The Cost of Estate Litigation

We have previously written about:

1. The importance of having a properly-drafted Will;
2. The role and responsibilities of Executors of a deceased Estate; and
3. How to make a claim against an Estate for Family Provision.

We now look at the cost of Estate litigation under the Succession Act 2006 (NSW).

A person may seek to challenge or overturn a testator’s Will on the basis that it is unfair, or was not validly made.

Litigation costs money. So who pays?

A common misconception is that the Estate will always pay the costs of the parties, whether they are successful or unsuccessful. This is not correct, although a common result in Family Provisions claims.

Rather, we must remember that the court has discretion when ordering costs. The court may order:

• the parties to pay their own costs;
• the unsuccessful party to pay everyone’s costs;
• the Estate to pay everyone’s costs; or
• make another order it thinks appropriate     (Civil Procedure Act 2005 (NSW) s 98.)

In litigation, “costs follow the event” is the general rule– in other words, the unsuccessful party must pay the successful party’s legal expenses.

However, there are several exceptions to the costs rule in Estate litigation:

1. The conduct of the deceased (or the beneficiaries) caused the litigation;
2. Circumstances reasonably justified an investigation of the Will;
3. Family Provisions claims; and
4. Costs of the Executor.

1. The Will-Maker Caused The Litigation

Where the conduct of the testator (Will-maker) has caused a party to oppose Probate, the opposing party’s costs may be paid from the Estate, even if they are unsuccessful (Lippe v Hedderwick [1922] HCA 44).

How can the deceased Estate be responsible for the litigation and costs? Some common situations include:

• Legitimate questions about the testator’s “testamentary capacity”. The testator needs to understand they are creating a Will, understand the contents of their Will, and have sufficient mental capacity (not affected by a “disorder of the mind” or “insane delusion”).
• The Will (or parts of it) is ambiguous or contradictory or impossible to achieve.
• It is unclear whether the Will is still valid (e.g. it has been damaged).

(Perpetual Trustee Co Ltd v Baker [1999] NSWCA 244 at [14]; Shorten v Shorten (No 2) [2003] NSWCA 60 at [19]-[20]; Banks v Goodfellow (1870) LR 5 QB 549 at 565).

These situations emphasise the importance of having a Will that has been professionally-drafted and properly-witnessed. A proper Will should eliminate these validity questions and prevent litigation that unnecessarily reduces the size of the Estate.

2. Investigation of the Will

Alternatively, the Estate may be liable for costs incurred where a party reasonably investigates a document claimed to be the testator’s Will:

• In Middlebrook v Middlebrook (1962) 36 ALJR 216, the testator made his final Will whilst he was allegedly semi-comatose. The testator had made a Will three months earlier, and his final Will excluded one of his sons. The excluded son was reasonably entitled, based on the medical evidence (semi-comatose), to make investigations about the validity of the final Will. The Estate covered the son’s costs.
• Similarly, reasonable investigations were warranted in Shorten v Shorten [2001] NSWSC 100 where there was evidence the testator had suffered brain damage as a result of a stroke.

Investigations must be reasonably justified. In The Estate of Milan Zlatevski; Geroska v Zlatevski (No 2) [2020] NSWSC 388, an investigation was not justified simply because the solicitor could not recall the deceased’s instructions without referring to a file note. There was no medical or other evidence suggesting the deceased lacked testamentary capacity when his Will was made. The Estate did not pay the costs.

3. Family Provisions Claims

In Family Provisions claims, the order of costs will “depend on the overall justice of the case” (Singer v Berghouse (1993)). In many cases, even if a party’s application for Family Provision is unsuccessful, the Estate will cover their costs. Succession Act 2006 (NSW) section 99(1) states:

“The Court may order that the costs of proceedings … in relation to the estate … of a deceased person … be paid out of the estate … in such manner as the Court thinks fit.”

Why does the Estate generally pay? There are two reasons for this approach:

1. Family Provision claims address the competing claims of beneficiaries. “Winning” and “losing” these claims is not simply about what someone deserves. Other beneficiaries may have very great needs. Alternatively, the Estate may have modest assets. As a result, the party may not get the share the court would have otherwise ordered they receive.
2. Family Provision claims can be quite expensive and complicated, and a costs order could do serious damage to the unsuccessful applicant’s financial position.

Given the court’s approach to Family Provisions claims, you need expert legal advice. A solicitor can give you important advice if you want to make a claim, or if you acting as the Executor of an Estate with a potential claim.

4. The Executor’s Costs

Executors are usually given an indemnity for costs incurred in relation to the Estate.

In Nobarani v Mariconte [No 2] (2018) HCA 49 [para 2], the High Court noted that “costs properly and reasonably incurred by the executor … are payable from the estate [and t]hese costs can include litigation expenses”. Possible situations where the Executor will be reimbursed include:

• Where the Executor is successful. The court may order the Estate to pay everyone’s costs, or order the unsuccessful claimant to reimburse the Executor for their expenses on behalf of the Estate.
• Where the Executor is unsuccessful. For example:
  • (1) the Executor incorrectly, but honestly and reasonably believes a Will is valid.
  • (2) the Executor reasonably defends a claim against the Estate but is unsuccessful.

However, the Executor will not be indemnified and reimbursed where they have not acted in the interests of the Estate. Executors have been ordered to pay their own costs where they:

• Act unreasonably, including being extremely adversarial/hostile to other parties;
• Act improperly, including acting in bad faith (dishonestly, etc.), or beyond their powers as the Executor; or
• Act without ordinary care or diligence

(National Trustees Executors and Agency Co of Australasia Ltd v Barnes [1941] HCA 3; In re Keane [1909] VLR 231 at 232; Miller v Cameron [1936] HCA 13)

GET EXPERT LEGAL ADVICE

Litigation costs money. Courts have discretion, and costs do not always “follow the event”.

You need legal advice – whether you are creating or challenging a Will, making a claim or acting as an Executor.

Call Martin Bullock Lawyers on (02) 9687 9322. For all your legal solutions.