at the time of assessment. It may or may not be appropriate, in a particular case, for the Court to address a fixed or maximum amount in the costs order it makes, although normally the Court will not be in a position to know whether or not costs to or in excess of that amount were reasonably incurred. In the present case, other than by reference to the observation of Young CJ in Eq and to the modesty of the legacy ultimately obtained by the respondent, the appellant did not suggest why it might be appropriate to limit the costs; nor are we in a position to limit the costs in an informed manner. In my opinion, a ceiling should not be imposed by the order now made. Proportionality will be a matter for the assessor so far as it may properly be taken into account. " 22In Re Sherborne Estate (No. 2); Vanvalen v Neaves [2005] NSWSC 1003; (2005) 65 NSWLR 268 Palmer J held (at [42] and [44]) that whilst there might be cases in which a court could exercise its powers under s 98(4)(c) of the Civil Procedure Act 2005 to cap a successful party's costs, such a case would be exceptional because the court would have to make an informed decision to assess the reasonableness of the costs incurred with the risk of greater cost and delay than would attend an assessment of costs by a costs assessor in accordance with the Legal Profession Act 2004. 23There is no doubt of the jurisdiction to make a costs-capping order ( Baychek v Baychek [2010] NSWSC 987 at [17]). Such orders are made from time to time where it is possible for the court to make an informed assessment as to the reasonableness of the costs incurred and the appropriateness of the amount to be charged against the estate. Sometimes, as in Baychek v Baychek , that process can be assisted by a comparison with the costs of the unsuccessful party where it can be seen that acting reasonably and without over-servicing, the required work for preparing the matter for hearing and the hearing itself should have been approximately equal. That consideration is of no utility in the present case. High though the plaintiff's costs appear to be, the defendant's costs are substantially higher. 24I was critical of certain aspects of the affidavits of both parties. The affidavits descended into the minutiae of the family history which, although not irrelevant having regard to the width of the matters that can be relevant in such proceedings ( Family Provision Act , s 9(3)), were not likely materially to affect the outcome. Counsel for the plaintiffs said that the plaintiffs were responding to the issues raised in the affidavits filed for the executor. To some extent that appears to be true. There was evidence from the plaintiffs' solicitor justifying the quantum of the plaintiffs' costs. It is not possible on the materials before me to make a just assessment of what would be a proper amount at which to fix or to cap the plaintiffs' costs. That task can only be undertaken on an assessment. 25On an assessment the costs assessor will have regard to my observations (e.g. at para [85] of my principal judgment Brown v Grosfeld; Fitzpatrick v Grosfeld [2011] NSWSC 796 ). 26In deciding whether it was reasonable for work to be carried out and whether work was carried out in a reasonable manner, the costs assessor will be required to consider whether the costs incurred were in proportion to the importance and complexity of the subject matter of the dispute ( Civil Procedure Act 2005, s 60; Skalkos v T & S Recoveries Pty Ltd [2004] NSWCA 281; (2004) 65 NSWLR 151 at [8]; April Fine Paper Macau Commercial Offshore Ltd v Moore Business Systems Australia Ltd [2009] NSWSC 867; (2009) 75 NSWLR 619 at [11]-[13]). 27For these reasons I decline to make an order fixing or capping the plaintiffs' costs. The plaintiffs will be entitled to their costs on the ordinary basis as agreed or assessed. 28I do not consider that the executor should be deprived of his right to be indemnified out of the estate to the extent his costs were properly incurred. The executor is to do what the beneficiaries require him to do and to protect the interests of infant beneficiaries ( Vasiljev v Public Trustee [1974] 2 NSWLR 497 at 504). In defending the proceedings the executor did not misconduct himself so as to deprive himself of his right to an indemnity ( Re S J Hall deceased (1958) 59 SR (NSW) 219 at 228-229). For the reasons I have given, the executor did not misconduct himself by not accepting either of the offers that a settlement of the proceedings of 27 April 2010 or 9 November 2010. 29An executor is entitled to his costs on the indemnity basis, being all costs incurred other than those incurred in breach of his duty in that capacity (Uniform Civil Procedure Rules, r 42.5). Part of the claim in the amended summons in these proceedings that is yet to be heard, and part of the claim in the proceedings brought by Murray Chick and Kimberley Runia against the executor in proceeding 2010/258874, is whether legal costs have been incurred in breach of duty and improperly charged to the estate, or whether they should be moderated pursuant to s 86A of the Probate and Administration Act 1898. 30The order that the defendant's costs be paid out of the estate on the indemnity basis will be without prejudice to the claims of the plaintiffs in proceedings 2010/258874 or the plaintiffs' claim in para 1A of the amended summons filed on 22 December 2010 in these proceedings that I have ordered be heard separately. 31An order that the executor's costs be paid out of the estate on the indemnity basis does not preclude the beneficiaries from contending on the passing of an executor's accounts that an expense for legal costs should not be recoverable from the estate because it was not properly incurred. An assessment of costs as between solicitor and executor is not the same as the moderation of costs to be allowed out of the estate. The executor might make himself liable to the solicitor for costs that he is responsible for incurring, yet be disallowed those costs out of the estate. An order that the executor's costs be assessed on the indemnity basis does not affect that principle (see In the Estate of Lampard (Supreme Court of New South Wales, Hodgson J, 25 July 1995, unreported; BC9505168); Shave v Shave [2011] NSWSC 1356 at [24]-[27], [29]). 32Counsel for Murray Chick and Kimberley Runia seek orders the effect of which would be that the work done by their solicitors and counsel deployed by the executor in opposition to the plaintiffs' claim could be recovered as part of the executor's costs. Their participation prior to the hearing appears to have been sought by the executor, although it is not clear to me why it was necessary for separate lawyers to be engaged to prepare those affidavits. Nonetheless, there is nothing to show that costs were increased by that course. The participation of counsel retained for Murray Chick and Kimberley Runia at the hearing was essential for the reasons explained at para [6] of the principal judgment ( Brown v Grosfeld; Fitzpatrick v Grosfeld ). Mr McAuley, who was retained as counsel by Murray Chick and Kimberley Runia, took the burden of cross-examination at the hearing. 33In the peculiar circumstances of this case, I think the appropriate order is that the costs incurred by Murray Chick and Kimberley Runia in relation to the Family Provision Act proceedings should be assessed on the ordinary basis, and the costs as assessed, or as agreed between them, the executor and the plaintiffs, should be paid out of the estate. The burden of such costs should be borne in the same way as the executor's costs. 34The remaining question is how the burden of the costs orders should be borne. I found that the burden of the legacies I ordered in favour of Jennifer Brown and Ian Chick should be borne by the Education Fund. In my view the burden of the costs order in favour of the plaintiffs should be borne in the same way. 35If the defendant's costs that could be recovered from the estate are of the order indicated (viz. in excess of $240,000) and the Education Fund also had to bear the burden of those costs, it could be exhausted. So be it. I do not think that any grandchild has a sufficient claim on the estate to warrant a reduction of the provision made by the testator for his children or the further provision I have ordered in favour of the two children who brought proceedings under the Family Provision Act . 36To the extent that the Education Fund's share of residue is insufficient to satisfy the costs order, the deceased's four children should bear that burden pro rata. I do not consider that all of the remaining burden should be thrown on the share of Murray Chick and Kimberley Runia, although they opposed the plaintiffs' claims for provision. Their opposition was not by way of self-interest but to support their father's wish that his grandchildren be benefited by the Education Fund. In my view, the fair result is that if the Education Fund is exhausted by the payment of the legacies I have ordered, and payment of costs, the burden of the remaining costs should be borne by the remaining residuary beneficiaries equally. 37The costs incurred by Murray Chick and Kimberley Runia and the executor's costs in respect of the Family Provision Act proceedings should be paid first out of the Education Fund and thereafter pro rata between the residuary beneficiaries. 38For these reasons I make the following orders: 1. Order that the defendant pay the plaintiffs' costs on the ordinary basis. 2. Order that the defendant is entitled to be indemnified out of the estate in respect of the costs payable to the plaintiff as agreed or assessed. 3. Order that the costs of the defendant be paid out of the estate on the indemnity basis. 4. Order that the costs incurred by Murray Chick and Kimberley Runia in providing assistance to the defendant in the defence of the proceedings be paid out of the estate on the ordinary basis. 5. Order that the burden of orders 1, 3 and 4 be borne first out of the Education Fund and to the extent to which such fund is insufficient, thereafter by the beneficiaries named in clause 5.4 of the will in equal shares. 6. Direct that orders 2 and 3 be without prejudice to the claims made by the plaintiffs in proceedings 2010/258874 against the defendant and without prejudice to the remaining claim of the plaintiffs in these proceedings against the defendant that has been ordered to be tried separately. 7. The costs of the proceedings that are subject of the above orders include the costs of and incidental to the hearing on 24 August 2011. 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: 28 November 2011