Litigation involving deceased estates can take many forms – applications for provision, notional estate orders, challenges to grants based on undue influence or lack of testamentary capacity, and so on.

A common element across each of those disputes is the role of the parties’ legal costs and quite often those costs take a prominent role in the conduct of and the resolution of disputes.

Of particular note is that the usual rule that “costs follow the event” will often not be applied by the Court, and instead the deceased’s estate will often bear all parties’ costs of litigation. This will particularly be the case if – by reason of some conduct of the deceased – there is a public interest in determining the question(s) the subject of litigation. For instance, where a bona fide issue has been raised by a party which requires investigation, such as suspicious circumstances surrounding the drafting or execution of a Will, it is often unlikely that that party will bare adverse cost consequences even if that issue is considered and ultimately disregarded.

Due to the nature of estate litigation, the person whose estate is at issue is deceased, and cannot play any role in the dispute. This means that decisions about how litigation is conducted or the extent of costs incurred are made without their input. Furthermore, litigation concerning deceased estates deal with a limited pool of assets. Lengthy and adversarial disputes can significantly drain the pool of funds available for the beneficiaries.

It is in that context that the Court takes an active role in case managing proceeding and specifically monitoring or making directions concerning the parties’ costs. In some jurisdictions, such as in respect of claims for provision under the Succession Act, the Court requires the parties’ solicitors to swear affidavits at an early stage in the proceedings providing estimates of the parties’ costs of the proceedings (see Supreme Court Practice Note SC Eq 7).

Proportionality

Section 60 of the Civil Procedure Act 2005 (NSW) requires that the practice and procedure of the court should be implemented with the object of resolving the issues between the parties in such a way that the costs are “proportionate to the importance and complexity of the subject matter”.

We have recently published an article which deals with the issue of ‘proportionality’ in the context of remuneration of liquidators. ‘Proportionality’ is a hot topic in that jurisdiction and one which is receiving increasing attention from the bench.

There will often be the risk that disproportionate legal costs will ravage a limited pool of resources, particular where, as we have said above, costs do not always follow the event.

It is this risk that has seen the issue of proportionality receive attention from the Courts in recent time in the context of external administrations – they are custodians of a limited pool of resources which are to be administered for the benefit of others.

Capped costs orders: ‘proportionality’ in the context of deceased estate litigation

It is clear from the authorities that Courts, in the context of deceased estates, are alive to and are guided by the principle of proportionality. This is primarily because executors/administrators utilise estate resources to conduct litigation which are designated for the benefit of beneficiaries. In Baychek v Baychek [2010] NSWSC 987 (Baycheck), Ball J described proportionality as set out in section 60 as an “important principle which is relevant to the exercise of the court’s discretion in relation to costs”.

In Sherborne Estate (No 2): Vanvalen v Neaves (2005) 65 NSWLR 268 (Sherborne), Palmer J was required to consider the making of orders concerning costs in the context of proceedings relating to a claim for provision. Two out of three of the plaintiffs were successful in their applications, with the total additional provision out of the estate for the two of them totalling approximately $360,000. However, the plaintiffs incurred costs of approximately $450,000, and the defendant’s costs were in the order of $200,000.

Palmer J colourfully stated that:

While this litigation is of great importance to the parties themselves, it must nevertheless be borne in mind that this is not a commercial dispute … it is a family dispute between people of quite modest means: the amounts which all three of the plaintiffs might reasonably have hoped to obtain by further provision from the deceased’s estate could never have come anywhere near the sum of $600,000 which has been expended in this litigation. What has happened in this case is a dark stain on the administration of justice. One might wonder if anything has changed since Dickens’ Bleak House.

Palmer J considered rule 42.4 of the Uniform Civil Procedure Rules (UCPR), which empowers a Court to, of its own motion or on application from a party, “specify the maximum costs that may be recovered by one party from another”. Palmer J stated that the rule exists to “curb the tendency of one or all parties to engage in disproportionate expenditure on legal costs”. His Honour further noted that family provision claims are often “fuelled by personal animosity” where “parties sometimes get carried away by the desire to vindicate their positions”. Rule 42.4 grants the Court a “brake” to put on this kind of conduct that the Court “should not be reluctant to use”.

His Honour interpreted rule 42.4 as being restricted so that it could only be used prior to a hearing and that it therefore could not be used in the present case. Accordingly, no capped costs order was made.

This interpretation of rule 42.4 is no longer the law in NSW, and orders capping costs can be made prior to or after a hearing. In Nudd v Mannix [2009] NSWCA 327 (Nudd) the Court of Appeal unanimously upheld a capped cost order made by the trial judge upon determination of a family provision application. In his reasons for judgment, the trial judge regarded costs of $82,200 as “grossly excessive” where the estate was valued at $415,182 and the matter was a “straightforward claim under the Family Provision Act”. The trial judge capped costs on a party/party basis at $60,000. Whilst the decision in Nudd does not expressly refer to Sherborne, it was described by Ball J in Baychek as “authority for the proposition that the court does have power to cap costs at the end of the hearing.

Rule 42.4 of the UCPR is also supported by Practice Note No SC Eq 7, which states that an order may be made capping the costs recoverable in proceedings involving relief for provision including, but not limited to, matters where the value of the estate is less than $500,000.

In Baychek, Ball J had to consider whether to grant a capped costs order after a successful family provision application. The plaintiff was granted an order for provision of $183,000, but had incurred costs of $111,000. Ball J set out three characteristics of family provision claims that are relevant consideration in costs orders:

  1. Family provision proceedings are concerned with the proper distribution of a fixed pool of assets between people with a moral claim over that pool. The court is to therefore consider the overall justice of the case.
  2. The amount a plaintiff can expect to recover may be small, either due to the size of the estate or the quality of their claim. Therefore, it is reasonable to expect costs to be proportionate to the amount claimed and the nature of the issues in the case.
  3. Family provision claims can involve considerable personal animosity between the parties, which may make it more appropriate to cap costs.

In Baychek, Ball J ultimately found that:

  • because of the plaintiff’s comfortable means, the plaintiff could not have expected more than a modest provision in her favour;
  • much of the plaintiff’s evidence appeared to be attempting to re-litigate issues that were the subject of court proceedings 20 years prior;
  • the defendant’s costs estimate was $63,000 (compared to the plaintiff’s costs of $111,000) and, in the circumstances of the case, there should not have been a considerable amount of difference between the work to be done by each side;
  • it is necessary to be conscious of the needs of the defendant.

Ball J held that, in light of the above, an order capping costs should be granted. The effect of Ball J’s orders was that the plaintiff was only able to recover $65,000 for their legal costs, less than 60% of the costs sought.

Practical tips

Solicitors typically charge their time on a time-based method. Doing so is justified primarily on the basis that a client is only charged for work which is actually undertaken and is charged in a manner which best reflects the complexity of the tasks and matters undertaken.

However, a time-based costing method runs the risk of ignoring the proportionality of that legal work relative to, for example, the size of the estate.

Litigation concerning deceased estates generally involve the same variables, complexities and uncertainties of conventional inter party litigated disputes which affect the ability or willingness of firms to be engaged on a fixed fee basis, without building into that fixed fee contingencies for complexities and additional costs which may ultimately be unnecessary.

We provide the following practice tips for individuals and solicitors involved in disputes concerning deceased estates:

  • Discuss any concerns regarding costs at an early stage of the proceedings. Seek the intervention of the Court at an early stage of the proceedings;
  • Do not necessarily wait for the Court to refer the parties to mediation or other forms of alternative dispute resolution to participate in ADR where appropriate;
  • For plaintiffs:

- do not include weak or speculative aspects of your claim. - limit your evidence to matters which are relevant to the facts in issue. - seek concessions from the defendant in relation to particular facts which can be agreed.

  • For defendants:

- Concede questions of law or fact which cannot sensibly be disputed. - Conduct litigation consistently with your duties and do not blindly follow suggestions from competing beneficiaries. - Obtain competent legal advice at an early stage.

  • For solicitors:

- Provide detailed cost estimates upon receiving instructions. - Do more than identify variables which could affect the estimates of costs which might be incurred: explain to clients the likelihood of those variables, the extent to which they can be managed or controlled. - Solicitors can also assist the parties by providing comprehensive cost estimates at the start or at early stages of matters which include components for possible contingencies or variables. Solicitors are regularly criticised (and penalised on assessment) for failing to provide proper disclosure and estimates of costs. This often arises because solicitors provide an initial estimate upon receiving instructions which only deals with the first stage of the work required or only deals with the tasks which are known at that time to be required.

The main recommendation we have is for costs to be given appropriate and conscious consideration at an early stage and not deferring it until the proceedings have been resolved. Whilst a court may make an order limiting costs following the determination of the proceedings, an order capping costs is best made early in case management. As noted above in Sherborne, Palmer J made it clear an order capping costs enables the court to:

curb the tendency of the [parties] to engage in disproportionate expenditure on legal costs by making it clear, at an early state of the proceedings, that beyond a certain limit the parties will have to bear their own costs … [t]he time for its use is early in case management, whenever it appears that the parties’ litigious fervour may be leading them to excessive expenditure of costs”.

We anticipate that the Courts will continue to consider ways to streamline and efficiently case management litigation in this jurisdiction, which may well involve prescriptive and transparent disclosure of parties’ costs.

Contributors:

Joel Cook and Luke Dominish