Mr Karl James Kirsten sought leave to appeal a costs order. The order requires him to pay 40% of Ms Cara Miller’s costs. This pertains to the costs at first instance. The costs order arose after proceedings concerning the historical ownership of shares in Ombrel Pty Ltd. These proceedings were resolved without a trial. This resolution followed Mr Kirsten’s late concessions.
The Full Court dismissed the appeal, finding no error in the primary judge’s exercise of discretion. The Court held that Mr Kirsten had belatedly capitulated on the central issue underlying the declaratory relief. Ms. Miller was entitled to recover part of her costs incurred in pursuing that relief.
Background
Ms Miller, as executor of the estate of the late Detlef John Kirsten, sought:
- Mr Kirsten had relied on an alternative register. It suggested the company held shares in itself as trustee. This is a legal impossibility under the Corporations Act.
- Mr. Kirsten eventually agreed to register the shares. Each party would bear their own costs for that aspect. He did not initially abandon his reliance on the alternative register.
- Ms Miller therefore pursued declaratory relief to resolve the issue of historical ownership.
Costs Decision at First Instance
The primary judge found that:
- The proceedings were unnecessary but for Mr Kirsten’s unreasonable persistence in relying on a legally untenable position.
- Mr Kirsten had capitulated at the last moment by abandoning the alternative register shortly before trial.
- Although the registration issue had settled on a no-costs basis, the declaratory relief retained utility until that capitulation.
The Court’s decision to uphold the 40% costs order emphasizes procedural fairness. It also highlights judicial discretion, which the audience should regard with respect.
Grounds of Appeal
Mr Kirsten argued that:
- There was no capitulation, only a consensual settlement.
- The declaratory claims were abandoned and lacked utility.
- The costs order contradicted the parties’ settlement agreement.
- The primary judge improperly assessed the reasonableness of his conduct without a trial.
- The discretion should have been exercised by making no order as to costs.
Full Court’s Reasoning
The Court rejected all grounds, holding that:
- The Court clarified that the relevant capitulation was Mr Kirsten’s late and unequivocal abandonment of the alternative register. This abandonment emphasised its importance in engaging the Court’s reasoning. The Court noted that the declaratory relief was not futile. It was necessary until the abandonment to prevent future disputes concerning historical ownership. This demonstrated the Court’s focus on practical utility. The settlement covered only costs related to share registration, not the declaratory claims. The primary judge did not impermissibly rely on irrelevant matters. However, Mr Kirsten’s defence based on the alternative register affected the entire proceeding.
- Even if minor factual errors had been made, they would not justify disturbing the costs order. The Court would have reached the same result.
The Court also emphasised that appellate intervention in discretionary costs decisions requires demonstrating a House v King error. The audience should see this as a safeguard for consistent and fair judgments.
Outcome
- Leave to appeal granted
- Appeal dismissed
- Costs order requiring Mr Kirsten to pay 40% of Ms Miller’s costs upheld
Key Takeaway
The key takeaway is that a late concession, seen as capitulation, justifies an adverse costs order. This reinforces principles on conduct affecting costs. It highlights the importance of responsible litigation behaviour.
The judge refused both the stay application and the cross-vesting transfer application and dismissed the defendants’ application with costs.
Stay application: refused
- The defendants argued the plaintiff’s standing (title) to sue depended on her position as executor. They also contended that her title might later be undermined if probate were revoked.
- The judge said that the outcome was highly contingent and remote. For the plaintiff to lose standing, several events would need to occur. These events include a successful leave application. There would also be an appeal setting aside prior orders. Additionally, an adverse rehearing outcome is needed. The defendants must actually commence revocation proceedings. They must then succeed in revoking probate. This would likely lead to Mr Karl Kirsten stepping in as the replacement executor. That was “a long way” from the current position.
- Even if revocation proceedings could be brought without those contingencies, the defendants had had ample opportunity to seek revocation. They had not done so, despite earlier assertions.
- The defendants raised serious allegations of fraud concerning Ombrel’s register. However, their counsel accepted that those issues might be ancillary. The case might be decided without determining fraud.
- On the merits generally, the judge was not persuaded. The defendants did not present a substantial defence to most of the orders sought.
- The plaintiff, as executor, has a clear duty against speculative future scenarios. They must collect estate assets. These include at least one Ombrel share and shares in other companies. A replacement executor would have the same duty.
- The defendants did not identify a concrete detriment if the proceedings continued. Their asserted concern was the removal or dealing with shares while other proceedings were pending. This was treated as the wrong procedural response. If genuinely feared, they should seek an injunction, whether quia timet or otherwise. They also need to meet the usual requirements, including an undertaking as to damages, rather than seeking a stay.
Result: no stay.
Cross-vesting transfer: refused
- The defendants sought transfer to a State Supreme Court under s 5(4) of the Cross-Vesting Act. They relied on the “interests of justice” test. Authorities emphasized a balancing exercise, considering factors like commonality, overlap, risk of inconsistent findings, efficiency, skill, and costs.
- The judge rejected three specific transfer arguments:
- Potential cross-claim to revoke probate/comity
- The defendants said they “will need” to cross-claim for revocation. They argued that, as a matter of comity, the Federal Court should not revoke another court’s probate order.
- The judge declined to decide jurisdictional or power issues on this interlocutory application. He stated they were not grounds for transfer. If a revocation cross-claim is later brought, those issues can be argued then.
Fitness of executors
- Overlap with construction/rectification of the Will (clause 11)
- The defendants contended that the main proceeding involves testamentary intention. Possible rectification under s 25AA Wills Act 1936 (SA) is also involved. They claim this would overlap with share-ownership issues in this case.
- The asserted overlap was undeveloped and not obvious to the judge. Even if some overlap existed, it did not justify transfer.
Result: no transfer.
Final orders
Dismissal of the defendants’ application with costs.
Kirsten v Miller as executor of the estate of Detlef John Kirsten [2023] FCA 1667
- The leave to appeal application, filed 12 September 2023, will be heard by a Full Court. The court will also decide on the extension of time application. This decision will be made under s 25(2)(e) of the Federal Court of Australia Act 1976 (Cth).
- Unless ordered otherwise, the Full Court Will hear those applications at the same time as the appeal.
- No order as to costs of this referral decision.
What this was about
Karl James Kirsten sought leave to appeal a costs order made on 29 August 2023. This order required him to pay 40% of the respondent’s costs (party–party). These are to be assessed as a lump sum if not agreed.
In case management:
- Mr Kirsten also sought an extension of time. He applied for leave at 4:31 pm on the due date. Under the Rules, it is treated as filed the next day, requiring an extension to 13 September 2023.
- The respondent had filed a notice. She indicated that she would not oppose leave at that stage. But, if granted leave, she would on appeal.
Legal principles applied
- Typically, leave applications are determined by a single judge. This can change if a judge directs a Full Court hearing: s 25(2) FCA Act; r 35.11 Rules.
- Justification of a Full Court referral is required only if there is a “good reason.” This includes situations where the leave question is finely balanced, not purely procedural, and not obviously hopeless. A referral is also justified when efficiency, cost, and potential injustice support Full Court determination.
Why did Halley J send it to the Full Court?
Halley J did not consider the leave application straightforward and arguable, and that it went beyond a minor procedural dispute. Key reasons included:
- The Court made a costs order after the substantive dispute had been settled. There was no merits hearing. No substantive declarations/orders were ultimately made.
- The parties had agreed each would bear their own costs on the “registration issue”. But, the 40% order appeared to be a broad apportionment of total costs. There was no obvious discount reflecting that agreement.
- The financial impact could be significant (40% of all proceeding costs).
- The primary judge’s “unreasonable conduct” finding was said to rely on a “legal impossibility” proposition. The applicant argued that this was inconsistent with s 259A of the Corporations Act.
- The applicant alleged the primary judge made findings about credit/state of mind/motive without a hearing.
- There was no active contradictor on leave. This was because the respondent did not wish to be heard on leave. This situation created a risk of inefficiency. The risk would occur if the Full Court only heard the respondent’s substantive arguments later at an appeal.
Overall, the most efficient and fair approach was for the Full Court to handle leave and extension together. They should do this (subject to directions) alongside any appeal.
Extension of time
Although the delay was trivial, the extension application turned partly on the merits. To avoid inconsistent views on the merits, Halley J directed that both the single judge should consider them. The Full Court should also consider them. The Full Court was to decide the extension application alongside leave.
Bottom line
This judgment does not decide between a grant of leave or whether the costs order was wrong. It simply directs that the Full Court will decide:
- Should there be an extension of time, and
- The court must decide whether to grant leave to appeal. If granted, it will hear the appeal. No costs order is made for this procedural step.
Preliminary principles
- Costs orders are discretionary. An appeal can only succeed if the appellant demonstrates an error of the kind identified in House v King. These errors include acting on a wrong principle. They also include considering irrelevant matters and overlooking relevant issues. Mistaking facts or producing a plainly unjust result are also included.
- Mere disagreement with the primary judge’s outcome is insufficient.
Kirsten v Miller as executor of the estate of Detlef John Kirsten (No 2) [2024] FCAFC 106
Orders
• The respondent was permitted to withdraw the submitting notice filed on 29 September 2023.
• Leave to appeal was granted.
• The appeal was dismissed.
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Overview of the Appeal
Mr Karl James Kirsten sought leave to appeal against a costs order. It required him to pay 40% of Ms Cara Ellen Miller’s costs at first instance. The costs order arose from proceedings regarding the current and historical ownership of shares in Ombrel Pty Ltd. Nevertheless, it ultimately did not continue to trial. Mr Kirsten took steps that rendered substantive relief unnecessary.
Ms Miller, as executor of the deceased’s estate, had sought:
• Declaratory relief concerning the historical ownership of shares; and
• Non-declaratory relief compelling registration of a share transfer.
The Court made no substantive orders because Mr Kirsten ultimately registered the shares.
The primary judge held that Mr Kirsten had wholly capitulated and awarded Ms Miller 40% of her costs, reflecting that Ombrel was only one of five companies involved.
Mr Kirsten argued that:
• The costs order contradicted a settlement agreement under which each party bore their own costs regarding non-declaratory relief;
• The declaratory claims had no utility;
• He had not capitulated, and
• Any allegedly unreasonable conduct was irrelevant given the costs agreement.
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Leave to Appeal
Because the costs order was interlocutory, leave to appeal was required. Although such appeals are discouraged, leave was granted because:
• The decision went beyond mere procedural matters;
• Entertaining the appeal would not fragment the litigation; and
• The proposed grounds raised an arguable case that the costs discretion may have miscarried.
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Factual Background
• The deceased was the sole director of Ombrel before his death in November 2018.
• Ombrel had 100 shares. The original register recorded the deceased as the beneficial owner of one share. The deceased was the non-beneficial owner of the remaining 99 shares.
• A later amended register purported to record the transfer of the 99 shares to Ombrel itself as trustee. This arrangement is legally impossible under the Corporations Act.
• Ms Miller, as executor, sought registration of the shares in her name. Mr Kirsten refused, raising concerns under South Australian probate legislation and relying on the amended register.
• Ms Miller commenced proceedings seeking declarations as to the accurate register and orders compelling registration of the shares.
• Mr Kirsten later agreed to register the shares. He did so on the basis that each party bears their own costs. This agreement applies only regarding the Corporations Act relief.
• He did not expressly consent to declaratory relief, nor did the costs agreement extend to it.
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Conduct of the Proceedings
• Ms Miller maintained that the original register was the accurate register.
• Mr Kirsten defended the proceedings on multiple bases, including reliance on the legally impossible amended register.
• He did not abandon that position until shortly before the trial.
• Once he unequivocally accepted the original register as correct, Ms Miller did not press the declaratory relief.
• At the hearing, the sole remaining issue was costs.
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Primary Judge’s Findings on Costs
The primary judge concluded that:
• The amended register recorded a legally impossible transaction.
• Ms Miller was almost sure to succeed on her declaratory claims.
• Mr Kirsten had persisted with untenable defences and insisted on formal steps with no practical value.
• His conduct caused unnecessary expense and delayed resolution.
• His ultimate concession amounted to a last-minute capitulation.
• Although the parties resolved the Corporations Act claim on a “no costs” basis, the declaratory relief still had utility. It served to prevent future disputes.
• Given the broader scope of the proceedings, Mr Kirsten should pay 40% of Ms Miller’s total costs.
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Outcome
The Court upheld the primary judge’s reasoning and discretionary assessment. While leave to appeal was granted, the appellant established no error, and the Court dismissed the appeal.
Declaratory relief and its utility
- Although Ms Miller ultimately did not press the declaratory relief, that decision must be understood in context.
- The primary judge correctly found that the declarations had real utility. They clarified the historical ownership of the Ombrel shares. They also identified who was entitled to exercise trustee powers during the deceased’s lifetime.
- Mr Kirsten failed to show that the declarations were merely procedural or subordinate to the Corporations Act claim.
- His registration of the share transfer did not amount to a withdrawal of his entire defence.
Continuing dispute over historical ownership
- The dispute about historical ownership remained live for as long as Mr Kirsten relied on the Kirsten-Ombrel Register.
- The resolution of the issue was not merely because the shares were eventually registered in Ms Miller’s name.
- The earlier agreement that the parties bear their own costs did not cover the costs. This was for resolving which register was accurate. This register reflected historical ownership.
Timing and capitulation
- Mr Kirsten only unequivocally abandoned reliance on the Kirsten-Ombrel Register immediately before the hearing.
- Until that point, the declaratory claims continued to serve a legitimate purpose.
- The primary judge’s finding of “capitulation” was properly understood as a late and partial capitulation.
- The utility of the declaratory relief was connected to a specific period. This period was between the settlement of the Corporations Act claim and the final abandonment of the register defence.
Effect of the costs agreement
- The settlement of the Corporations Act claim included an agreement. Each party agreed to bear their own costs only concerning that claim.
- Ms Miller was therefore precluded from recovering costs associated with that aspect, regardless of whether Mr Kirsten had earlier capitulated.
- Arguments about the merits or reasonableness of Mr Kirsten’s reliance on the AP Act were irrelevant to the costs issue.
Grounds of Appeal
Ground [1(a)(i)] – Alleged failure to identify capitulation
- Rejected.
- The relevant capitulation was Mr Kirsten’s belated acknowledgment that the Ombrel Register—not the Kirsten-Ombrel Register—reflected historical membership.
- Reliance on the latter was a legal impossibility and provided no reasonable basis to resist declaratory relief.
Ground [1(a)(iii)] – Alleged abandonment of the claim
- Rejected.
- Ms Miller ceased pressing claims only because Mr Kirsten’s late capitulation made further relief unnecessary.
- Maintenance of the defence relying on the Kirsten-Ombrel Register until just before the hearing.
- Nothing in the settlement agreement prevented Ms Miller from seeking costs incurred in meeting that defence.
- Mr Kirsten failed to show that the costs agreement extended that far.
Grounds [1(a)(ii)] and [1(b)] – Alleged conflation of costs
- Rejected.
- The primary judge awarded 40% of Ms Miller’s total costs. This reflects the relative weight of the Ombrel register dispute among all issues.
- The judge expressly recognised the earlier costs agreement and confined the costs issue accordingly.
- The 40% figure did not demonstrate impermissible inclusion of costs relating to the Corporations Act claim.
- Mr Kirsten did not discharge his onus of proving that the settlement covered all declaratory-relief costs.
Ground [1(c)] – Alleged reliance on irrelevant matters
- Rejected.
- The primary judge’s comments addressed why the declaratory relief would almost certainly have succeeded.
- Although the discussion focused partly on the AP Act, it also intertwined those arguments with reliance on the invalid register.
- The register defence permeated the entire proceeding, including the declaratory claims.
- Even if some findings were erroneous, they would not justify appellate intervention, as the costs outcome would be the same.
Outcome
- The appellant showed no appealable error.
- The primary judge’s decision on discretionary costs was sound.
- Dismissing the appeal.