The costs an executor incurs to defend against a Family Provision claim are typically considered testamentary expenses because they are essential for the executor to fulfil their responsibilities properly. Nevertheless, the Court retains complete discretion and authority to decide who will pay costs, to whom they will be paid, and the extent of those costs.
Background
Con Alexiou (“the deceased “) died on 11 May 2019, aged 88 years of age, leaving a will dated October 3 April, 2013, probate of which was granted to Voula Alexiou(”the first defendant”) on 31 January 2020.
The deceased was married to Sofia, who died in 2001, in 1957.
The marriage produced two children: the first defendant, a daughter born in October 1959, and Arthur Alexiou (”the plaintiff”), a son born in June 1962.
The first defendant has three adult children. They are not named beneficiaries in the deceased’s will and have made no claim (for a family provision order or otherwise) against his estate.
The plaintiff and his wife, Maria, have two children by their marriage: Costa Odysseus Alexiou (”the second defendant”), a son aged 21, and Jason Achilles Alexiou (”the third defendant”), a son aged 19.
The second and third defendants live with their parents and Maria’s two adult daughters from a previous relationship at a property on Wentworth Road, Orchard Hills.
The plaintiff’s stepdaughters own the Orchard Hills property as beneficiaries of the deceased estate of Maria’s mother.
The first defendant alleges that the plaintiff and Maria persuaded Maria’s mother to make a Will in favour of Maria’s daughters instead of Maria to distance the property from any argument that it comprises the marital property of Maria to be taken into account in the assessment of any “need” the plaintiff may have for provision from the deceased estate.
Family provision
The plaintiff sought a family provision order under the Succession Act 2006 (NSW) concerning his late father’s estate. The first defendant was the deceased’s legal representative and principal beneficiary. The plaintiff’s sons were joined as defendants, represented by a tutor and later by their legal representative. The Court held that both parties were unreliable witnesses, motivated by self-interest and long-standing animosity.
The plaintiff believes his father intended to treat him equally with his sister, while the first defendant contends that the plaintiff was estranged from their father. The deceased’s solicitor testified that the deceased explicitly excluded the plaintiff from his will because he believed that the plaintiff only sought contact for financial gain.
Costs
A fundamental problem in the case is the concern that the plaintiff’s legal costs may exceed any potential provision order he receives, leading to a disproportionate burden on the estate. The court must decide whether it can limit the plaintiff’s recoverable costs and consider how this might affect the fairness of the proceedings.
Costs determinations in legal cases are specific to each case and must be documented in an official court order. These determinations are governed by the Civil Procedure Act 2005 in New South Wales, particularly s98, along with the Uniform Civil Procedure Rules of 2005, especially Part 42.
Moreover, the Chief Justice’s Practice Notes, particularly those pertinent to family provision cases and various judicial practice decisions, significantly influence costs, especially in protective, probate, and family provision issues.
Section 98 of the Civil Procedure Act provides that decisions concerning costs are generally at the court’s discretion. The Court can decide who will incur the costs and to what degree. Costs may be ordered on an ordinary or indemnity basis, and it is vital to understand that recovering these costs necessitates a specific court order. Additionally, the court can issue costs orders at any point during the proceedings.
Typically, costs follow the event, suggesting that the victorious party in a case will commonly receive costs unless stated otherwise. Nonetheless, it’s essential to recognise that particular provisions, such as those in s99 of the Succession Act, impact cost orders in specialised areas like the Family Provision List. Applying general rules regarding costs is somewhat unique in this legal domain.
Under s99 of the Succession Act (SA), the Court can order that costs linked to proceedings about a deceased person’s estate be paid from the estate or the “notional estate”. While regulations could be introduced to impose maximum legal costs, none currently exist.
The Civil Procedure Act 2005 incorporates case management provisions to promote the efficient handling of legal cases seeking to facilitate a fair, swift, and cost-effective resolution of legal matters.
Additionally, the Act emphasises the principle of proportionality concerning costs. The expenses incurred must correspond with the importance and complexity of the case involved. The Uniform Civil Procedure Rules (UCPR) further strengthen this concept by allowing the Court to set maximum recoverable costs.
Ultimately, costs must be just, reasonable, and proportionate in line with the guidelines set forth by the Legal Profession Uniform Law.
Practice Note SC Eq 7
Recent modifications to Practice Note SC Eq 7, concerning Family Provision and Probate proceedings, bring about significant changes, particularly regarding costs capping. Starting on June 17, 2024, the cap on recoverable costs for estates with a net distributable value below $1 million has increased from $500,000, allowing greater financial flexibility for the parties involved.
In addition to this change, parties and their legal representatives are now explicitly required to provide verified estimates of costs and disbursements throughout the proceedings. This stipulation aims to promote early dispute resolution and help control expenditures, making the legal process more efficient and economical.
The Court uses the Practice Note to regulate legal costs, shifting away from traditional “costs scales.” This strategy encourages a culture of moderation among lawyers in managing client expenses. Furthermore, the legislative framework established by Section 99 of the CPA permits costs orders against legal practitioners. This is supported by the Court’s inherent jurisdiction, which allows it to oversee lawyer conduct.
The Court has significant authority to impose costs caps specifically in family provision cases, drawing from established case law while exercising caution concerning limits on lawyers’ fees. There is also an increased focus on adhering to disclosed cost estimates, essential for effectively managing legal expenses throughout the proceedings.
Overall, the Practice Note aims to balance managing costs in legal situations and encouraging prompt settlements, ultimately striving to limit excessive legal fees.
Costs Inherent Jurisdiction
When discussing its inherent jurisdiction regarding cost orders in family provision cases, the Court referred to a paper prepared for the Blue Mountains Law Society’s 2024 Succession Conference. It highlights that the Court’s inherent jurisdiction is vital for ensuring justice and is not restricted by specific limitations. Through this analysis, it becomes evident that the Court’s ability to exercise such jurisdiction is critical for navigating the complexities of family law, ultimately seeking to attain fair outcomes in these sensitive cases.
Chan v Chan [2016] NSWCA 222 established that legal costs could reduce an estate’s value when assessing Family Provision Applications (FPAs) provisions. The court is cautious about imposing costs on financially disadvantaged plaintiffs, leading to cost “capping” protections.
The court may decide to pay only a portion of legal costs from the estate. Cases like Nudd v Mannix [2009] NSWCA 327, 33 and Poche v Poche [2020] NSWSC 835 illustrate situations where costs were capped and subjected to specific conditions.
The evolving law may encourage plaintiffs to pursue claims with a “nothing to lose” mentality, potentially resulting in unfounded claims, often supported by “no win, no fee” arrangements.
Executors who are also beneficiaries face a conflict, as opposing baseless claims could reduce the estate’s value and their share. They may be pressured to settle to protect the estate’s assets.
Practice Note SC EQ 7 allows for mediation in unresolved FPA claims, making settlements more attractive for executors due to potential cost repercussions. It also influences the strategies of both claimants and executors in FPA proceedings.
As established in previous cases, the court has an inherent jurisdiction to award security for costs.
Court orders
The court ordered that the plaintiff receive a legacy of $300,000 from the deceased’s estate, provided that the plaintiff settles a cost liability of $129,435.58 in favour of the first defendant. Concerning cost allocations, the plaintiff’s costs are capped at $200,000, just as the first defendant’s costs are limited to $200,000, and an additional $380,000 has already been paid. Meanwhile, the costs for the second and third defendants are similarly capped at $200,000 but will be assessed on an indemnity basis.
As the residuary beneficiary, the first defendant will assume the burden of the costs and legacy obligations. The caps on legal costs further clarify the financial landscape: the plaintiff’s costs are capped at $275,000, the first defendant’s at $225,000 (including the previously paid $380,000), and the second and third defendants’ costs remain at $200,000.
All parties have the liberty to apply for costs orders to be defined in gross sums instead of being assessed, and they can also seek to vary or discharge existing orders. However, applications must be filed within three months unless the Court permits otherwise.
Most significantly, costs payable to the plaintiff and the first defendant will be assessed on an ordinary basis. In contrast, those for the second and third defendants will be assessed on an indemnity basis. Additionally, the parties are encouraged to present any offers of compromise that were exchanged, as these may influence the resultant costs orders. The court emphasized the relevance of considering informal offers of compromise, particularly in equity and family provision cases, recognising their importance in reaching equitable resolutions.