The judgment of the England and Wales High Court in Kostic, in relation to the main action(1) and particularly the costs decision,(2) remains an essential case for practitioners involved in contentious probate claims, who would do well to understand and (as far as possible) anticipate its application.
Facts in Kostic
The testator, Branislav Kostic (known as Bane), made a sequence of wills, the last two of which were made on 16 June 1988 (the 1988 will) and 13 July 1989 (the 1989 will). Bane's earlier wills effectively left his entire estate to his son and only child, Zoran. The 1988 and 1989 wills, however, conferred the benefit of the entire estate (the net value of which at death, before inheritance tax, was valued in the region of GBP8.2 million) on the Conservative Party Association (CPA). The 1988 and 1989 wills were challenged by Zoran on the grounds that Bane lacked testamentary capacity.
Bane's lifestyle, correspondence and actions during his later life (not to mention the unusual wording of the wills themselves) were eccentric and probably made a challenge to the validity of the 1989 will inevitable.
Outcome of the main action
It was common ground between the parties by the time of the trial that Bane was suffering from a delusion of the mind, namely an irrational belief in an international conspiracy of dark forces, of which certain family and friends were either participants or victims. The test for testamentary capacity adopted by the court was that set out in Banks v Goodfellow(3) by Sir Alexander Cockburn CJ: 'It is essential to the exercise of such a power that a testator shall understand the nature of the act and its effects; shall understand the extent of the property of which he is disposing; shall be able to comprehend and appreciate the claims to which he ought to give effect; and, with a view to the latter object, that no disorder of the mind shall poison his affections, pervert his sense of right, or prevent the exercise of his natural faculties - that no insane delusion shall influence his will in disposing of his property and bring about a disposal of it which, if the mind had been sound, would not have been made.'
On the evidence, the judge was satisfied that Bane's decision to disinherit Zoran was heavily influenced by his delusions, and in particular his belief that Zoran was implicated in a global conspiracy against him.
Costs of contentious probate actions (like most claims) are within the discretion of the court and the considerations set out in parts 43 and 44 of the Civil Procedure Rules apply. The general rule is that the unsuccessful party pays the costs of the successful party.(4) In contentious probate claims there are, however, two exceptions to the ordinary rule. These were set out in Spiers v English(5) by Sir Gorell Barnes P: 'In deciding questions of costs one has to go back to principles which govern cases of this kind. One of those principles is that if a person who makes a will or persons who are interested in the residue have really been the cause of the litigation a case is made out for costs to come out of the estate. Another principle is that, if the circumstances lead reasonably to an investigation of the matter, then the costs may be left to be borne by those who have incurred them… Therefore, in each case where an application is made, the court has to consider whether the facts warrant either of those principles being brought into operation.'
In Kostic, Henderson J noted that the principles in Spiers were neither 'exhaustive nor rigidly prescriptive'. The first of the exceptions to the general rule was likely to lead to the unsuccessful party's costs being paid from the estate, and, in the case of the second exception, the appropriate order was likely to be that each side be left to bear its own costs.
Is the testator 'really the cause' of the litigation?
In Re Cutliffe's Estate,(6) the unsuccessful claimants sought to overturn the last will of the deceased on the grounds of undue influence, or alternatively on grounds of want of knowledge and approval. The claims failed and the claimants were denied any of their costs pursuant to the exceptions in Spiers, even though the testator, after signing his last will, wrote a statement that said: 'This is to certify that I… have not signed any document on the above date which I wish to be classified as valid and in accordance with my wishes.' Hodson LJ referred to the subsequent statement written by the testator as 'remarkable', but noted that: 'While it would not be possible to limit the circumstances in which a testator is said to have promoted litigation by leaving his own affairs in confusion, I cannot think it should extend to cases where a testator by his words, either written or spoken, has misled other people, and perhaps inspired false hopes in their bosoms that they may benefit after his death.'
In Kostic, Henderson J found that the CPA was, on the facts, justified in investigating capacity and thus entitled to its costs from the estate down to the stage where a realistic assessment of the merits of the claim could first properly be made. After that date, the CPA's decision to defend the disputed wills to trial was an 'essentially commercial decision, and one which in the modern world cannot expect to attract any special treatment of the costs incurred by either side in consequence on it'.
Did the circumstances lead reasonably to the investigation of the matter?
Henderson J also held that the second exception in Spiers should apply down to 26 February 2007, when the expert reports on capacity of both sides were exchanged. Thereafter, costs followed the event in the usual way so that the CPA was liable for Zoran's costs of the trial on the standard basis.
Decisions following Kostic
The decision in Kostic has (unsurprisingly) been applied in a variety of probate cases and there are several reported decisions, including Smith and another v Springfordand others,(7)Walters and another v Smee and another,(8) Re Ritchie(9) and Wharton v Bancroft.(10)
The courts have also provided some guidance on the limits to the principles, for example in Shovelar and others v Lane and others.(11) In Shovelar, the Court of Appeal was asked to apply the principles to a case where the claimants successfully brought proceedings alleging a constructive trust had arisen over the estate, as a result of the execution of mutual wills. The costs issues were complex; the claimants were funded by a chartered financial advisor and offers were made, in both Calderbank and Part 36 form.
One of the questions before the Court of Appeal was whether 'the action is not a probate action but a Chancery action for a declaration of constructive trust, albeit one arising out of the execution of mutual wills'. The distinction was important as, if it was not a probate action, the exceptions to the ordinary rule in litigation that may apply in probate actions would not be available to the unsuccessful defendants. Ward LJ concluded that: '… the so-called rule in probate cases does not apply in the case before us. The probate rule is rooted in the inquisitorial exercise that was conducted by the Ecclesiastical Courts and the Probate Division where the court had to be satisfied of the validity of the will before it could pronounce for the will… The effect of mutual wills upon the distribution of the estate… is a matter for the Chancery Division applying the law of trusts… The nature of litigation is not inquisitorial: it is adversarial and, not infrequently, very adversarial…'
This final statement is also relevant in probate actions. The point at which the exceptions to the 'so-called rule' no longer apply is often synonymous with the point at which the action becomes 'ordinary hostile litigation'. This suggests that the early exchange of evidence and medical reports should be encouraged so the parties can assess the merits of their claims without (aggressively) adopting a position beforehand.
By contrast, the courts have extended the principles set out in Kostic to some non-probate cases, specifically to insolvency proceedings,( 12) where there was found to be a 'real analogy' with probate cases (although the courts should apply the principles with caution, particularly if the parties have behaved unreasonably in bringing or defending the proceedings).
An interesting attempt to extend the reach of the principles arose in proceedings relating to a pension scheme, Pell Frischmann Consultants Ltd and another v Prabhuhand others.(13) In that case, there was, inter alia, an application for a prospective costs order in favour of a beneficiary of the scheme. One of the arguments advanced for the applicant was that the court will depart from the usual costs rules in probate cases on the grounds summarised in Kostic and, if those grounds are clearly present, the court could therefore make an order for prospective costs on the same grounds. Penelope Reed QC, sitting as a deputy judge, dealt with his point briefly, saying: '… while these arguments can be brought to bear after a trial has been fought, the Court would not make prospective costs order [sic] in a probate case based on the above exceptions'.
I suggest, however, that where in a probate case one of the exceptions is, on balance, likely to apply (e.g. the testator has behaved in such a way that a dispute is all but inevitable), but the parties wish to obtain, for example, expert opinion before deciding which position (if any) to adopt, the court could take a significant amount of uncertainty out of the litigation by making a limited, prospective costs order enabling the parties to obtain such evidence.