The general rule is that if the court makes any order regarding costs, it is to order that the costs follow the event unless it appears that some other order should be made: UCPR r 42.1. This general rule, in the context of the purpose of a costs order, finds a “reasonable expectation” on the part of a successful party of being awarded costs against the unsuccessful party
The standard costs principle may be challenged when the plaintiff’s outcome does not exceed the defendant’s compromise offer. In such instances, the plaintiff may incur cost orders on a typical basis up to the point of the offer. In contrast, the defendant may be entitled to indemnity costs for subsequent proceedings (as detailed in UCPR rule 42.15). This general principle highlights that achieving justice for a prevailing party is not satisfied if it results in the party being financially burdened, implying that the party responsible for the litigation should bear the associated costs.
The foundation of the general principle that costs follow the event and its exceptions rests on the concept that costs should be compensated fairly, considering each party’s responsibility for generating those costs. Generally, costs follow the event because, if a plaintiff prevails, the burden of costs stems from the defendant’s actions that led the plaintiff to incur those costs due to the defendant’s failure to provide the plaintiff with what they were entitled to; conversely, if a defendant wins, it is the defendant who has incurred costs in defending against a claim to which the plaintiff had no entitlement.
Additionally, a Calderbank letter can influence the court’s discretion concerning costs, although it is not given as much weight as a formal compromise offers. While it remains relevant to the proceedings, it lacks the same presumptive value these formal offers hold.
Moreover, the Court may impose a special costs order if a party rejects a Calderbank offer. This outcome underscores the potential consequences of not accepting such offers during litigation. Judgment is no more advantageous than the offer and if the rejection is deemed unreasonable.
To determine if rejecting the Calderbank offer was unreasonable, the court considered whether the offeree had enough time and information to assess the offer. Pleading a less favourable position after rejection does not justify deviating from the standard costs rule.
Background
Malcolm Chester passed away on May 25, 2022, at 78, leaving behind two daughters, Geraldine and Penelope. His estate consists of a property valued at approximately $760,000, cash totalling $109,055, and some unspecified shares. Under the Succession Act 2006 (NSW), the estate will be distributed equally between Geraldine and Penelope.
In Chester v Cowin [2024] NSWSC 1554, Geraldine (the plaintiff), who is 51 years old and has four children, has lived at the Reindeer Place property her entire life. In light of her circumstances, she sought additional provision from the estate to ensure she can remain in the home until her youngest child turns 18. Conversely, Penelope (the defendant) has been appointed the estate administrator and opposes the plaintiff’s request. She suggests that any occupancy should be contingent upon certain conditions, such as a payment that reflects the market rental value of the property.
It’s also worth noting that the deceased had drafted an unexecuted will in 1989 and had written a note in March 2020 (the document) expressing his intentions regarding his estate. However, neither of these documents was formally valid as a will, complicating matters further.
Hmelnitsky J determined that the document’s term “No 10” refers to the residence at Reindeer Place. The document is unsigned and lacks proof of finalisation, and the defendant made no request to admit the letter to probate.
The plaintiff and the two youngest children have not received adequate provision, as they cannot continue living at the Reindeer Place property. Hmelnitsky J considered granting them a temporary right to occupy the house until both children complete secondary school. However, his honour was uncertain the plaintiff should be permitted to stay without any financial contribution from the plaintiff. Accordingly, their right to occupy the property should be subject to the following conditions: the plaintiff
(a) must pay an occupation fee equivalent to one-third of the market rent;
(b) is solely responsible for property upkeep and maintenance, including insurance, rates, taxes, and utility payments; and
(c) may allow the two youngest children to reside in the property while she retains the right to occupy it.
Hmelnitsky J instructed the parties to agree to short minutes of order reflecting these conclusions or, if they could not agree, to provide brief submissions on their preferred orders and submit arguments on costs.
Orders to Give Effect to Hmelnitsky J’s Conclusions Chester v Cowin (No 2) [2025] NSWSC 74
The parties agreed to transfer the Reindeer Place property to the first plaintiff and the defendant as tenants in common in equal shares. However, they disagreed on the remaining details of the orders.
Should the Property Be Transferred?
The defendant has not taken steps to obtain a grant of administration for the estate, which is necessary regardless of the orders made concerning the plaintiff’s claims. As noted at [12]-[13] of Chester v Cowin [2024] NSWSC 1554, the estate includes shares and potentially other assets that the defendant cannot manage until this matter is finalised. The defendant will likely need to sell some of these shares to cover costs associated with the proceedings.
Hmelnitsky J concluded that the plaintiff and her two younger children should have a temporary right to occupy the property, subject to a modest rent and the requirement to cover maintenance expenses. Hmelnitsky J stated at [59] that the estate administration cannot proceed alongside this right of occupation. However, the estate administrator ordinarily decides the property title while considering the plaintiffs’ rights.
Given these circumstances, Hmelnitsky J held it is appropriate to appoint an administrator to facilitate the distribution of the estate’s assets, except for the Reindeer Place property, which remains subject to further provision orders.
The parties anticipate selling the property once the right of occupation ends. Hmelnitsky J considered ordering a testamentary trust with the property transferred to the defendant as trustee for herself and the plaintiff in equal shares, with an obligation to sell at the end of the occupation period. However, this would create complications, as the defendant would hold the title and need to manage third-party obligations, such as rates and utilities, for which the plaintiff is responsible.
The parties instead propose to transfer the property into the names of the plaintiff and defendant, requiring it to be sold once the right of occupancy ends. Given their general agreement, Hmelnitsky J proceeded on this basis: The plaintiff and defendant will hold the property subject to the right of occupation and the obligation to sell it appropriately. If either passes away before the sale, the surviving party will continue to hold the property, subject to the same obligation.
Hmelnitsky J appointed the defendant as administrator of the estate – waiving the formal requirements for appointing administrators, including the need for a bond under the Probate and Administration Act 1898 (NSW). Additionally, his honour ordered that the property be transferred to the plaintiff and defendant and sold once the right of occupation ends.
Other Disputed Issues
The remaining disputes between the parties are as follows:
- The defendant argued that the plaintiff’s obligation to pay an occupation fee was backdated to May 25, 2022, the date of the deceased’s death.
- Additionally, the defendant seeks specific conditions regarding property maintenance, upkeep, and inspection during the plaintiff’s occupancy, including penalties for non-compliance.
- The parties disagree on how the occupation fee should be determined.
The defendant proposes that the court order:
- Provision for the plaintiff and the two younger children from the estate.
- Transfer of the Reindeer Place property to the plaintiff and the defendant as tenants in common in equal shares.
- The remaining estate assets will be divided equally between them, subject to any cost orders.
- Grant the plaintiff and the children the right to occupy the property from 25 May 2022 until the children complete high school, with specified conditions.
- The property will be sold after the occupation period, and the net proceeds will be split equally.
- The plaintiff will be responsible for maintenance, repairs, insurance, council rates, and utilities.
- An occupation fee equal to one-third of the market rent, with detailed provisions for its calculation and payment.
- The plaintiff’s right to occupy is terminated if she fails to comply with maintenance, expense, or rent payment obligations.
- Cost orders in the defendant’s favour.
The plaintiff proposed similar orders but with different terms regarding rent calculation, maintenance obligations, and consequences of non-compliance.
Backdating
The plaintiff argues it would be unreasonable to require her to pay for occupying the property between May 2022 and the date of judgment. Hmelnitsky J disagrees that such an order would be illogical as administration of the estate has not occurred, and the plaintiff has occupied the property without addressing rent. Since it is unclear why this situation has persisted, his honour will not alter it.
Hmelnitsky J in Chester v Cowin [2024] NSWSC 1554 granted the plaintiff a right of occupation, with conditions. Accordingly, his honour ordered that the plaintiff pay rent only from the date of these orders.
Terms of the Right to Occupy
The terms of the plaintiff’s occupation must be clearly defined to avoid uncertainty and disputes.
Hmelnitsky J agreed that many of the defendant’s proposed conditions are appropriate, including requirements for property maintenance and allowing the defendant reasonable access for inspections. While these conditions treat the defendant somewhat like a landlord (which she is not), they ensure the property remains habitable for the plaintiff and her children and preserve its value for future sale.
The defendant proposes that any breach of the conditions, including failure to maintain the property, cover expenses, or pay rent, should immediately terminate the plaintiff’s right to occupy. Hmelnitsky J disagreed, ordering non-compliance to persist for more than three consecutive months before termination occurs unless the parties agree otherwise.
Calculation of the Occupation Fee
The parties generally agree on the process for determining the fee, but the plaintiff proposes specifying the amount in the final orders. Hmelnitsky J adopted the defendant’s proposed method, with modifications reflecting his honours decision on backdating payments, finding the plaintiff’s impractical, as adjustments will be necessary over time.
Calderbank offer
On 23 January 2024, the defendant’s solicitor sent a letter to the plaintiff’s solicitor ahead of a mediation scheduled for 4 March 2024. The letter outlined the key issues in dispute and those relevant to resolving the parties’ rights. It also included a settlement offer, which proposed that the plaintiff:
1. be granted the right to live in the property until her youngest child turns 18;
2. pay half the market rent during this period and
3. and the defendant jointly assume the rights and responsibilities of a landlord. At the same time, the plaintiff also takes on the rights and responsibilities of a tenant under the standard NSW residential tenancy agreement.
The offer, which was open for 14 days and referenced Calderbank v Calderbank [1976] Fam 93, was not accepted.
The defendant argues that the plaintiff failed to achieve a better outcome than the offer and that rejecting it was unreasonable. The plaintiff’s costs incurred up to and including January 23, 2024, will be covered by the Estate on an ordinary basis. In contrast, the Estate will pay the defendant’s costs for the same period on an indemnity basis. From January 24, 2024, the defendant’s costs will be the plaintiff’s responsibility and will also be settled on an indemnity basis. Additionally, the plaintiff will be responsible for her costs starting from January 24, 2024.
The defendant contends that the offer balanced both parties’ interests by requiring the plaintiff to pay half the market rent while the defendant covered half the landlord-related expenses. While reaching a similar balance, the judgment did so differently, requiring the plaintiff to pay one-third of the rent while absolving the defendant of expenses. The defendant argues that had the plaintiff accepted the offer, she would have had similar occupancy rights but retained significantly more from the estate’s residual funds.
Hmelnitsky J acknowledges the strength of the defendant’s arguments but does not find the plaintiff’s rejection of the offer unreasonable under Calderbank principles. Although the offer was close in substance to the judgment’s outcome, his honour cannot be sure the plaintiff would have been better off accepting it, particularly given unknown factors like property maintenance costs and potential assistance from her older sons.
His Honour regrets that the estate will bear the litigation costs, as accepting the offer would have allowed continued occupation and a more generous distribution of the estate’s assets. However, given the uncertainty over whether the offer was objectively better (aside from costs), Hmelnitsky J declined the defendant’s costs orders, ruling that each party would cover their legal expenses.
Orders
Hmelnitsky J issued the following orders:
1. The defendant is appointed administrator of the deceased estate.
2. The formal requirements for this appointment under the Probate and Administration Act 1898 (NSW), including the bond requirement under s 64, are waived.
3. Provision is made from the estate for the first, fourth, and fifth plaintiffs.
4. The entire estate, except for the property at 10 Reindeer Place, Werrington NSW, will be distributed equally between the first plaintiff and the defendant.
5. The property will be transferred to the first plaintiff and defendant as tenants-in-common in equal shares.
6. The relevant plaintiffs are granted a right to occupy the property until three months after the youngest finishes secondary school or until they vacate earlier.
7. The property must be sold at the end of the occupation period, with net proceeds split equally between the first plaintiff and defendant.
8. The first plaintiff must:
- Complete necessary repairs within one year;
- Maintain the property in good repair;
- Permit biannual inspections (or more if breaches occur);
- Insure the property and provide copies to the defendant;
- Cover all costs typically borne by a homeowner;
- Pay one-third of the market rent as an occupation fee; and
- Forfeit occupancy if in breach for more than three months.
9. The occupation fee is calculated based on a valuation and adjusted annually according to Sydney rental price movements in the CPI.
10. Each party must bear their own costs.