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Smith v Wessling-Smith[2017] QSC 189

Smith v Wessling-Smith[2017] QSC 189

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Smith & ors v Wessling-Smith & ors [2017] QSC 189

PARTIES:

RITA CARMEN SMITH AS THE EXECUTOR FOR THE ESTATE OF GERALD STUART SMITH DECEASED

(first plaintiff)

RITA CARMEN SMITH, ADAM GERHARD SMITH AND GRETCHEN EMMA SMITH

(second plaintiff)

v

BENJAMIN MORRISON WESSLING-SMITH AND LUKE JAMES SMITH AS EXECUTORS FOR THE ESTATE OF JOAN MARGARET SMITH DECEASED

(first defendant)

RONALD STRATTON SMITH

(second defendant)

IAN MORRISON SMITH

(third defendant)

FILE NO/S:

SC No 5502 of 2015

DIVISION:

Trial Division

PROCEEDING:

Claim

DELIVERED ON:

6 September 2017

DELIVERED AT:

Brisbane 

HEARING DATE:

On the papers.

JUDGE:

Bond J

ORDER:

The plaintiffs must pay the defendants’ costs of the proceeding, to be assessed on the standard basis.

CATCHWORDS:

PROCEDURE – COSTS – INDEMNITY COSTS – where the plaintiffs were unsuccessful at trial and accept that costs should follow the event – where the defendants contend that costs should be assessed on the indemnity basis because the claim for relief against the first defendants was unsustainable – where the defendants contend that costs should be assessed on the indemnity basis because of the plaintiffs’ imprudent rejection of an early offer of compromise – whether costs should be awarded on the indemnity basis

Uniform Civil Procedure Rules 1999 (Qld), r 703

Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225, cited

Hadgelias Holdings and Waight v Seirlis [2014] QCA 325, cited

Kitchen v Vision Eye Institute Ltd [2017] QCA 32, cited

Montclare v Metlife Insurance Ltd (No 2) [2015] VSC 574, cited

Re McKenzie [1974] Qd R 171, cited

Smith & ors v Wessling-Smith & ors [2017] QSC 166, related

SOLICITORS:

Michael Cooper Lawyer for the plaintiffs

McCullough Robertson for the defendants

  1. Gerald Smith died of cancer in 2001, leaving behind a widow (Rita) and their two children, Adam and Gretchen.   His mother Joan died on 10 June 2014, leaving a valuable estate.
  2. In her last will, dated 10 May 2013, Joan preferred her two other sons, Ron and Ian, and their families, over Gerald’s family.  She divided her personal property between Ron and his two children and Ian and his two children, gave specific bequests of $90,000 to each of Ron’s two children and Ian’s two children, and divided the remainder of her estate equally between Ron and Ian.  Joan’s will noted that Ron and his wife owed her no debts, and she specifically forgave any debts owed to her by Ian and his wife and by her “late son Gerald and his wife Rita”.
  3. In 2015, Rita, Adam and Gretchen commenced this proceeding against the executors of Joan’s will (the first defendants) and Ron and Ian (respectively, the second and third defendants).
  4. My judgment published on 11 August 2017 dismissed the plaintiffs’ claim.[1]  At that time, I set a timetable for the delivery of written submissions on the question of costs, and indicated that I would decide that question on the papers.  I now proceed to do so.  These reasons should be read against the background of the detail set out in my 11 August 2017 judgment.
  5. Pursuant to r 703(1) of the Uniform Civil Procedure Rules 1999 (Qld), the defendants seek an order that the plaintiffs’ pay their costs of the proceeding, to be assessed on the indemnity basis.  The plaintiffs accept that costs should follow the event but they submit that the defendants’ costs should be assessed on the standard basis. 
  6. The following statement of relevant general principle derives from the oft-cited decision of Sheppard J in Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233:
    1. When there is a basis for ordering one party to pay the costs of another party, the court ought not usually make an order for the payment of costs on some basis other than the standard basis.
    2. However, the court can make an order that the costs be paid on the indemnity basis if satisfied that the circumstances of the case are such as to warrant the court departing from the usual course.
    3. Although the categories in which the discretion might be exercised to order indemnity costs are not closed, some of the circumstances which have been thought to warrant the exercise of the discretion are:
      1. the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;
      2. evidence of particular misconduct that causes loss of time to the court and to the other parties;
      3. the fact that the proceedings were commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law;
      4. the making of allegations which ought never to have been made;
      5. the undue prolongation of a case by groundless contentions; and
      6. an imprudent refusal of an offer to compromise.
  7. The significance of that last circumstance has been the subject of recent consideration in the Court of Appeal. 
  8. In Hadgelias Holdings and Waight v Seirlis [2014] QCA 325, Holmes JA, with whom Gotterson and Morrison JJA agreed, observed as follows, at [11]-[12]:

The court’s approach has been to award costs on the standard basis, unless the conduct of the party against whom indemnity costs were sought was “plainly unreasonable”.  The following factors have been pointed to as relevant in deciding whether a party has acted unreasonably in not accepting an offer:

“(a)  the stage of the proceeding at which the offer was received;

  1. the time allowed to the offeree to consider the offer;
  1. the extent of the compromise offered;
  1. the offeree’s prospects of success, assessed as at the date of the offer;
  1. the clarity with which the terms of the offer were expressed;
  1. whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it.”

In the recent case of Stewart v Atco Controls Pty Ltd (in liq) (No 2), the successful appellants in the High Court had made a Calderbank offer before the hearing of the appeal (to which they were at that stage the respondents) in the intermediate appellate court.  The High Court made this observation:

“The non-acceptance of a Calderbank offer is a factor, in some cases a strong factor, to be taken into account on an application for indemnity costs.  The respondent submits that its rejection of the offer was not unreasonable.  If that be the test, it would appear to require at the least that the respondent point to a reason for not accepting the offer beyond the usual prospects of being successful in the litigation.”

  1. In Kitchen v Vision Eye Institute Ltd [2017] QCA 32 at [10]-[13], Fraser JA (with whom McMurdo P and Daubney J agreed) applied Stewart v Atco Controls, noting at [11] that:

In characterising the non-acceptance of the Calderbank offer by the respondent as not being “reasonable” the High Court noted that the Court of Appeal had accepted the respondent’s argument upon the legal point in issue in that matter, observed that the contrary decision made by the High Court was the decision which ought to have been made by the Court of Appeal, and concluded that in those circumstances “it can hardly be said that the respondent’s non-acceptance of the offer was reasonable”.

  1. The plaintiffs accepted that an open offer is to be treated like a Calderbank offer: Montclare v Metlife Insurance Ltd (No 2) [2015] VSC 574.
  2. The defendants advanced two reasons why an indemnity costs order is appropriate in this case.  First, they contended that the claim for relief against the first defendants (i.e. the executors of Joan’s estate) was so obviously unsustainable that the plaintiffs’ pursuit of that claim would justify an indemnity costs order in relation to the first defendants.  Second, they contended that the order was warranted in relation to all defendants because of the plaintiffs’ imprudent rejection of an early offer of compromise.
  3. I will deal with the second contention first.
  4. By letter dated 10 September 2014, three months after Joan’s death, the plaintiffs’ solicitor wrote to the solicitors for the executors.  It seems that the solicitor must have only recently been engaged and was still conducting investigations.  He wrote:

My clients accept they are ineligible to apply to the Court for an alternation of the Will whereby adequate provision is made for their proper maintenance and support.

My instructions are that on his death bed my clients’ husband/father was promised his children would be looked after in [Joan’s] Will.  I am also instructed that my clients’ husband/father contributed to the build up of his parents’ estate by giving them advice about various real estate ventures.  I am still carrying out investigations on behalf of my clients but can advise at this stage a constructive trust/estoppel claim will be made by my clients.

  1. The executors’ solicitors’ response was dated 9 October 2014.  The letter relevantly provided:

I have now received instructions from the executors in relation to your letter of 10 September 2014.

Whilst my clients, in liaison with the residuary beneficiaries, cannot see any claim that could be made on behalf of any of your clients which would have prospects of success, they nevertheless believe that Adam Smith and Gretchen Smith should be treated equally with their cousins in the will.

Consequently, I am instructed to make the following offer to your three clients:

  1. each of Adam Smith and Gretchen Smith are to be included with their cousins in the third paragraph of the will, and so are to receive a pecuniary legacy of $90,000, as soon as sufficient funds are collected to enable the executors to pay all pecuniary legacies (and all the paperwork has been provided to Suncorp and other bodies holding cash investments and so we would expect, but cannot guarantee, that all those pecuniary legacies can be paid within the next four weeks);
  1. the payments of $90,000 each to Adam Smith and Gretchen Smith are in full satisfaction of any claim of any nature any of your clients, Rita Smith, Adam Smith and Gretchen Smith may have against the executors of the will of Joan Margaret Smith, her executors personally and the residuary beneficiaries, Ronald Stratton Smith and Ian Morrison Smith;
  1. this offer is open, not “without prejudice” and our clients reserve the right to inform the Court at any time of the making of this offer should proceedings be instituted, and may plead the offer in defence to such proceedings;
  1. this offer is capable of acceptance within 21 days of the date of this letter, namely 31 October 2014, and will not be withdrawn prior to that date.
  1. The plaintiffs’ solicitor rejected the offer by letter dated 30 October 2014. 
  2. It is evident that the outcome which the plaintiffs obtained at trial was far worse for the plaintiffs than the offer.  If one were evaluating the prudence of rejecting the offer as at the commencement of the trial – when pleadings had closed and the plaintiffs knew what the competing arguments were, knew what evidence they could marshal in support of their case, and could infer what instructions Ron and Ian must have given their lawyers on the critical issues – I would have no doubt that rejection of the offer should be regarded as imprudent and unreasonable.  But that would be to take the wrong approach.  Hindsight is always 20/20. The cases make very clear that the assessment whether the rejection of the offer should be characterized as imprudent or unreasonable is to be carried out by reference to the circumstances which existed at the time the offer was made and rejected.
  3. I turn to assess the relevant considerations.
  4. The stage of the proceeding at which the offer was received:
    1. The offer was made at a very early stage.  The plaintiffs’ solicitor was still carrying out investigations.  Proceedings had not commenced.  No pleadings had been prepared.
    2. Save to the extent suggested by the first paragraph of the plaintiffs’ solicitors’ letter quoted at [13] above, there is no evidence before me to suggest that there had been any articulation by either side to the other of what their respective positions were and why. 
    3. In particular, the terms of the offer merely asserted that the executors and the residuary beneficiaries “cannot see any claim that could be made on behalf of any of your clients which would have prospects of success”.  But the offer did not develop the justification for that view.  There was not even any indication as to what Ron and Ian’s evidence would be regarding the allegation made in the plaintiffs’ solicitors’ letter concerning the death bed promise to Gerald.
  5. The time allowed to the offeree to consider the offer:
    1. The offer allowed 21 days for consideration.
    2. There is no reason not to regard that as a reasonable time.
    3. It would have provided ample time to take and to evaluate the requisite statements from Rita, Gretchen and Adam, assuming they had not already been taken.  I infer that what Mr Senna was prepared to say would have been unclear at that time. 
  6. The extent of the compromise offered
    1. Viewed against the view I ultimately formed as to the plaintiffs’ rights, the compromise was very significant. 
    2. Whether it would reasonably have appeared so at the time the offer was made would have turned on the question of the plaintiffs’ prospects of successfully establishing a right which varied according to the size of the estate.
  7. The offeree’s prospects of success, assessed as at the date of the offer:
    1. What should have been apparent to the plaintiffs as to the relevant strengths and weaknesses of their claim at the time the offer was made?  This is the critical consideration. 
    2. With the exception of Mr Senna’s evidence, there is no reason to think that as at the date of the offer, the evidence available to the plaintiffs would have been any more favourable as to the existence of rights against any of the defendants than the evidence which they adduced at trial.  For the purpose of analyzing this issue, I will infer that the plaintiffs’ would have had available to them the evidence given by the witnesses they called at trial (apart from Mr Senna).
    3. An assessment of the plaintiffs’ prospects of success as at the date of the offer would have given rise to the following conclusions.
    4. It would have appeared that the high point of what the plaintiffs could probably demonstrate by reference to their own admissible evidence was an “agreement” based on events at Gerald’s death-bed that Gerald’s kids would be “looked after” (or words to that effect). 
    5. But, for reasons elaborated on in my judgment, it would have appeared that, by reference to their admissible evidence alone, the plaintiffs had poor prospects of:
      1. showing such an “agreement” was intended to be legally binding;
      2. proving any legally binding agreement before or after which gave them a share of the estate (the only evidence they had of any such agreement being the inadmissible hearsay evidence suggesting that there had been some sort of agreement between Ron, Ian and Gerald that the estate would be split three ways after their mother’s death);
      3. establishing a proprietary estoppel based on assurances which were reasonably relied on to the detriment of the plaintiffs; or
      4. demonstrating that they held a beneficial interest in the estate or in the interest received by the residuary beneficiaries.
    6. As at the time the offer was made, it should have appeared that such prospects as they might have had on any of those matters would have turned on what would have then appeared to be uncertain, namely the prospect of ultimately obtaining evidentiary support from:
      1. the defendants via interlocutory processes (including disclosure and interrogatories);
      2. obtaining admissions from Ron and Ian at a trial; or
      3. Mr Senna. 
  8. The clarity with which the terms of the offer were expressed: The plaintiffs’ concede the offer was in clear terms.
  9. Whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it:  The offer did not mention that indemnity costs would be sought if rejected.
  10. Given:
    1. the very early stage at which the offer was made;
    2. the then lack of articulation by either side to the other of what their respective positions were and why;
    3. the fact that the plaintiffs’ prospects would have then appeared to turn on whether their case could be bolstered by admissions or material coming out of the defendants’ camp or from Mr Senna, the prospects of which were then uncertain; and
    4. the failure to flag that the fact of non-acceptance of the offer might be deployed as a basis for seeking a special costs order in the event of the offeror’s ultimate success in any proceeding commenced by the plaintiffs,

as at the date of the offer reasonable minds might well have differed as to whether the offer should be accepted.  Some might have thought that a bird in the hand was worth two in the bush, and accepted the offer.  Others might have thought that they should wait to learn more about the defendants’ position (including, in particular, what Ron and Ian’s sworn testimony was likely to be on the question of the alleged three-way split agreement struck with Gerald), and rejected the offer. 

  1. The defendants have failed to demonstrate to me that the former response to the open offer was so obviously the right one that I should conclude that the plaintiffs acted unreasonably or imprudently in failing to accept it.
  2. It follows that I reject the defendants’ contention that an indemnity costs order should be made in favour of all defendants on the basis that there was an imprudent rejection of an offer of compromise.
  3. I turn to consider the remaining contention, namely that the claim for relief against the first defendants (i.e. the executors of Joan’s estate) was so obviously unsustainable that the plaintiff’s pursuit of that claim would justify an indemnity costs order in relation to the first defendants.
  4. For their part the defendants point out, correctly, that certain claims for declaratory relief directly affecting the first defendants were abandoned at the trial, during closing argument.[2]  They submitted that those claims for relief against the first defendants were obviously unsustainable and no real attempt was made during the trial to support them.  They criticized the remarks made by the plaintiffs’ counsel during trial that the claims against the first defendants were made to prevent distribution of Joan’s estate pending determination of claims against Ron and Ian.  They contended that the plaintiffs’ conduct in that regard involved the making of allegations which ought never to have been made, or the undue prolongation of a case by groundless contentions.
  5. This argument does not warrant making an order that the plaintiffs’ pay the first defendants costs of the proceeding to be assessed on the indemnity basis.  The evidence does not demonstrate that advancing the claims for declaratory relief naming the first defendants which were ultimately not pursued led to any undue prolongation of the case.  All defendants were represented by the same counsel and the same solicitors.  The claim against the first defendants did not necessitate any particular factual examination which would not have been necessitated by the issues raised as against the other defendants and it is not contended that the nature of the claim advanced against the other defendants bore a character which would justify an award of indemnity costs.
  6. Moreover, joinder of the executors to the proceeding was justifiable even if no particular relief had ever been sought against them.  Bearing in mind the fact and nature of the declaratory relief sought against the other defendants,[3] and the fact that the executors had in fact (by the terms of the offer to which I have referred) taken a stance against the prospects of any claims by the plaintiff, the executors were sufficiently interested as to warrant their joinder as parties: cf Re McKenzie [1974] Qd R 171 per Douglas J at 174-175.  In any event it was not apparent to the plaintiffs that the estate had been fully administered and an order was sought that the executors do all things necessary to transfer to the plaintiffs the part of the estate which they claimed that the residuary beneficiaries had agreed that they could have. 
  7. The result is that I decline to make an award of indemnity costs in favour of all the defendants or in favour of the first defendants alone.
  8. The plaintiffs must pay the defendants’ costs of the proceeding, to be assessed on the standard basis.

Footnotes

[1] Smith & ors v Wessling-Smith & ors [2017] QSC 166.

[2] Reasons at footnotes 3, 4 and 5.

[3] Reasons at [14].

Close

Editorial Notes

  • Published Case Name:

    Smith & ors v Wessling-Smith & ors

  • Shortened Case Name:

    Smith v Wessling-Smith

  • MNC:

    [2017] QSC 189

  • Court:

    QSC

  • Judge(s):

    Bond J

  • Date:

    06 Sep 2017

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2017] QSC 18906 Sep 2017-

Appeal Status

No Status

Cases Cited

Case NameFull CitationFrequency
Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 F.C.R 225
2 citations
Hadgelias Holdings Pty Ltd v Seirlis [2014] QCA 325
2 citations
Kitchen v Vision Eye Institute Ltd [2017] QCA 32
2 citations
Montclare v Metlife Insurance Ltd [2015] VSC 574
2 citations
Re McKenzie [1974] Qd R 171
2 citations
Smith v Wessling-Smith [2017] QSC 166
2 citations

Cases Citing

Case NameFull CitationFrequency
EHome Construction Pty Ltd v GCB Constructions Pty Ltd (No 2) [2020] QSC 3142 citations
Goomboorian Transport Pty Ltd v Hanson (No 2) [2018] QSC 1822 citations
McGee v Queensland Building and Construction Commission [2018] QCATA 1242 citations
NQCYC Marina Assc Inc v Dolkens [2022] QDC 2482 citations
PFJV Pty Ltd v Bartter Enterprises Pty Ltd (No 2) [2024] QSC 1452 citations
Rare Nominees Pty Ltd v E-Coastal Developments Pty Ltd (No 2) [2017] QDC 2502 citations
1

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