Part IV Case update and Appeal

I gave a paper for the Leo Cussen Wills and Estates annual Conference on 27 July 2023. The below case was discussed in detail. I have summarised the case at its various stages.

The case went on appeal on the question of the provision made for the daughter. The decision on appeal is also summarised. The appeal was allowed and the daughter granted 15 additional parts (under the Will she only got 1 and at first instance she was ordered 11 parts including the 1 part under the Will).

Re Janson; Gash v Ruzicka (No 2) [2022] VSC 139

Adult daughter sought further provision from estate. No dispute as to eligibility. Question for the Court’s consideration was what amount should be awarded to the plaintiff having regard to her financial circumstances and needs.

Facts

The deceased’s estate was divided into 100 shares and left one share to the plaintiff.?

The plaintiff’s case went to trial in April 2020 but at that time the Court considered that it was unable to make any order for further provision due to a lack of evidence from the plaintiff as to her financial circumstances. A second chance was provided to her to file further evidence of her need and the matter was re listed for trial in May 2021. Three further affidavits were filed by the plaintiff in relation to hers and her husband’s assets and liabilities. The liabilities included a loan owing to the plaintiff’s daughter.

The evidence of no superannuation from each of the plaintiff and her husband was substantiated by the production of documents showing an amount held in a joint self-managed super fund being transferred and the account being closed. The loan owing to the daughter was not substantiated with any documents but the plaintiff relied on a spreadsheet and a series of other documents as evidence that the arrangement existed. The evidence from the plaintiff was that the loan from the daughter was to the plaintiff and her husband after an employee stole money from their business and they were forced to wind it up. The plaintiff said that they were forced into personal bankruptcy which led to an inability to repay the mortgage on their home. The bankruptcy was said to have lapsed in 2018. There were no documents to substantiate the personal bankruptcy of the plaintiff and her husband or the voluntary administration of their business. Of note was the plaintiff’s evidence under cross examination that she was paying her daughter the monthly sum of $200 but she was uncertain as to whether she would pay the balance of any loan owing to her from any provision made in these proceedings. The Court held that much of the evidence by the plaintiff to substantiate the loan was insufficient, illegible, inconsistent, not able to be proven with any certainty and at various times was confusing to follow.

The plaintiff deposed to the existence of a trust which became the beneficiary and owner of the husband’s life insurance policy and exhibited documents showing the transfer of this to the corporate trustee of the trust. There was no evidence provided of the assets of the trust or the historical distributions of income or capital from it. The plaintiff gave evidence that she had not made contributions to the trust and referred to it as ‘Naomi’s Family Trust.’ Naomi is the daughter of the plaintiff and her husband.

The plaintiff’s income and that of her husband’s was disclosed. This primarily comprised of Centrelink benefits including carer’s allowance, carer’s pension, rent assistance and pension and energy supplements. All of this was proven with the relevant computer-generated statements. The plaintiff further deposed to receiving an annual carer’s allowance of $1,200 but this was not substantiated with documentary evidence.

The plaintiff deposed to receiving an income of $32,483.46 from boarders and lodgers being overseas students that she accommodated through a home stay program. She provided this service for approximately 4 years. Her evidence was that this income was not taxable and did not affect hers and her husband’s Centrelink entitlements. All this income was received in cash. At the initial trial of the matter, the defendant objected to this evidence being relied on because of a lack of documentary evidence to substantiate it. At the resumption of the hearing, the plaintiff exhibited several executed homestay provider agreements from various educational institutions and homestay guidelines booklet that set out the rental arrangements. Her evidence was that she intended to continue to provide this service if she was able to, given her husband’s medical condition.

The plaintiff’s expenses were deposed comprising rent, utilities, and other living expenses. This totalled $34,598 pa. Most of these expenses were substantiated with documentary proof. Others were not.

The plaintiff deposed that her husband had been approved for a NDIS package which she conceded she did not disclose at the first hearing despite her husband having been approved prior to that first trial.

?Finally, the plaintiff deposed to her future needs as being:

(a)??????? Car and on road costs:???????????????????????????? $32,000

(b)??????? Furniture and household goods:????????????? $43,500

(c)??????? Contingencies:???????????????????????????? ??????????? $250,000

(d)???? Purchase of home:????????????????????????? $1,200,000 - $1,500,000

(e)??????? Stamp duty:????????????????????????????????????????????? $75,000

(f)???????? Removalist costs:???????????????????????????????????? $10,000

Total:??????????????????? $1,610,500 - $1,910,500

In addition to one part of a total of 100 parts to the plaintiff, two parts were given, one to each of the plaintiff’s daughters. The deceased noted in his will that no further provision was made for the plaintiff because she showed no interest in him, and his wife and she had no contact with her mother for 17 years. He notes that he has not seen the plaintiff for 25 years and further reasons are given to the effect that the plaintiff did not contact her late mother despite knowing that she was suffering with cancer. The plaintiff admitted to a strained relationship with her parents but didn’t understand why they suddenly became uncommunicative. As she had no siblings, she didn’t know that her mother had cancer until either 1990, or 1999. When she did find out she sent a card with her mobile number on it but received no response.

There was evidence from the defendant that the relationship between the plaintiff and her parents was always difficult throughout her teenage years and that after she got married, there was a dispute between them and her husband concerning an unpaid loan. Overall, the Court found that the evidence of the extent of contact and the nature of the relationship between the plaintiff and her parents, varied significantly, however it was apparent from the plaintiff’s own evidence that contact with her parents for most of the deceased’s life was virtually non-existent.

The value of the estate was just over $3 million as at the date of the trial in April and there was a claim for executor’s commission that had been agreed to by the beneficiaries.

All the other factors under the Act were considered including that the plaintiff was the primary carer for her husband who suffered from MS and was receiving NDIS benefits to assist in his care and support.

Quantum ordered.

Of note in this case was the Court’s comments in relation to the way the plaintiff prosecuted her claim for further provision. When her matter was first listed for trial, the Court did not make an order because of the dearth amount of evidence concerning the plaintiff’s financial position and station in life. She was given a further opportunity to support her claim and the Court held that despite her filing multiple affidavits and giving oral evidence at a subsequent trial, the Court concluded that her financial evidence was lacking in contemporaneous documents. Other supporting documents included nothing more than spreadsheets from the plaintiff that were confusing and contained her own estimates with no objective supporting material.

McMillan J held further that estrangement between a child and their parent will weaken or may even destroy their claim. It was not the duty of a parent to provide an unencumbered property or funds to acquire a property in an affluent suburb or its surrounding areas. The plaintiff had sought funds to purchase accommodation in Brighton, Hampton, and surrounds because that was where her husband’s medical and other supports were and due to difficulties in his travel abilities owing to his MS, these areas were singled out. There was no evidence (despite the plaintiff alleging so) that her rent may be increased making it difficult for her to continue living where she was. In fact, the evidence showed that her rent had remained consistent without any increase for a lengthy period (surprisingly so) and even if her rental increased, her current income would allow her to rent elsewhere at a lower rate. Her current rental was a three-bedroom home in Brighton. The Court considered that a one-bedroom rental close to the Alfred Hospital in Caulfield would be adequate and achievable.

Of particular significance was the fact that the defendant had made an open offer to the plaintiff that continued to be repeated throughout the hearing. That offer was a further 10 shares in addition to her 1 share, from the estate. This would have provided the plaintiff with adequate and proper provision. Based on the value of the estate at the time of trial - $3,179,462 – ten shares would have amounted to approximately $317,964 and with the addition of the 1 share she already received, this would have increased her provision to $349,741. There is no residuary estate, so the further 10 shares were offered from the shares of the 3 remainder beneficiaries.

The value of the estate would now have to be further decreased by the costs of the litigation and the claim for executor’s commission agreed to by the beneficiaries. The Court ordered that further provision be made to the plaintiff of 10 shares from the estate in addition to her 1 share already bequeathed.

Re Janson; Gash v Ruzicka (No 3) [2022] VSC 557

This decision concerned the cost order to be made in the prosecution and defence of the plaintiff’s family provision claim. The plaintiff sought all her costs in litigating her family provision claim be paid from the estate.

The provision ordered by the Court in favour of the plaintiff was substantially less than the open offer made by the defendant at the commencement of the trial, and which remained open right through to the conclusion of the trial.

This decision is a good example of how the Court proactively sought to case manage this litigation. Serious questions and concerns were raised in connection with the joint trial document filed and prepared by the parties; see paragraph 6 of the decision.

The defendant made a Calderbank offer which would have resulted in the plaintiff receiving an additional $750,000 further provision out of the estate of the deceased plus her legal costs taxed on the ordinary basis. This Calderbank offer expired without acceptance by the plaintiff. The proceeding was listed for trial with a warning by the Court that the estimate of costs by the parties as stated in the joint trial document was of particular concern to the Court and this question would be considered further in relation to the consideration of whether the parties’ costs were proportionate and reasonable to the issues in dispute.

The defendant then served an Offer of Compromise pursuant to O.26 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (the Rules). In this offer, the Calderbank offer was increased to $875,000 plus her legal costs in the sum of $65,000 – a total offer of $940,000. This offer was expressed to remain open for a period of 14 days. ?

23.?? At the commencement of the trial of the matter, the defendant made an open oral offer of a further 10 shares in the estate in addition to the 1 share received by her under the Will. The plaintiff had also revised the quantum of her claim from 80% to 51% of the entire net estate. This open offer was again rejected and the plaintiff for a third time revised the quantum of her claim down from 51% to a 1/3rdclaim to the net estate. At trial, the value of the estate was said to be $3,179,462 so the plaintiff’s claim was now worth $1,059,820.

In the end, the total amount of provision ordered for the plaintiff equated to $349,741 (which included her one share out of 100 shares from the estate, plus a further 10 shares as ordered by the Court). The amount finally ordered was well under the amount of the open offer to the plaintiff made at the commencement of the trial and which remained open to the end – being $940,000 including the plaintiff’s costs of $65,000. The plaintiff was warned in letters from the defendants’ solicitors that she would seek costs against the plaintiff if the offers were rejected and the order to the plaintiff was less than what had been offered. This warning was consistent with the legal principles of Calderbank letters of offers and Offers of Compromise pursuant to the Rules.

The total costs claimed by the plaintiff for all three stages of the litigation; the first trial, the second trial and the costs hearing, amounted to just under $160,000. The defendant’s costs amounted to just over $134,000. The combined legal costs were just under $300,000. The plaintiff sought orders for her own costs to be paid by the defendant on a standard basis and for the defendant’s costs to be paid out of the estate. In the alternative, the plaintiff submitted that her costs should be paid by the defendant on the standard basis up to the offer of compromise and thereafter the plaintiff would bear her own costs with the defendant’s costs to come out of the estate.

The plaintiff conceded that it was within the Court’s discretion to disallow the plaintiff’s costs in light of the offer of compromise under the Rules, however that discretion ought not be exercised because:

(a)??????? The plaintiff had been ultimately successful in securing further provision from the estate of the deceased.

(b)??????? It was not unreasonable for the plaintiff to reject the Calderbank offer and the offer of compromise because this case was one “where reasonable minds may differ.”

(c)??????? Given the plaintiff’s evidence of her needs and financial station in life, it was not unreasonable for her to argue that her needs were significant warranting a 1/3rd claim to the estate.

(d)??????? There was no material of competing need from the defendant or the beneficiaries.

(e)??????? After the first trial was aborted because of a lack of financial evidence from the plaintiff, it was not unreasonable for the plaintiff to argue her needs were still high in light of the detailed financial information provided to the Court at the second hearing of the trial.

(f)???????? An order that the plaintiff bear her own costs would impact significantly on the award of provision made to her.

Not surprisingly, the defendant sought indemnity costs against the plaintiff relying on the Calderbank offer and the offer of compromise together with the well-known stated reasons for claiming such costs against her. The defendant submitted that the Calderbank offer represented approximately 20% of the estate of the deceased whereas the plaintiff’s claim to 80% of the estate as at the date of the Calderbank offer was an unrealistic assessment by her of the reasonable prospects of such a claim succeeding.

Moreover, the Calderbank letter set out in precise detail the evidentiary shortcomings and lack of information to support the plaintiff’s claims hence she was on notice of the matters that she bore the burden of proving to the Court. Notwithstanding these evidentiary shortcomings, the defendant’s Calderbank was more than adequate in putting the plaintiff at the strategic risk that such an offer was designed to have.

Applicable costs principles in Part IV claims

These may be summarised as follows:[1]

(a)??????? Costs are a matter in the discretion of the Court.

(b)??????? In relation to family provision claims, costs are to be determined in the exercise of the Court’s general costs discretion.

(c)??????? Usual order for costs is successful party entitled to an award of costs in their favour and, loser pays.

(d)??????? The Court retains discretion to award costs other than on the standard basis depending on the facts and circumstances of each case.

(e)??????? Costs in favour of a trustee/executor are quantified on an indemnity basis, also termed on “the trustee basis.”[2]

(f)???????? Persons engaged in litigation in a representative capacity should not, if a costs order is made in their favour be out of pocket because of the litigation.

Consideration of above principles in this case

McMillan J concluded:

That acceptance of any of the defendant’s offers would have put the plaintiff in a better position than the Court’s order for provision.

The plaintiff had been warned in an email from the Court about the significant issues the Court considered were problematic for the parties and warned the practitioners that the joint trial document evidenced potential failures by them to observe their overarching obligations pursuant to the Civil Procedure Act 2010 (Vic).

By the time of the Calderbank offer, the defendant had filed 5 further affidavits. This should have alerted the plaintiff to the issues in dispute concerning the quantum of her claim at that time – being 80% of the estate.

The Calderbank foreshadowed an indemnity costs order against the plaintiff.

The Calderbank offer and the offer of compromise put the plaintiff squarely on notice that admissible evidence of her financial position would be required in order for her to beat those offers and justify the quantum sought by her. The plaintiff had an accumulated 42 days to carefully consider all of those matters and was on notice of the extent of her burden of proof.

The proceeding should only have taken one day and was the result of two trials because of the lack of evidence from the plaintiff.

Both the Calderbank offer, and the offer of compromise were reasonable offers to make in the circumstances of this case and in the knowledge of the way the plaintiff had prosecuted her claim.

Joinder of plaintiff’s solicitors in respect to a non-party costs order

In an unprecedented move, McMillan J went further to make orders pursuant to s.29 of the Civil Procedure Act 2010 (Vic) (the CPA) joining the solicitors for the plaintiff as a non-party to the proceeding for the purposes of determining whether they had contravened their practitioner obligations pursuant to ss.20, 22, 24 and 25 of the CPA.

Her Honour considered the Court’s jurisdiction in making a ‘wasted costs order’ against solicitors for a party in legal proceedings pursuant to R.63.23 of the Rules. Her Honour held as follows (citations omitted) at paragraphs [56] – [58] of the decision.

“Rule 63.23 of the Rules sets out the circumstances in which a lawyer may be liable to pay the costs of a party to a proceeding, often referred to as a ‘wasted costs’ order. The jurisdiction to make a non-party costs order, especially against solicitors for a party to a legal proceeding, is exceptional and should be exercised with caution. Although its object is compensatory, a non-party costs order falls within the inherent jurisdiction of the Court to discipline those who come before it. However, r 63.23 does not require a party seeking costs from a solicitor to establish dishonesty, criminal conduct or personal obliquity; misconduct, default or negligence will suffice”.

Gash v Ruzicka [2023] VSCA 189 KENNEDY, WALKER JJA and J FORREST AJA

On appeal, the applicant further revised her claim. She no longer sought a fund sufficient to purchase a new home, and instead sought an amount of $1.4 million.

There was no dispute on appeal that the trial judge applied the correct legal principles in Part IV claims under the Act.

The grounds of appeal focused on alleged errors of law by the trial judge concerning the daughter's current rental arrangements and her claim to be able to afford accommodation in affluent suburbs in Melbourne's bayside and surrounding areas that were close to the hospital where her husband was receiving treatment for a serious illness. The trial judge held that even if the daughter's current rental arrangements ceased, she could still find alternative rentals in less affluent areas close to other hospitals at cheaper rentals. The appellant daughter argued that the trial judge focused on the finding that she and her husband could rent a one or two bedroom house or unit in the vicinity of the Alfred Hospital at lower rental, however, there was no evidence before the trial judge on this question from which the Court could draw that conclusion and make that finding. This question was relevant to the issue of need and future maintenance as well as the ongoing costs of the appellant looking after her seriously ill husband.

As there was no evidence of the costs of alternative rental accommodation, the Court of Appeal held that the trial judge was not entitled to assume that such a home would be cheaper. The only evidence before the trial judge was the appellant's evidence of the amount of rent she was presently paying. Given that this amount had not increased since 2007, it could provide no foundation for the trial judge finding that cheaper rentals could be achieved elsewhere.

The Court of appeal held further that it was not open to the trial judge to assume that a two bedroom home was appropriate for the appellant and her husband's needs when the evidence before the Court was that a three bedroom home was necessary. This was because the appellant relied on income from her homestay business and a three bedroom home could accommodate that and allow her to continue to earn that income.

The trial judge therefore made a finding without evidence and took an irrelevant consideration into account (that the appellant could rent elsewhere cheaper). It followed from this error that the trial judge failed to properly assess the contingencies (such as reduced or no income from homestay students) that might realistically affect the appellant's financial needs in the foreseeable future if the rent of her premises increased.

The Court of Appeal did add that the daughter applicant had failed to properly assist the trial judge to make an appropriate assessment of the quantum of her claim and this was notwithstanding the trial judge giving the daughter applicant many chances to properly and fully prosecute her claim. The Court of Appeal having considered that the trial judge had fallen into error on this point, the other grounds of appeal (that were found to have overlapping questions) were not necessary to consider in any detail. This error alone justified the Court of Appeal in re exercising its discretion to award the daughter increased provision.

The applicant's claim to $1.4 million included:

(a) a contribution towards purchasing a property of an unspecified amount.

(b) ‘support’ with expenses and, as an alternative to purchasing property, her rental needs, based on the applicant’s alleged life expectancy of some 20 years. She provided non?capitalised estimates of rent, homestay income and living expenses based on this life expectancy. These amounts were said to be provided ‘to indicate the sort of amounts required to meet the necessities of her life’;

(c) an amount of $75,500 for a new car and furniture (as accepted by the judge); and

(d) an unspecified amount for other health or care needs for the applicant and her husband, including in relation to possible aged care costs.

Disposition of Appeal

As the appellant had abandoned her claim for provision to be made for her so she could purchase a property it was not appropriate to make this allowance. The Court of Appeal concluded that in any event, the appellant would not be able to financially maintain and upkeep a property given that she was the primary carer for her husband and her financial resources were minimal.

The Court of Appeal accepted, as did the trial judge, that the appellant currently needs a new car and furniture in the amount of $75,500.

The Court of Appeal accepted that some amount ought be provided for contingencies which would address the foreseeable risks of the homestay income being reduced, rent increasing, and further care needs arising, all of which needed to balanced against the principles of testatmentary freedom, the testator's wishes and intentions in his Will and his reasons for not making more provision for this appellant from whom he said he had been estranged. The interests of the other beneficiaries and their competing needs also needed to be considered.

Taking all the matters above, into consideration, the Court of Appeal concluded that 15?parts should be provided for the appellant. The remaining 85 parts should be then distributed to the beneficiaries pro rata in accordance with the terms of the will (including the 1?part already left to the applicant in the deceased’s will). On the current estimates of the value of the estate on appeal, the value of the appellant's interest would be approximately $508,000 which would include $75,500 for a new car/furniture as well as some $432,500 as sufficient further provision for her maintenance and support.

Other matters/ Costs

The Court of Appeal having re exercised its discretion the issue of the costs of the trial and the joinder by the trial judge of the solicitors as a party for the purposes of considering costs against them in the way the trials were run, must also fall away.

The decision of the trial judge to take the stance that she did against the solicitors for the daughter applicant, was premised on the Calderbank offers made by the estate; the offer of compromise and the open offer made in Court at the commencement of the trial. By reason of the trial judge concluding that the provision to be made for the daughter was less than the offers made by the estate, the trial judge exercised her discretion to hold the practitioners accountable. With the Court of Appeal re exercising discretion and awarding an amount to the applicant daughter that was better than the offer made to her at trial, the question of the appropriateness of the daughter rejecting those offers is now a question that is no longer relevant in the face of the appeal findings.

However, practitioners should always be mindful that the Court has discretion to enquire into the way the litigation was run to determine whether there were wasteful costs in the management of the case. Justice McMillan's decision to refer the practitioners pursuant to s.29 of the Civil Procedure Act 2010 (Vic) and R.63.23 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) is open to the Court. Practitioners must always be on guard about such questions. As the Court of Appeal noted, the daughter really didn't do enough to ASSIST the Court and to provide it with all the information it needed to make a proper assessment of her claim. She was given many chances to provide the material necessary to support her quantum claim and she constantly revised her claim on many occasions to further confuse matters.

It must also not be forgotten that there was a second trial of this claim because there was a dearth of evidence from the plaintiff at the hearing of the first trial. It was open to the trial judge to dismiss the plaintiff's claim at the first trial on the grounds that she had not provided sufficient evidence and material to support her claim. This was not done. Instead, the Court re listed the matter for a second trial and gave the plaintiff leave to file further material. This was a fortunate outcome for the plaintiff in many ways. The appeal decision does not detract from the obligation on plaintiffs to fully consider their claim and ensure that their lawyers are properly instructed with the relevant material and evidence to support their family provision applications.

[1] See also [36] – [45] of the decision.

[2] See also s.36(2) of the Trustee Act 1958 (Vic)