By Scott Moloney, Partner and Kate Heremaia, Paralegal

On 6 July 2021, Her Honour Justice Loukas-Karlsson of the ACT Supreme Court handed down a decision relating to an application for costs made by a plaintiff who had been unsuccessful in the substantive proceedings.

Background – Ross v Gordon & Others [2021] ACTSC 41

Mr James Ross, the plaintiff, had been in a relationship with Ms Olga Hart from the mid-1980’s to 2003/2004. After the cessation of the romantic relationship, the plaintiff alleges that the pair continued to be close and continued to have emotional and financial ties.

In February 2018, Ms Hart was diagnosed with stage four lung cancer. The plaintiff and Ms Hart resumed cohabitation so that the plaintiff could provide care to her. Ms Hart subsequently passed away on 30 September 2018.

On 5 September 2018, Ms Hart had prepared her final will, leaving the plaintiff a cash sum of $200,000.00, but no property. This was in contrast to previous wills which featured the plaintiff as a significant beneficiary – bequeathing him a share of Ms Hart’s property and naming him executor of the estate.

It transpired that when preparing her final will, Ms Hart sought to include “no contest” clauses, “due to her concern that the plaintiff might want to claim more than she wished to give him”, but was advised that such clauses were not enforceable under Australian law. Instead, Ms Hart decided to create an inter vivos trust, writing cheques to the trust that were of sufficient value to exhaust her estate – that is, $1,200,500.00.  Ms Hart’s daughter, the first defendant, was named sole trustee.  The pair had previously had a strained relationship, but had reconciled when Ms Hart became ill.

On 25 October 2018, the plaintiff received a letter stating that the estate had insufficient assets to pay the cheques issued to the trust, and therefore would not be making the gifts and bequests to him that had been outlined in the will.

The plaintiff brought an action challenging the will – he sought declaratory relief, family provision, damages arising from the tort of devastavit (mismanagement of an estate) and/or relief in equity.

In a bid to resolve the matter, the defendants issued three settlement offers:

1. The first offer dated 24 October 2018 – in the amount of $200,000.00 (the amount bequeathed), marked “without prejudice save as to costs”. This offer lapsed without acceptance.
2. The second offer dated 30 October 2018 – a reiteration of the offer dated 24 October 2021. This offer lapsed without acceptance.
3. The third offer dated 23 September 2019 – in the amount of $200,000.00 and a waiver of the costs ordered in earlier proceedings in the amount of $30,755.07, marked “without prejudice save as to costs”, and including a statement that indicated that if the plaintiff did not accept the offer, and did not achieve a better result than $230,755.37, the defendants would seek costs on an indemnity basis. This offer was not accepted.

The matter progressed to hearing and ultimately, the plaintiff failed on each count. Judgment was entered in favour of the defendants, and the plaintiff was ordered to pay the defendants’ costs.

The costs dispute – Ross v Gordon & Others (No 2) [2021] ACTSC 136

Following the judgment, the plaintiff provided submissions seeking that the costs order be varied such that the parties would bear their own costs of the proceedings. On 13 April 2021, the defendants argued that costs should remain as ordered on the usual basis.

In relation to costs the plaintiff submitted that:

• The defendants behaviour effectively invited litigation, and this conduct should disentitle the defendants from costs even if the conduct did not amount to misconduct. Such disentitling behaviours, allegedly, included:
  • That the defendants had issued the plaintiff with an ultimatum to accept the proposed disposition of the estate or “he would receive nothing”;
  • That the defendants refused the plaintiff’s request for voluntary production of documents prior to substantive proceedings; and
  • That the defendants opposed the plaintiff’s application for preliminary discovery (it is noted that the defendants were successful in this action).

• Ms Hart had participated in lengthy litigation in her lifetime (including an appeal to the High Court of Australia), and did not wish for the plaintiff to personally suffer the costs of unsuccessful litigation, so had made provision for this in her will (i.e. that legal costs would be payable from the cash sum he was bequeathed). In the substantive proceedings, the defendants had justified this conduct by referencing that Ms Hart’s instructions “[did] not authorise, but also [bound]” the defendants to act in a particular manner. The plaintiff submitted that Ms Hart’s wishes as to costs should be treated in the same manner.
• Costs orders are compensatory in nature, not punitive. Given that the plaintiff had already borne significant costs in relation to the probate and preliminary discovery proceedings, and in light of Ms Hart’s intentions as to costs, it would be appropriate for the Court to order that the parties bear their own costs.

In contrast, the defendants asserted:

• They had attempted to resolve litigation by way of three separate settlement offers – which included an offer for a $200,000.00 cash payment (the amount originally bequeathed in the will) and a waiver of costs, but these offers were not accepted; and
• It “could not have been [Ms Hart’s] anticipation, nor the correct legal outcome, that the plaintiff could undertake litigation without incurring responsibility for any costs”, and as such, the usual approach should be favoured.

Consideration

Loukas-Karlsson J confirmed that rule 1721 of the Court Procedures Rules 2006 (ACT) operated to allow the Court a “wide and unconfined” discretion in relation to the awarding of costs, and that where there are competing considerations, it is for the Court to provide a broad evaluative judgement of what justice requires. But she made clear that the discretion co-exists, and should be exercised with reference to, the following elements:

• Disqualifying behaviour – whether the successful party has engaged in delinquent conduct that would disentitle them to costs (Nelipa v Dr Robertson and Commonwealth of Australia[2009] ACTSC 16);
• Offers of compromise – whether a party has issued an offer that is more favourable to the recipient party than the ultimate outcome of a matter as an unreasonable rejection of an offer may disentitle a party to costs (Calderbank v Calderbank[1975] 3 All ER 333).  The elements to consider are: whether there was a genuine offer of compromise; and if so, whether it was unreasonable of the offeree not to accept it, having regard to the circumstances.
  • As to a genuine offer of compromise – the key criteria when determining if an offer is a genuine offer of compromise are:
    • Whether the offer is open correspondence or marked as ‘without prejudice save as to costs’ (so that it can be tendered to the Court as evidence in a costs dispute);
    • Whether the offer is a genuine compromise;
    • Whether the offer is a final offer and is presented in clear and unambiguous terms; and
    • Whether there is an express statement that, if the offer is not accepted, then a special order (such as for indemnity costs) will be sought.
  • As to the reasonableness of rejecting an offer – the key criteria for evaluating reasonableness was discussed at length in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298, and includes:
    • The stage of the proceeding at which the offer was received;
    • The time allowed to the offeree to consider the offer;
    • The extent of the compromise offered;
    • The offeree’s prospects of success, assessed as at the date of the offer;
    • The clarity with which the terms of the offer were expressed; and
    • Whether the offer foreshadowed an application for indemnity costs (or other order) in the event of the offeree rejecting the offer.

The Court’s decision

Despite all parties agreeing that this was an “unusual case”, Loukas-Karlsson J ultimately decided that the usual approach in relation to awarding costs should be followed because:

• The defendant had made clear in a Calderbank offer that an indemnity costs order would be sought (although this was no longer sought, the defendants preferred the usual orders); and
• The plaintiff had received legal advice in relation to his claims.

The plaintiff was therefore ordered to pay the defendants’ costs of the proceedings.

Conclusion

This case serves as a reminder that an unusual case may not reach the threshold required to displace the usual approach to costs. Where a successful party has followed proper procedure in relation to attempting to resolve a dispute, including the making of a Calderbank offer, and no disentitling conduct otherwise occurs, then justice is likely to be best served by favouring the successful party in litigation in terms of making the usual order as to costs.