Collins v Marinovich[2021] QSC 175

SUPREME COURT OF QUEENSLAND

1. [1]
   I delivered my judgment in this matter on 14 June 2021. 
2. [2]
   The applicant/plaintiff,^[1] Ms Collins, sought a declaration against both respondents/defendants^[2] that the debt secured by a mortgage of her property was forgiven upon the death of the mortgagee (her aunt) and further relief against the second respondent only.
3. [3]
   On the strength of the evidence and the submissions made at the hearing of the matter, the applicant succeeded against the second respondent.  I invited further submissions from her about her claim for a declaration against the first respondent executors because her final oral and written submissions did not make her position clear to me.  I also invited written submissions from the parties as to costs.
4. [4]
   Assuming success against both respondents, Ms Collins sought her costs against both, and submitted that it was “fairly arguable” that they be paid on the indemnity basis.  She was critical of the conduct of the executors, contending that they made the litigation particularly complicated because they transmitted the mortgage to the second respondent, Ms Walker, knowing the plaintiff’s position that the debt had been forgiven.  Ms Collins made no express complaint about the conduct of the litigation by Ms Walker. 
5. [5]
   Ms Walker submitted that the costs of each party ought to be paid out of the estate, on the indemnity basis.  She said that she was an innocent party in all of this, having been the beneficiary of the bequest of the mortgage.  She submitted that an exception to the general rule that costs follow the event ought to apply here. 
6. [6]
   She referred me to Williamson v Spelleken [1977] Qd R 152 which dealt with the principles applicable to decisions on costs in probate matters.  She submitted that, although Williamson v Spelleken was a testamentary case, its focus was on the cause of the litigation.  An exception to the application of the general rule as to costs in probate litigation arises where the testator is said to be the cause of the litigation.  Ms Walker argued that the present dispute arose out of the testator’s conduct, as expressed in her will – in other words, she “caused” it.  She asked me to draw an analogy between the present matter and probate litigation in support of her argument for an exceptional costs order.  She also referred me to Frizzo v Frizzo [2011] QSC 177 in which Applegarth J discussed relevant principles.
7. [7]
   The executors submitted that the claim against them for a declaration ought to be dismissed and costs ought to follow that event.  Alternatively, if the declaration were made, there should be no order as to costs; or an order that the first defendant pay the plaintiff’s costs of paragraph 1 of her originating application only, and not on the indemnity basis. 
8. [8]
   As to the costs payable by or to Ms Walker, the executors submitted that because this was not estate or probate litigation, the exceptions to the usual position as to costs did not apply and the parties’ costs ought not to be met out of the estate.  The executors submitted that upon a thorough consideration of the authorities, I would not draw the analogy I was asked to draw or apply the exception I was asked to apply.  The applicant did not engage on this issue.
9. [9]
   The applicant has succeeded against Ms Walker and the usual position is that costs follow the event.  As is well known, the purpose of a costs order is to compensate the person in whose favour it is made – not to punish the party who is ordered to pay costs.  While costs are in the discretion of the court, that discretion is to be exercised on a principled basis.  The prima facie rule that costs follow the event is subject to the ability of the court to make a costs order to ensure a just result.  In probate proceedings, it is settled that the general rule applies subject to two exceptions, namely (a) where the testator has been the cause of the litigation; and (b) where the circumstances led reasonably to an investigation concerning the testator’s will.
10. [10]
    It might be said here that the deceased/testator caused the present litigation in a general sense because she entered into a mortgage with the plaintiff on unorthodox terms, without taking legal advice, then changed her mind about the mortgage arrangement.  More relevantly, it might also be said that she caused the present litigation because she attempted to override the mortgage arrangement by a bequest in her will.
11. [11]
    On the question whether each parties’ costs in this matter ought to be paid out of the estate, the starting point is Mitchell v Gard (1863) 3 Sw & Tr 275; 164 ER 1280.
12. [12]
    The plaintiffs in Mitchell v Gard were the unsuccessful opponents of a will.  They submitted that their costs ought to be paid out of the estate “under the particular circumstances of the case”.  The Solicitor General submitted that the plaintiffs should be “condemned in costs” or at best, that there should be no order as to costs because the plaintiffs had unsuccessfully pleaded undue influence. 
13. [13]
    Lord Penzance (Sir J P Wilde) identified the circumstances in which a court might order that costs be paid out of an estate.^[3]  His Honour’s reasons made it plain that there was a distinction to be drawn between costs in a testamentary suit and costs in other litigation.  His Honour identified the two circumstances in which the costs of a testamentary suit ought to be borne by an estate – namely, where fault lay “at the door of the testator” and where an investigation into the will was reasonably warranted.  At 276ff, his Honour said (my emphasis) –

This was a testamentary suit …

These questions of costs are addressed to the discretion of the Court.  It is hardly in the nature of discretion that its exercise should be adjusted by exact rule …

The basis of all rule on this subject should rest upon the degree of blame to be imputed to the respective parties, and the question, who should bear the costs ? will be answered with this other question, whose fault was it that they were incurred ?  If the fault lies at the door of the testator, his testamentary papers being surrounded with confusion or uncertainty in law or fact, it is just that the costs of ascertaining his will should be defrayed by his estate. 

If the party supporting the will has such an interest under it that the costs, if thrown upon the estate, will fall upon him, and he by his improper conduct has induced a litigation which the Court considers reasonable, it is not unjust that the estate should bear the costs of the litigation which his conduct has caused.

But if the testator be not in fault, and those benefited by the will not to blame, to whom is the litigation to be attributed?  In the litigation entertained by other Courts, this question is in general easily solved by the presumption that the losing party must needs be in the wrong, and, if in the wrong, the cause of a needless contest.  But other considerations arise in this Court.  It is the function of this Court to investigate the execution of a will and the capacity of the maker, and having done so, to ascertain and declare what is the will of the testator.  If fair circumstances of doubt or suspicion arise to obscure this question, a judicial inquiry is in a manner forced upon it.  Those who are instrumental in bringing about and subserving this inquiry are not wholly in the wrong, even if they do not succeed.  And so it comes that this Court has been in the practice on such occasions of deviating from the common rule in other Courts, and of relieving a losing party from costs, if chargeable with no other blame than that of having failed in a suit which was justified by good and sufficient grounds for doubt.

There is still a further class of case.  I speak of those in which, beyond the execution of the will and the capacity of the testator, the opposing party takes upon himself to question the conduct or the good faith of others, and to place on the record pleas of undue influence or fraud.  These are affirmative charges; they ought not to be made except upon some apparently very sufficient ground.  But though they may and do differ largely in the degree of probability or suspicion to be demanded for their justification, it is not easy to say that they differ in nature from pleas denying execution or capacity.  Both classes of defence are addressed to the same question. What was the will of the testator, and both are within the scope of the subject entrusted to the vigilance of the Court.  Here, also, it seems just and meet, if the circumstances of the case have rendered the inquiry a proper one, that neither party should be condemned in costs. 

From these considerations, the Court deduces the two following rules for its future guidance:  first, if the cause of litigation takes it origin in the fault of the testator or those interested in the residue, the costs may properly be paid out of the estate; secondly, if there be sufficient and reasonable ground, looking to the knowledge and means of knowledge of the opposing party, to question either the execution of the will or the capacity of the testator, or to put forward a charge of undue influence or fraud, the losing party may properly be relieved from the costs of its successful opponent.

… It is of high public importance that doubtful wills should not pass easily into proof by reason of the cost of opposing them.  It is of equal importance that parties should not be tempted into fruitless litigation by the knowledge that their costs will be defrayed by others.  These opposite reasons appear to have alternately swayed the decisions to be found in the books.  It is the desire of the Court to keep both in view, while yielding to neither, and it is in this spirit that the above rules have recommended themselves for adoption. 

14. [14]
    Williamson v Spelleken was an appeal from a decision that the costs of the unsuccessful defendant in a probate action be taxed and paid out of the estate.  Williams J, with whom Wanstall SPJ and Stable J agreed, said that the position as to costs in testamentary cases was appropriately summarised by Sir Samuel Griffith in Horsley v Dunlop (1894) 5 QLJ 85 which quoted extensively from Matthews v Gard as follows (my emphasis) –

In testamentary causes it has long been the practice of the Court to consider all the circumstances of the case, and not to act on the assumption that the losing party is necessary in the wrong.  ‘It is’ in the words of Lord Penzance in Matthews v Gard … ‘the function of the Court to investigate the execution of a will and the capacity of the maker of it, and, having done so, to ascertain and declare what is the will of the testator.  If fair circumstances of doubt or suspicion arise to obscure this question a judicial inquiry is in a manner forced upon us.  Those who are instrumental in bringing about and subserving this inquiry are not wholly in the wrong even if they do not succeed’.  To quote again from the same judgment, ‘It is of high public importance that doubtful wills should not pass easily to proof by reason of the cost of opposing them.  It is of equal importance that parties should not be tempted into fruitless litigation by the knowledge”, or, I would add, expectation ‘that the costs will be defrayed by the estate of the testator’.  The matter is undoubtedly one for the discretion of the Court, but, for the reasons which I have given, it is plainly very desirable that that discretion should be exercised in accordance with definite and known rules, so far as the exercise of judicial discretion can be guided by fixed rules.  From the cases I think the following rules can be deduced: 1.  The Court must consider whether, having regard to all the circumstances of the case, the parties who have unsuccessfully opposed probate were led reasonably to the honest belief that there was good ground for impeaching the will.  If they were not, the costs of the unsuccessful litigation must fall on them, as in other cases.  But if the facts were such as to lead them reasonably to that belief, after, of course, proper inquiries, a further question arises, namely: 2.  Whether this belief is to be ascribed to the conduct of the testator himself, or of the persons deriving the substantial benefit under the will, so that such conduct may properly be considered as the cause of the reasonable litigation which has occurred after the death of the testator as to the validity of the will.  Davies v Gregory … If either branch of this question is answered in the affirmative, the costs of the litigation should come out of the estate; if in the negative, each party must bear his own costs.

15. [15]
    Horsley v Dunlop reinforced the point that the potential for an exception to the general rule as to costs based on a testator’s “fault” arose in the context of a court dealing with a reasonable argument for impeaching a will.
16. [16]
    In Frizzo & Anor v Frizzo & Anor (No 2) [2011] QSC 177, Applegarth J made the following observations –

    1. (a)
       The general rule that costs follow the event is applicable to probate proceedings.
    2. (b)
       One should not start with the general proposition that the costs of probate litigation should be borne by the estate; or borne by the estate unless it is demonstrated that an unsuccessful party’s conduct was shown to be unreasonable.
    3. (c)
       Due to the general nature of the court’s probate jurisdiction, a number of exceptions to the general rule have developed.
    4. (d)
       The two established exceptions to the general rule are –

       1. Where the testatrix has been the effective cause of the litigation, such as where the state of her testamentary papers, or her habits and mode of life, or where her own statements have brought about the litigation, the costs of unsuccessful parties may be ordered to be paid out of the estate (emphasis by his Honour);
       2. Where the circumstances are such as to afford reasonable grounds for opposing the will, the unsuccessful party, though not usually granted his costs out of the estate will not be condemned in costs.
    5. (e)
       Mitchell v Gard explained the reason for the exceptions.  In the exercise of its costs’ direction, the court ought to keep in mind that it is of high public importance that doubtful wills should not pass easily into proof by reason of the costs of opposing them.  It is of equal importance that parties not be tempted into fruitless litigation by the knowledge that their costs will be defrayed by others.
    6. (f)
       The general rule remains that costs should follow the event.  However, the exercise of discretion in relation to costs should recognise the importance of scrutinising doubtful wills before they are admitted to probate, and not condemning, by way or an order for costs, an unsuccessful party who has acted reasonably in opposing the admission of a will to probate. 
17. [17]
    His Honour also referred to the following statements of Powell J in Re Hodges; Shorter v Hodges (1988) 14 NSWLR 698 at 709 (my emphasis) –

The general principle to be applied in adversary litigation is that costs follow the event, those costs being taxed on a party and party basis.  However, over the years, a number of exceptions to this general rule have come to be recognised.  In the field of probate litigation, two such exceptions have come to be recognised, they being:

1. where the testator has, or those interested in residue have, been the cause of the litigation, the costs of unsuccessfully opposing probate may be ordered to be paid out of the estate;

2. if the circumstances led reasonably to an investigation in regard to the document propounded, the costs may be left to be borne by those who respectively incurred them.

18. [18]
    His Honour resolved the costs issue in Frizzo v Frizzo by the application of the settled principles referred to above. 
19. [19]
    Nothing in the authorities to which I was referred, or in the authorities to which they referred, encouraged an extension of the exceptions discussed therein to cases other than probate cases.  Indeed, Frizzo v Frizzo made it plain that the exception does not apply where the litigation has taken on the character of inter partes litigation between beneficiaries. 
20. [20]
    In my view, it is only in the context of probate litigation that a court should consider whether a testator might be said to be the “cause” of the litigation for the purposes of deciding whether costs ought to be borne by the estate.
21. [21]
    In this non-probate case, there was no other reason suggested as to why the usual rule ought not to apply to the litigation.  I therefore order that Ms Walker pay Ms Collins’ costs. 
22. [22]
    Ms Collins said very little about the reasons why costs ought to be ordered against Ms Walker on the indemnity basis beyond her statement that it was “fairly arguable” that they should be and an assertion that the litigation was more costly than it needed to be.  I was unpersuaded by the submissions of Ms Collins that an indemnity costs order was warranted.  Accordingly, Ms Walker is to pay Ms Collins’ costs on the standard basis.
23. [23]
    The position of the first defendant is a little more complicated.
24. [24]
    The executors did not wish to be a party to these proceedings but were unsuccessful in an application to be removed from them (Angelique Anne Collins v Josip Marinovich, Theresa Brook, Christine Walker (as executors and trustees of the will of Phyllis Power-Nemeth, deceased) & Anor [2020] QSC 250, Brown J).  Although the executors originally aligned themselves with Ms Walker, they ultimately took a neutral position on the question whether the debt was extinguished upon the death of the testator.
25. [25]
    Rather than taking a passive role in the proceedings, the first defendant took on the role of “contradictor” when it came to the declaration sought against it and made forceful arguments as to why it ought not to be bound by it.  However, I agree with Brown J that whether the debt was ever part of the estate of the testator was a matter affecting the rights and obligations of the executors and for that reason I consider it appropriate to make the declaration as against the first respondent. 
26. [26]
    The applicant’s focus at the hearing was on the second respondent. She was not taxed at all by the position taken by the first respondent.  She did not cross-examine the first respondent’s witness.  Nor did she address the declaration, insofar as it concerned the first respondent, in her closing submissions.  It was only at my prompting that she said anything about it.  Nor did she ask to reply to the recent, lengthy submissions of the first respondent about the declaration.
27. [27]
    Having regard to the executors’ position, as spelt out in their amended defence, and their written submissions, in the exercise of my discretion, and to ensure a just result, I will order that the executors pay the applicant’s costs of paragraph 1 only of the originating application.
28. [28]
    The applicant did not expressly identify any egregious conduct on the part of the first respondent which would warrant an order for indemnity costs.  Even if it is fair to say that the matter was complicated by the conduct of the first respondent (I say that without making such a finding), that does not make the first respondent’s conduct egregious. 
29. [29]
    My formal orders are:

1. It is declared that the debt secured by Mortgage No. 709701630 as amended by Amendment to Mortgage No. 711216936 (“the Mortgage”) was forgiven on 13 October 2016 being the date of death of Phyllis Power-Nemeth (“the Deceased”). 
2. Within 14 days of the date of this Declaration (“the Due Date”) the Second Respondent is to execute and deliver to the Applicant’s Solicitors a discharge of the Mortgage capable of immediate registration in the Land Titles Office of the Department of Natural Resources, Mines and Energy (“the Discharge”).
3. Failing the delivery of the duly executed Discharge by the Due Date, the Registrar of Titles or the Registrar of this Court may execute on behalf of the Second Respondent the Discharge upon request by the Applicant or her Solicitors and deliver the Discharge to the Applicant’s Solicitors.
4. The Discharge is to be prepared by the Applicant forthwith and delivered to the Second Respondent’s Solicitors or the Registrar of Titles or the Registrar of this Court as the case may be. 
5. The Second Respondent is to pay the Applicant’s costs of the proceeding.  The First Respondent is to pay the Applicant’s costs of paragraph 1 of the Applicant’s originating application filed 12 June 2019.