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  • Costs do not usually ‘follow the event’ in unsuccessful estate litigation where:
    • the testator (or residual beneficiaries) has been the cause of the litigation;
    • an investigation of the circumstances was reasonable; or
    • the proceedings were for the benefit of the estate.
  • Costs do not always follow the event with unsuccessful litigation seeking family provision.
  • The legal personal representative’s indemnity costs are usually paid from the estate except where they act improperly.

The recent decision of The Estate of Milan Zlatevski; Geroska v Zlatevski (No 2) [2020] NSWSC 388 (‘Zlatevski’) provides an opportunity to consider the different costs orders that are regularly made in estate litigation. In the substantive proceedings the deceased’s son failed to show that the deceased’s last will was vitiated by lack of testamentary capacity or the existence of testamentary fraud.

Generally, with estate litigation as with other litigation, costs follow the event. In other words, a party who unsuccessfully commences or contests litigation is ordered to pay the successful party’s costs (Civil Procedure Act 2005 (NSW), s 98; Uniform Civil Procedure Rules 2005 (NSW), r 42.1; Oshlack v Richmond River Council 193 CLR 72 [1998] HCA 11 at [67]).

The prima facie position in Zlatevski was that the unsuccessful son should pay the executor’s costs of the proceedings. However, there are a number of exceptions to the general rule in contested estate litigation; the son endeavoured to rely on two of them.

The deceased’s conduct

Where the testator has been the cause of litigation, or those interested in the residue of the estate have been the cause of the litigation, the costs of unsuccessfully opposing probate may be ordered to be paid out of the estate (Lippe v Hedderwick (1922) 31 CLR 148, 154-155; [1922] HCA 44; Trustee for the Salvation Army (NSW) Property Trust v Becker [2007] NSWCA 136 at [125]). There are many such cases and each is fact sensitive, however, common examples include construction suits; where the deceased’s intentions cannot be given effect; and where the conduct, habits and mode of life of the testator have given the defendant reasonable grounds for questioning the testator’s mental capacity (Perpetual Trustee Co Ltd v Baker [1999] NSWCA 244 at [14]; Shorten v Shorten (No 2) [2003] NSWCA 60 at [14], [19]–[20]). See also, Re Eger; Heilprin v Eger, 4 February 1985, Powell J, unreported.)

In Zlatevski, the son said there were doubts about the deceased’s testamentary capacity because, as the Court acknowledged in the substantive judgment, (The Estate of Milan Zlatevski; Geroska v Zlatevski [2020] NSWSC 250), the deceased held mistaken beliefs and had views which may have involved inaccuracies or exaggerations. The son pointed to the objectively irrational action of his father excluding his only son from his estate, a person with whom the deceased lived for 25 years.

The Court noted that the deceased had not conducted his life in such a way as would naturally lead others to suppose that he was of unsound mind, such as by acting strangely or engaging in threatening or violent behaviour (as existed in Perpetual Trustee Co Ltd v Baker). There was no lay or medical evidence that raised doubts as to the deceased’s mental capacity. There was no evidence of suspicious circumstances surrounding the execution of the deceased’s will, or evidence that raised doubts as to testamentary capacity because of the manner in which the deceased went about making his will and keeping it (as existed in Gray v Hart; Estate of Harris (No 2) [2012] NSWSC 1562 (‘Gray v Hart (No.2)‘).

There was also no dispute that the will accurately reflected the deceased’s intentions. The file note made by the solicitor who drafted the will, explained the exclusion of the son on rational and cogent grounds. Whilst ‘it might be said in any case where a testator excluded a child for reasons that some might consider unfair or give rise to a harsh outcome that the testator caused litigation in relation to their testamentary capacity’, that has not been the approach courts have adopted (King v Hudson (No 2) [2009] NSWSC 1500 at [12]). The Court concluded that the first exception was not made out.

Reasonable investigations

Another exception is where the circumstances reasonably lead to an investigation concerning the document propounded as the testator’s will. In this situation, the costs may be left to be borne by those who incurred them. This and the first exception may overlap. Because the testator will be seen as the cause of the litigation, the usual order is that costs be paid out of the estate (Gray v Hart (No 2) at [19]).

An example of the second exception is Middlebrook v Middlebrook (1962) 36 ALJR 216. The evidence from the medical staff caring for the testator was that he was sedated and semi-comatose the day before he made his will. There was also evidence the testator had made another will only three months previously and the new will changed the dispositions by excluding one of his sons from receiving part of a property. The High Court concluded that those circumstances would naturally lead the excluded son to think that an investigation of the validity of his father’s last will was justified.

In Shorten v Shorten [2001] NSWSC 100, there was evidence that the deceased suffered from afflictions resulting from brain damage caused by a stroke. Her ability to communicate was severely impaired and her condition raised doubts as to the degree in which she could understand spoken words. The case required the evaluation of conflicting lay evidence and disputed medical evidence. Reasonable investigations were warranted.

The son in Zlatevski argued that it was reasonable to have investigated the deceased’s will because the solicitor had little independent recollection of the deceased’s instructions and was reliant on a file note. That left a doubt as to whether the solicitor had addressed the Banks v Goodfellow criteria for testamentary capacity or complied with best legal practice for taking will instructions from the deceased.

However, the Court noted there was no medical or lay evidence which raised doubt as to the deceased’s cognitive capacity. If there had been, the doubt about addressing the Banks v Goodfellow criteria may have given rise to reasonable grounds to investigate the deceased will. As it was, the Court was not satisfied that the son had reasonable cause for investigation of the deceased’s will because of doubtful testamentary capacity.

Other exceptions

There are other less common exceptions. Where the parties’ participation in the proceedings is for the benefit of the estate, the costs of the legal personal representative and participating beneficiaries may be paid out of the deceased’s estate (Spatt v Benson; Benson v Spatt [2019] NSWSC 1195 at [91]). Other (and often less sympathetic) principles apply to the awarding of costs involved in an unsuccessful appeal. Principles relating to Calderbank offers and Offers of Compromise apply in estate litigation, and application of those principles can produce an exception to the costs-follow-the-event rule.

Costs orders in family provision applications

Family provision proceedings are another common exception to the rule for an unsuccessful plaintiff. As explained in Salmon v Osmond [2015] NSWCA 42, this exception is due, in part, to the legislation: ‘As is implicit in [Succession Act] s 99, family provision claims raise different issues with respect to costs which set them apart from other forms of litigation’. As proceedings for a family provision order are essentially for maintenance, a court may decide to make no order for costs against an unsuccessful applicant, even if it were otherwise justified, if it would adversely affect the financial position which had been taken into account in dismissing the application (Singer v Berghouse (1993) 114 ALR 521, 521-2; [1993] HCA 35).

The court may even allow an unsuccessful plaintiff costs out of the estate if, in all the circumstances the case was meritorious, reasonable or ‘borderline’, or the size of the estate and the considerable hardship otherwise suffered by the applicant warranted that outcome (as in Revell v Revell [2016] NSWSC 947 at [37]).

Increasingly, applications for family provision are being mixed with other estate claims. In those instances, there is the prospect of success on one part of the proceedings, but not all. The question which the court considers in this situation is whether costs should be apportioned according to the issues.

Legal personal representative’s costs

Another variation to the general rule is that a legal personal representative (‘LPR’) usually receives an indemnity from the estate for its costs, irrespective of the outcome, and for any costs the LPR must pay the successful claimant (Warton v Yeo [2015] NSWCA 115 at [68]; UCPR, r 42.25(1) and Trustee Act 1925 (NSW), s 93(3)).

In Nobarani v Mariconte [No 2] (2018) 360 ALR 390; [2018] HCA 49 at [2]–[3] the High Court stated:

‘The general rule concerning executors, like that concerning trustees, is that costs properly and reasonably incurred by the executor in connection with the administration of the estate are payable from the estate. These costs can include litigation expenses. Some examples of recoverable litigation expenses are: where an executor has a reasonable and bona fide belief in the validity of the will albeit one that is found to be incorrect; where an executor is unsuccessful in reasonably defending an action brought by legatees; or where an executor unsuccessfully, but reasonably, seeks to uphold a grant of probate on appeal’.

This variation will not apply where the LPR has acted unreasonably, without good grounds, beyond power, in bad faith, without the care and diligence of a person of ordinary prudence, or has engaged in impropriety. In other words, where the LPR has not truly acted in the interests of the estate the LPR may not be indemnified for the cost of the proceeding (Miller v Cameron (1936) 54 CLR 572, 578–9; [1936] HCA 13). Also, executors have been ordered to pay their own costs because they conducted the case as extreme adversarial proceedings.

Darryl Browne is the principal at BROWNE.Linkenbagh Legal Services and Chair of the Law Society Elder Law, Capacity and Succession Committee.