Wills & estates: when there's litigation, who pays?

The issue

The common misconceived view in proceedings under the Family Provision Act 1982 and the subsequent Succession Act 2006 (family provision claims) is that it is most likely that the plaintiff's costs will be borne by the estate, regardless of the outcome. Family provision claims have typically been the exception to the idea that legal costs are borne by the unsuccessful party.

Justice Gaudron said in Singer v Berghouse (1993):

"Family provision cases stand apart from cases in which costs follow the event... 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."

Given the competing elements of evidence and discretion unique to family provision claims, the burden of costs needs to be carefully weighed by the court.

Justice Palmer said in Re Sherborne Estate (No 2); Vanvalen v Neaves (2005):

"A decision whether a Family Provision Act claim fails or succeeds produces a black and white result which often belies the fact that the case was borderline and could have gone either way".

Carey v Robson & Anor and Nicholls v Robson & Anor (2009)

Carey v Robson & Anor and Nicholls v Robson & Anor (2009) was not such a case.

This hearing involved claims for further provision by two sisters (the plaintiffs) from their father's estate. The estate mostly compromised drought affected farming land, of which the plaintiffs jointly received one lot and a separate legacy for each to be paid by the plaintiffs' brother (the defendant). About 20% of the estate's entire value was given to the plaintiffs. The defendant was the beneficiary of the remainder.

The defendant's work over many years had allowed the deceased (and the deceased's late wife) to retain the property and had contributed to the value of the business operating on the land. The defendant had forgone education and career opportunities to build the farming business and this contribution was recognised by the testator.

The plaintiffs' evidence showed that they were clearly in a superior financial situation to the defendant. Much of the plaintiffs' claim for need showed that they actually sought money for current and anticipated expenses of their teenage children. Both applications for further provision were dismissed.

The hearing for costs

The costs of the case were determined separately by Justice Palmer who considered if the plaintiffs' costs should be borne by the estate.

"Previously, in this State, there was a view held by some practitioners advising a client contemplating a claim under ... the Family Provision Act 1982 (NSW) that there was little risk, and probably a lot to be gained, in making a claim, however tenuous, because even if the claim failed, the claimant would very likely get his or her costs out of the estate: the client would not be out of pocket and the solicitor would receive his or her fee in any event. That approach to family provision litigation, in effect, threw the whole burden of costs onto the beneficiaries of the estate. It promoted much wasteful litigation, it was not supported by authority... and it should be recognised, once and for all, as thoroughly discredited."

Justice Palmer was also critical of the size of the legal costs, noting the extensive and irrelevant amount of information put before him by the plaintiffs. It was pointed out that Practice Note SC Eq 7 had been issued by the Court for guidance on the conduct of family provision claims. Particular reference was made to paragraph 23 of the Practice Note:

Costs

If any affidavits include irrelevant material, the court may order that the party responsible for that affidavit pay:

• His/her own costs of preparing the affidavit and any time spent dealing with the affidavit in court

• The indemnity costs of other parties to the proceedings in responding to the affidavit."

Not only did the plaintiffs have to pay their own legal costs for the claim for further provision, Justice Palmer ordered that they pay the defendant's costs on a party/party basis. Given the inheritance under their father's Will, and their own disclosed financial situation, the plaintiffs were deemed to be in a satisfactory financial situation to bear the burden of the costs.

Conclusion

It is imperative that those involved in family provision litigation are aware that:

• There is no guarantee legal costs will be met by the estate, even if the claim is successful; and

• There is a possibility that plaintiffs making family provision claims may have to bear their own costs and the defendant's costs.

It is also important to be mindful that:

• The Court has power to cap costs on claims involving small estates. What constitutes a "small estate" is not clear. The Succession Act 2006 says a small estate has a value of "less than $750,000 or such other amount as prescribed by the regulations". However, Practice Note SC Eq 7 says that orders capping costs may be made "in circumstances including, but not limited to, cases in which the value of the estate is less than $500,000".

• The Court has general power to cap costs on its own motion or as a result of an application by a party to the legal proceedings.

• Evidence in family provision litigation should be presented in accordance with the Supreme Court Practice Note in order to minimise the potential for an adverse costs order.

Author: Philip Davis