A recent Victorian case[i] discusses the issue of who pays costs and why in matters of contesting a Will.
A lady (the ‘plaintiff’) made a claim for provision out of her former partner’s estate and was unsuccessful The Judge said that even though she was unsuccessful, her application was not without merit.
The question then was who was to pay the legal costs – should she pay or should the estate pay? It is often thought that costs to contest a Will are paid from the estate, but this is not always the case.
The lawyers on the other side (for the defendant) said that even though there was some merit to the plaintiff’s claim, she should still have to pay half of the costs because of having rejected two offers made by the defendant.
These offers were in the form of a Calderbank letter. A Calderbank letter is an offer to settle a matter that is made without prejudice save as to costs. This means that the information in the letter is generally not to be taken into account in the Court’s decisions except in relation to costs.
The lawyers for the plaintiff’ said her costs should be paid from the estate and not by her personally.
The plaintiff’s first offer: Initially the plaintiff had asked to receive half of the net estate at the time plus her legal costs to settle the matter. This was $175,000 + $25,000.
The defendant’s counteroffer (1st Calderbank letter): The defendant offered the plaintiff one-fifth of the net estate plus her legal costs. This was $70,301.40 + $25,000.
The plaintiff’s counter offer: The plaintiff rejected the defendant’s offer and asked for a total of $175,000 inclusive of her legal costs.
The defendant’s second counter offer (2nd Calderbank letter): The defendant then offered the plaintiff $125,000 inclusive of her legal costs. This offer remained open until the end of the trial, and amounted to approximately 25% of the capital of the estate
Again the plaintiff responded rejecting the offer and again seeking $175,000 inclusive of her costs.
So what happened?
The Court thought it was reasonable for the plaintiff to have rejected the defendant’s 1st Calderbank letter, and also to reject the 2nd Calderbank letter at the time of the offer because of the information known to her about the strength of competing claims at that time.
However, there were at least seven weeks after the 2nd Calderbank letter where the plaintiff became aware of the strength of competing claims, including other beneficiaries’ needs and financial position, as well as the impact of litigation on the already small-sized estate. The plaintiff could have accepted this offer during this time, but did not.
The Court said:
In such circumstances, it would be unjust for the estate to be deprived of any further costs to pay the plaintiff’s costs of the proceeding. To order otherwise would cause substantial injustice to the four beneficiaries. They would be penalised and the plaintiff would be benefitting notwithstanding the dismissal of her application. In my view, such a result cannot be said to be a just outcome in the circumstances.
These factors often give the Court reason to order that the plaintiff pay some of the estate’s costs, however, some of the defendant’s evidence significantly downplayed the relationship between the plaintiff and the deceased.
The Court therefore ordered that each party pay their own costs of the litigation.
When someone rejects a Calderbank letter the Court is required to consider it when determining whether to order indemnity costs. The question the Court must ask is, whether the rejected Calderbank letter, if it contained an offer better than what was achieved, is sufficient to establish indemnity costs.
But just because someone may receive less than the amount offered to them does not mean the Court will automatically make them pay the other side’s legal costs on an indemnity basis. It is just one of the factors the Court will consider.
Indemnity costs are all costs reasonably incurred by a party in litigation, and include fees and disbursements. These are above the amount of standard costs.
The moral of the story
The moral of the story can be summed up very well by the Court from a 2010 Victorian case:
Parties should not assume that litigation can be pursued safe in the belief that costs will always be paid out of the estate. Every effort should be made to resolve the dispute before costs get out of proportion.[ii]
Offers to settle a matter should always be carefully considered, taking into account the strength of an individual’s claim as well as the strength of competing parties’ claims, and the likelihood of achieving a better result if the matter is pursued in Court.
[i] Semmler v Todd (No 2)  VSC 609[ii] Forsyth v Sinclair (No 2)  VSCA 195  (Neave and Redlich JJA, Habersberger AJA)