Supreme Court New South Wales Medium Neutral Citation: Harkness v Harkness (No 2) [2012] NSWSC 35 Hearing dates: 2 February 2012 Decision date: 02 February 2012 Jurisdiction: Equity Division Before: Hallen AsJ Decision: (a) Order that the Defendant's costs, calculated on the indemnity basis, be paid out of the estate of the deceased. Otherwise, make no order as to costs. (b) Order that the exhibits be dealt with in accordance with the Uniform Civil Procedure Rules 2005. Catchwords: Defendant seeks an order that his costs be paid by the Plaintiff - Plaintiff submits that she should have her costs out of the estate, or alternatively, there should be no order as to her costs of the proceedings - Plaintiff does not dispute that Defendant should receive his costs of the proceedings, such costs to be calculated on the indemnity basis Legislation Cited: Civil Procedure Act 2005 Family Provision Act 1982 Succession Act 2006 Uniform Civil Procedure Rules 2005 Cases Cited: Australiawide Airlines Limited t/as Regional Express v Aspirion Pty Limited [2006] NSWCA 365 Bartkus v Bartkus [2010] NSWSC 889 Bodman, Re [1972] Qd R 281 Carey v Robson [2010] NSWCA 212 Dobb v Hacket (1993) 10 WAR 532 Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 Forsyth v Sinclair (No 2) [2010] VSCA 195 Harkness v Harkness [2011] NSWSC 1421 Jvancich v Kennedy (No 2) [2004] NSWCA 397 Lillis v Lillis [2010] NSWSC 359 McCusker v Rutter [2010] NSWCA 318 McDougall v Rogers; Estate of James Rogers [2006] NSWSC 484 Mikan v Velcic (No 2) [2011] NSWSC 505 Morse v Morse (No 2) [2003] TASSC 145 Moussa v Moussa [2006] NSWSC 509 Nicholls v Hall [2007] NSWCA 356 Ohn v Walton (1995) 36 NSWLR 77 Oshlack v Richmond River Council (1998) 193 CLR 72 Shearer v The Public Trustee (NSWSC, Young J, 21 April 1998, unreported) Sherborne Estate (No 2), Re; Vanvalen v Neaves [2005] NSWSC 1003 Singer v Berghouse [1993] HCA 35; (1993) 114 ALR 521 Sitch (No 2), Re [2005] VSC 383 Smith v Smith (No 2) [2011] NSWSC 1105 Texts Cited: Practice Note SC Eq 7 - Family Provision Category: Costs Parties: Janine Margaret Harkness (Plaintiff) Peter Geoffrey Harkness (as executor of the Estate of the Late Coraline June Harkness) (Defendant) Representation: Mr M Lawson (Plaintiff) Ms J Healey (Defendant) Campbell Paton & Taylor (Plaintiff) Rossi Simicic Lawyers (Defendant) File Number(s): 2011/85506 Judgment 1HIS HONOUR: In this matter, I delivered principal reasons for judgment on 19 December 2011, the citation of which is Harkness v Harkness [2011] NSWSC 1421. In those reasons, I determined that the Plaintiff's claim for a family provision order should be dismissed. The decision was based upon the fact that the Plaintiff did not satisfy me that she was an "eligible person" within the meaning of that term in s 57(1)(f) of the Succession Act 2006. In particular, I concluded that she was not "a person with whom the deceased person was living ... at the time of the deceased person's death". 2The remaining outstanding matter upon which the parties have not been able to agree relates to the costs of the proceedings. The Defendant seeks an order that his costs be paid by the Plaintiff, whilst the Plaintiff submits that she should have her costs out of the estate, or alternatively, there should be no order as to her costs of the proceedings. The Plaintiff does not dispute that the Defendant should receive his costs of the proceedings out of the estate, such costs to be calculated on the indemnity basis. 3Neither party tendered any evidence on the costs application. I glean from this that neither party served an offer of compromise or a Calderbank offer, which would be relevant on the issue of costs. 4Counsel for each party provided the Court with written submissions, which I have carefully considered. The written submissions will remain with the Court papers. Legislative Framework 5The Civil Procedure Act 2005, s 98(1), provides that subject to the rules of Court, and that, or any other, Act, costs are in the discretion of the Court. The discretion is broad but not unconfined. It is a judicial discretion to be exercised on a principled basis. 6Uniform Civil Procedure Rules 2005 ("UCPR"), r 42.1, provides that costs should follow the event, unless it appears to the Court that some other order should be made as to the whole, or any part, of the costs. UCPR r 42.20(1) provides that if the court makes an order for the dismissal of proceedings, then, unless the court orders otherwise, the plaintiff must pay the defendant's costs of the proceedings to the extent to which they have been dismissed. 7The effect of these two rules, in this case, is that the Plaintiff must pay the Defendant's costs unless the court otherwise orders, and the court can only order otherwise if there is a discretionary decision to depart from what the rules provide: Australiawide Airlines Limited t/as Regional Express v Aspirion Pty Limited [2006] NSWCA 365 at [10]. In other words, the rules reflect the general proposition that an award of costs is discretionary, but, generally, the discretion is exercised in favour of the successful party: Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at [25]. 8Because of the wording of s 98(1) of the Civil Procedure Act , it is necessary to consider the provisions of the Succession Act 2006. Relevantly, s 99 of that Act provides: "(1) The Court may order that the costs of proceedings under this Chapter in relation to the estate or notional estate of a deceased person (including costs in connection with mediation) be paid out of the estate or notional estate, or both, in such manner as the Court thinks fit." 9No longer is there any difference between categories of eligible persons, as there was in the Family Provision Act 1982 ("the former Act") by reference to s 33(3) of that Act. The direction in s33(3) of the former Act that "the Court shall not order ..." the payment of costs out of the estate "by reason only of the fact that the eligible person is of a particular category" is not repeated. 10It is clear that s 99 also provides for an unfettered discretion as to how the costs of the proceedings for a family provision order may be borne. 11Finally, reference should be made to Para 24 of Practice Note SC Eq 7 - Family Provision, which provides: "Orders may be made capping the costs that may be recovered by a party in circumstances including, but not limited to, cases in which the value of the estate is less than $500,000." 12Neither party made any submissions on this provision of the Practice Note. 13If costs are ordered to be paid, the usual order is that those costs are calculated on the ordinary basis (UCPR r 42.2). Indemnity costs may be ordered in certain circumstances, including when a costs order for assessment on the ordinary basis is insufficient in the circumstances to compensate for costs unreasonably incurred due to the misconduct of the other party, which misconduct, for example, causes the prolongation of the proceedings or the making of allegations which ought never to have been made. Although, as in the present case, the costs have been estimated, the actual monetary value of the costs order cannot be ascertained until those costs are assessed or agreed. General Costs Principles 14McHugh J in Oshlack v Richmond River Council (1998) 193 CLR 72 at [66] - [67] said: "66 By far the most important factor which courts have viewed as guiding the exercise of the costs discretion is the result of the litigation. A successful litigant is generally entitled to an award of costs. As Devlin J said in Smeaton Hanscomb & Co Ltd v Sassoon I Setty, Son & Co [No 2] 103, when setting aside an arbitrator's costs award: "the arbitrator is not directing his mind to one of the most, if not the most, important of the elements which ought to affect his discretion, namely the result of the case. Prima facie, a successful party is entitled to his costs. To deprive him of his costs or to require him to pay a part of the costs of the other side is an exceptional measure." The combined force of the sentiments recognised above by Mason CJ, regarding the need for consistency in order to avoid injustice, and by Devlin J, regarding the most significant factor affecting the costs discretion, provides the jurisprudential basis for the important principle commonly referred to as the "usual order as to costs". The usual order as to costs 67 The expression the "usual order as to costs" embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation." 15The purpose of a costs order is to compensate, or indemnify, the person in whose favour it is made, not to punish the person against whom it is made: Ohn v Walton (1995) 36 NSWLR 77 at 79 per Gleeson CJ. 16It may be necessary to analyze the whole of the proceedings to determine the appropriate costs order. A relevant consideration is whether the Plaintiff acted reasonably in commencing the proceedings and whether the Defendant acted reasonably in defending them. The Principles in cases in which a family provision order is sought 17I have identified, in a number of other cases in which a family provision order has been sought (see, for example, Smith v Smith (No 2) [2011] NSWSC 1105, Mikan v Velcic (No 2) [2011] NSWSC 505), after referring to the legislation, which I have again set out above, the general principles I considered relevant. 18For the assistance of the parties and others reading this judgment, I repeat the principles stated previously which I consider relevant to the present case: (a) In Singer v Berghouse [1993] HCA 35; (1993) 114 ALR 521, Gaudron J, said, at 522: "Family provision cases stand apart from cases in which costs follow the event. Leaving aside cases under the Act which, in s.33, makes special provision in that regard, costs in family provision cases generally depend on the overall justice of the case. It is not uncommon, in the case of unsuccessful applications, for no order to be made as to costs, particularly if it would have a detrimental effect on the applicant's financial position. And there may even be circumstances in which it is appropriate for an unsuccessful party to have his or her costs paid out of the estate." (b) Despite the above statement, which, of course, was written in the context of a security for costs application, and in respect of proceedings under the Family Provision Act , s 99 of the Succession Act provides a wide discretion in relation to costs ("in such manner as the Court thinks fit"). (c) The view of some practitioners advising a potential applicant contemplating a claim for a family provision order, that there is little risk, and probably much to be gained, in making a claim, however tenuous, because even if the claim fails the applicant will, very likely, get his, or her, costs out of the estate and that he, or she, will not be significantly out of pocket, and the legal practitioner will receive his, or her, costs and disbursements in any event, has been thoroughly discredited. (d) Parties should not assume that this type of litigation can be pursued, safe in the belief that costs will be paid out of the estate: Carey v Robson (No 2) [2009] NSWSC 1199; Forsyth v Sinclair (No 2) [2010] VSCA 195. It is now much more common than it previously was for an unsuccessful applicant to be ordered to pay the defendant's costs of the proceedings ( Lillis v Lillis [2010] NSWSC 359 at [23]) and be disallowed his, or her, own costs. (e) Where, as here, the issue is whether the unsuccessful applicant should bear the costs of the successful Defendant, s 98 of the Civil Procedure Act , and the rules quoted above, will apply, and, in the absence of some good reason to the contrary, there should be an order that the costs of the successful defendant be paid by the unsuccessful plaintiff: Moussa v Moussa [2006] NSWSC 509 at [5]. (f) An unsuccessful plaintiff will, usually, be ordered to pay costs where the claim was frivolous, vexatious, made with no reasonable prospects of success, or where she, or he, has been guilty of some improper conduct in the course of the proceedings: Re Sitch (No 2) [2005] VSC 383. (g) In small estates particularly, the court should be careful not to foster the proposition that obstinacy and unreasonableness will not result in an order for costs: Dobb v Hacket (1993) 10 WAR 532, at 540. (h) Proceedings for a family provision order involve elements of judgment and discretion beyond those at work in most inter partes litigation: Jvancich v Kennedy (No 2) [2004] NSWCA 397; Re Sherborne Estate (No 2); Vanvalen v Neaves [2005] NSWSC 1003. (i) In exercising its discretion in relation to costs, the court will have regard to "the overall justice of the case": Jvancich v Kennedy (No 2) . The "overall justice of the case" is "not remote from costs following the event". However, the court may be more willing to depart from the general principle in proceedings for a family provision order than in other types of case: Moussa v Moussa; Carey v Robson (No 2); Bartkus v Bartkus [2010] NSWSC 889 at [24]. (j) As proceedings for a family provision order are essentially for maintenance, a court may properly decide to make no order for costs, even though it were otherwise justified, against an unsuccessful applicant, if it would adversely affect the financial position which had been taken into account in dismissing the application: Morse v Morse (No 2) [2003] TASSC 145; McDougall v Rogers; Estate of James Rogers [2006] NSWSC 484; McCusker v Rutter [2010] NSWCA 318 at [34]. (k) There are also other circumstances that may lead the court to order payment out of the estate of the costs of an unsuccessful Plaintiff. The court may allow an unsuccessful plaintiff costs out of the estate, if in all the circumstances the case was meritorious, reasonable or "borderline": McDougall v Rogers; Estate of James Rogers ; Re Bodman [1972] Qd R 281; Shearer v The Public Trustee (NSWSC, Young J, 21 April 1998, unreported). 19Finally, what I said in Smith v Smith (No 2 ) at [77], is also applicable to the facts of the present case: "I commend to parties involved in proceedings in which a family provision order is sought, that every effort, particularly in a relatively small estate, as this one is, to conduct negotiations frankly and openly, to try to resolve the proceedings, and if there are issues or concerns about an offer that has been made, to raise any issues at the first convenient opportunity with the offeror's solicitors, so that any ambiguities, or other concerns, can be resolved. The Court should be able to see that the parties have considered what is being offered in a sensible, practical, and commercial way." 20In proceedings where the distributable estate available consists of cash estimated to be $274,126 (before all costs have been paid) what I said in that case is apt, particularly where total costs, estimated to exceed $106,000, have been incurred. Furthermore, bearing in mind the relationship of many of the beneficiaries and the Plaintiff, one might have expected a willingness to compromise rather than to have a relationship-damaging hearing: Nicholls v Hall [2007] NSWCA 356 at [58]. Determination 21In coming to a conclusion about costs, I have the following features of the present case in mind: (a) The Plaintiff failed, because she did not establish eligibility. That finding was not based on any delinquency of the Plaintiff, but rather upon the construction of certain words in the relevant provision of the Act and the facts of the case. (b) Otherwise, I found the Plaintiff's case had merit. I noted that had eligibility been established, I would have found that there were factors warranting the making of the application; that the provision made for the Plaintiff in the Will of the deceased was inadequate for her proper maintenance, education or advancement in life; and that in lieu of the provision made in the Will of the deceased, a lump sum of $85,000 would have been adequate and proper in all the circumstances. (This finding is contrary to the submission made in the Defendant's submissions on costs at [6]. Nor does it mean, however, that, on the issue of eligibility, the case was "borderline", as suggested in the Plaintiff's submissions on costs at [9].) (c) The Plaintiff was the sister of the deceased. At [123] - [129], I found that: "They appear to have had a close relationship throughout their lives, although at the time the Plaintiff was hospitalised, there was some tension between them. However, I attribute this to the Plaintiff's then medical condition, rather than to any disagreement between them. The deceased visited when the Plaintiff was in hospital, even though, by that time, she was, herself, unwell. She would visit the Plaintiff after she, herself, had undergone chemotherapy. They would sit together and talk. For about five years, they lived in adjoining houses, in Sydney. There was, then, some time when they lived geographically distant from one another. The Plaintiff moved to Queensland for a relatively short period and the deceased moved to Millthorpe in 2007. When she returned, the Plaintiff lived with the deceased for about two weeks until she found alternative accommodation, in Orange (which is located a short distance from Millthorpe). The Plaintiff gave evidence that between August 2007 and November 2009, she assisted the deceased with her personal care "but we resided in separate premises". Following her release from hospital, the Plaintiff did assist the deceased. She gave evidence that following her own release from hospital, she said to the deceased: "I am here to help you. You tell me if you don't want me staying overnight, I will come in the day time, whatever you need". And that the deceased said "I am scared to be alone" and I said "I will stay with you." There is also no dispute that the Plaintiff did stay overnight in order to relieve the deceased's anxiety about staying at her home alone. However, on each occasion, she brought with her a suitcase of clothing for the time she was to be there, and she took it with her when she left. The deceased acknowledged to Ms Guerin, who gave evidence and was cross-examined, that the Plaintiff was "looking after her" and that the Plaintiff "had been very kind" in taking her to the hospital and "just generally looking after" her." (d) The Plaintiff provided the deceased with domestic support and personal care. She did all that she could to assist the deceased during the times when she was at the deceased's home. (e) The Plaintiff was, at the date of hearing, unemployed, although she said in her evidence, which I accepted, that she would like to work if she was able. She had made an application to Centrelink for a disability pension. In the circumstances, a costs order would be a substantial burden on the Plaintiff. (f) The Plaintiff suffered from bi-polar affective disorder, which, at the date of hearing, was being effectively managed. She experienced depressed mood with quite high levels of anxiety. She avoided social situations and, at times, found it difficult to leave her home for even routine daily matters. (g) The deceased had made a prior Will in September 2007, in which she had appointed the Plaintiff her executrix, and had given her half of the residue of the estate. The deceased appears to have changed that Will because she was concerned about the Plaintiff's level of expenditure and that the Plaintiff might spend all of her inheritance quickly. (h) No information was provided about the financial resources (including earning capacity) and financial needs, both present and future, of any other beneficiary of the deceased's estate. (i) If an order is made that the Defendant's costs are paid out of the estate, the Plaintiff, in any event, will bear a share of the burden of those costs. 22In all of these circumstances, weighing up all of the matters upon which submissions have been made, together with the features to which I have referred, I am of the view that the overall justice of this case points against application of the usual rule that costs follow the event. 23I order that the Defendant's costs, calculated on the indemnity basis, be paid out of the estate of the deceased. Otherwise, I make no order as to costs. ********** 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: 08 February 2012