Pozniak Estate: Morgan v Reuben [No 2] [2005] NSWSC 813

New South Wales Supreme Court

CITATION : Pozniak Estate: Morgan v Reuben [No 2] [2005] NSWSC 813

HEARING DATE(S) : 10 August, 2005

JUDGMENT DATE : 10 August 2005

Equity Division JURISDICTION : Probate List

JUDGMENT OF : Palmer J

DECISION : Defendant to pay Plaintiff's costs on indemnity basis.

CATCHWORDS : COSTS - FRAUD - INDEMNITY COSTS - Testamentary dispositions propounded by defendant were found to be forgeries - not an issue at trial whether the defendant was party to the fraud - defendant on notice prior to commencement of proceedings that the plaintiff had expert evidence that the deceased's signatures were forgeries - whether defendant acted reasonably in necessitating the plaintiff's proceedings.

LEGISLATION CITED : Evidence Act 1995 (NSW) - s.135

- Brown v M'Encroe (1890) 11 LR(NSW) Eq 134 - Colgate-Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248 CASES CITED : - Hodges, Re Estate of (1988) 14 NSWLR 698 - Oshlack v Richmond River Council (1998) 193 CLR 72 - Spiers v English [1907] P 122

Kurt Morgan - Plaintiff PARTIES : Elias Reuben - Defendant

FILE NUMBER(S) : SC 115853/03

M.S. Wilmott SC, M.W. Sneddon - Plaintiff COUNSEL : L.J. Ellison - Defendant

Robert King & Associates - Plaintiff SOLICITORS : Phillips Fox - Defendant

LOWER COURT JURISDICTION :

Ex tempore

As to admissibility of evidence 1 Mr Ellison seeks to read an affidavit of Elias Reuben filed in Court by leave this morning. The affidavit is directed solely to the question of the costs of the proceedings. 2 Mr Willmott SC, who appears with Mr Sneddon for the Plaintiff, objects to the whole of the affidavit being read. He says that in substance it seeks to go behind the findings which I have made in the judgment. He says further that this evidence could have been led from Mr Reuben in the course of the trial. Basically for those reasons he says that the Court should in the exercise of discretion under s.135 of the Evidence Act 1995 (NSW) reject the evidence because its probative value is substantially outweighed by the danger that the evidence might be unfairly prejudicial to the plaintiff or misleading or confusing. 3 The question of costs in these proceedings is a difficult one. The difficulty arises because I have found that the signature of Mrs Pozniak on the testamentary dispositions propounded by the Defendant, that is, the 1995 Will and the 1997 Codicil, were forgeries and that the attestation of those signatures by Mr and Mrs Ryner were fraudulent. 4 The parties accepted in the course of trial that it was not necessary to show who had been behind the fraud perpetrated or for what reasons the fraud had been perpetrated. All that was necessary to resolve was the question of whether the signatures of Mrs Pozniak on the disputed documents were hers or were forgeries. For that reason, although I found that Mr and Mrs Ryner had not told the truth when they said they had attested Mrs Pozniak's signatures, I did not go further, nor was I invited to go further, to find whether or not the Defendant, Mr Reuben, or anybody else had procured Mr and Mrs Ryner to take part in this fraudulent design. 5 The evidence now sought to be adduced on behalf of Mr Reuben in his affidavit is by way of answer to an application by Mr Willmott for indemnity costs against Mr Reuben. In this affidavit Mr Reuben seeks to say that he acted in good faith in propounding the 1995 and 1997 documents because he relied upon Mr Ryner's assurance that the signatures on those documents were genuine. He says that he did not see the originals of the documents before Mrs Pozniak's death and that when Mr Ryner showed the documents to him, he had no reason to doubt that the documents were genuine. 6 It seems to me that this evidence does properly go to the question of costs. It raises an issue of good faith and reliance on Mr Reuben's part when good faith or lack thereof is the essence of Mr Willmott's application for costs on an indemnity basis. 7 Mr Willmott, by his submissions, seeks to show that Mr Reuben could not have been acting in good faith in propounding the 1995 and 1997 documents. In order to do that, he relies upon certain passages in the judgment from which he seeks to draw inferences, although, as he concedes, there has been no finding in my judgment as to Mr Reuben's complicity or otherwise in the fraud which has been perpetrated by Mr and Mrs Ryner. 8 It seems to me therefore that I ought in justice and fairness to permit Mr Reuben to give evidence which directly confronts the allegations which the Plaintiff makes against him in reliance upon inferences drawn from the judgment. I therefore admit the whole of the evidence of Mr Reuben contained in the affidavit of 9 August 2005.

As to application by Plaintiff for indemnity costs against the Defendant 9 In this matter, I delivered judgment on 1 August 2005. I found that two purported testamentary dispositions by the deceased, Mrs Pozniak, which were propounded by the Defendant, Mr Reuben, were forgeries in that the signatures on those documents, purportedly of Mrs Pozniak, were not her signatures and the attestations of those two documents by Mr and Mrs Ryner were fraudulent. 10 The Plaintiff commenced proceedings on 29 September 2003 in which he sought Letters of Administration of a will of Mrs Pozniak made in 1996, that will being as to its execution undoubtedly valid. The Defendant resisted the grant of administration on the ground that the 1996 Will had been revoked by a 1997 Codicil which revived the 1995 Will. As I have said, I found that the purported signatures of Mrs Pozniak on the 1997 Codicil and the 1995 Will were forgeries. The Plaintiff now seeks costs against the Defendant on the indemnity basis. 11 The Plaintiff says that the proceedings were occasioned by an insistence of the Defendant on the 1995 Will and the 1997 Will in circumstances which demonstrated that that insistence was in bad faith. On the other hand, the Defendant says that he believed that Mr and Mrs Ryner, the attesting witnesses of the two forged testamentary dispositions, had indeed witnessed Mrs Pozniak's signature on those documents and that the documents were genuine. The Defendant says he ought not to be, in effect, penalised by an indemnity costs order when, in fact, he relied on the assertions of Mr and Mrs Ryner that Mrs Pozniak's disputed signatures were genuine. 12 As Mr Willmott SC submits, the general principle applied in probate suits is that costs follow the event unless there is a reason for an order of a different character, namely, where the difficulty occasioning the litigation has in truth been caused by the testator. In such a circumstance, the usual order is that the costs of the litigation on both sides be paid out of the deceased's estate: see e.g. Spiers v English [1907] P 122 at 123, Brown v M'Encroe (1890) 11 LR(NSW) Eq 134 at 145, and Re Estate of Hodges (1988) 14 NSWLR 698, at 709. This case, as Mr Willmott correctly submits, certainly does not fall within the usual rule. The litigation was not at all due to any fault of the deceased; it was occasioned by the fraud of Mr and Mrs Ryner in that they have fraudulently attested the forged signatures of Mrs Pozniak on the disputed documents. 13 However, Mr Ellison, who appears for the Defendant, rightly points out that there was no finding in my judgment that it was Mr Reuben himself who had procured the forgeries or the fraudulent attestations by Mr and Mrs Ryner. It was not an issue in the trial before me as to who had procured the attempted fraud. The only question was whether or not the signatures of Mrs Pozniak on the disputed documents were indeed her signatures and had indeed been duly witnessed by Mr and Mrs Ryner. Accordingly, it was never put to Mr Reuben in cross examination that he knew that the reported signatures were forgeries or that he had procured Mr and Mrs Ryner to swear falsely that they had witnessed Mrs Pozniak signing the documents. 14 Nevertheless, Mr Willmott seeks an indemnity costs order essentially upon two grounds. The first is that it may be inferred from evidence given by Mr Reuben in the course of the hearing that he was, prior to the commencement of those proceedings, aware that the disputed signatures were indeed forgeries and that he himself was complicit in the fraud because he gave evidence which I should now categorise as false. The second ground is that, regardless of what Mr Reuben's participation in the fraudulent events may have been, he was put upon notice that the disputed signatures were fraudulent before the commencement of these proceedings, and was further put upon notice that expert evidence would be adduced to that effect. 15 That evidence was in the form of a preliminary expert's report which was provided to Mr Reuben's solicitors under cover of a letter from the Plaintiffs' solicitors dated 11 September 2003. Mr Willmott submits that Mr Reuben, having received that letter and having adduced no expert evidence to rebut the evidence of the Plaintiff's expert, in bad faith necessitated the commencement and prosecution of these proceedings by the Plaintiff. Accordingly, Mr Willmott says, Mr Reuben should himself be subjected to an indemnity costs order. 16 I have earlier ruled that an affidavit by Mr Reuben filed in Court today was admissible on the question of costs. In that affidavit Mr Reuben says, in effect, that he believed Mr Ryner's assertions that the signatures of Mrs Pozniak on the disputed documents were genuine. 17 I do not think that in an application for costs it is appropriate to resolve issues which were really questions for the trial but which were not dealt with in the course of the trial. In other words, I do not think it appropriate now to determine whether Mr Reuben was, or was not, in fact a direct participant in the fraud to which Mr and Mrs Ryner were parties. Nor do I think it appropriate in a costs application to make a determination as to Mr Reuben's credit generally which I was not prepared to make in my judgment on the issues at trial because it was not necessary to make such a judgment. It seems to me if I were to make such a determination in the costs application there would be a risk of inconsistency between the costs judgment and the judgment on the issues for trial and it would be contrary to the interests of justice and to the policy of finality of judgments that issues determined at trial should be ventilated again under guise of costs issues. 18 It seems to me, therefore, that I would not be justified in entertaining the submissions made by Mr Willmott that I should make findings as to Mr Reuben's credit in the course of this costs argument which I was not prepared to make for the purposes of the trial. I do not therefore think it appropriate to found a judgment as to costs on the first of Mr Willmott's submissions. 19 However, it seems to me that this is a clear case in which Mr Reuben was notified, prior to the commencement of those proceedings, that there was evidence available to the Plaintiff to demonstrate that the disputed signatures were forgeries. In the face of that evidence he therefore consciously took the risk of proceeding with his assertion that the disputed signatures were genuine. It seems to me that, having been put fairly on notice by the letter of 11 September 2003 that the Plaintiff had procured expert evidence suggesting that the signatures were forgeries, it was incumbent upon Mr Reuben, if he wished to persist in propounding the 1995 Will and 1997 Codicil, himself to obtain some expert evidence supporting his assertions and demonstrating why the opinion expressed by the Plaintiff's expert was misconceived. 20 Mr Ellison strongly urges that Mr Reuben was justified simply in relying upon the assertions of Mr and Mrs Ryner that they had witnessed Mrs Pozniak sign the documents. I do not think that I can accept that submission. As I say, firstly, there is expert evidence to the contrary. Secondly, it seems to me, as I have said in my judgment, that there must have been cause for any reasonable person looking at the disputed signatures in comparison with any genuine signatures of Mrs Pozniak to have severe doubts about the genuineness of the disputed signatures. 21 It seems to me that simply to say that Mr Reuben relied upon the assurances of Mr Ryner and Mrs Ryner is too simplistic a position to adopt when his own eyes would have given him cause to doubt the soundness of that reliance. Obviously, Mr Reuben was financially interested in the propounding of the 1995 Will and the 1997 Codicil. Those documents gave him a considerable benefit in the estate of Mrs Pozniak which he did not obtain under the 1996 Will, if that Will were to be admitted to administration. 22 I think that the evidence which was provided to Mr Reuben on 11 September 2003, preliminary though it was, coupled with his failure to obtain any expert evidence in response, and added to the observations which he himself was able to make as to the genuineness of the disputed signatures, combine to make it entirely unreasonable, in my view, for Mr Reuben to have continued to insist upon the genuineness of the 1995 Will and the 1997 Codicil thereby necessitating commencement of these proceedings. 23 It seems to me that this case is one in which an indemnity costs order should be made. Mr Reuben was, in effect, taking a conscious risk right from the commencement of these proceedings that he was putting the Plaintiff to the expense of these proceedings in reliance on a defence founded upon forged documents which he himself had a financial interest in supporting. I think that that circumstance brings the case within that category of cases in which the Court may order indemnity costs against a party because of some manifestly unreasonable attitude which that party has taken in relation to the instigation or conduct of the proceedings: see Oshlack v Richmond River Council (1998) 193 CLR 72, at 89; Colgate-Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248. 24 For those reasons, in my view Mr Reuben should be ordered to pay the whole of the costs of the Plaintiff's proceedings from their inception on an indemnity basis. I so order. 25 Mr Ellison has made an application for two further orders. First, that the enforcement of a costs order be stayed for a period of six months. Second, that Mr Reuben have liberty to apply in case he should wish to make an application under Pt 52A r4 that Mr Ryner himself pay the costs of these proceedings ordered to be paid by Mr Reuben on the basis that these proceedings were occasioned by Mr Ryner's improper conduct, even though Mr Ryner himself is not a party to the proceedings. Mr Willmott opposes the first order but there is no opposition to the second order. 26 It seems to me that whether Mr Reuben may recover some or all of the costs which he has been ordered to pay the Plaintiff in these proceedings from Mr Ryner is a matter really between himself and Mr Ryner. It does not concern the Plaintiff. I have concluded that it is appropriate to order indemnity costs against Mr Reuben because ultimately it was his decision to defend these proceedings and take the position which he did, having been given notice that expert evidence as to forgery was available. 27 For that reason I thought it appropriate to order costs against Mr Reuben rather than against Mr Ryner, which was a secondary application made by the Plaintiff as an alternative to a costs order against Mr Reuben. As I say, I think that whether or not Mr Reuben is entitled, in effect, to indemnify himself in respect of those costs from Mr Ryner is a matter to be pursued between those two parties and that the Plaintiff should not be kept out of his costs order and the fruits thereof while that debate takes place, if it is to take place at all. 28 For those reasons, I would not accede to the first of the applications by Mr Ellison, that is, that there be a stay of the costs order for a period of six months. However, I will accede to the second application which, in any event, does not prejudice the Plaintiff in any material respect. 29 The orders of the Court will therefore be as to costs between the Plaintiff and the Defendant, as I have earlier indicated. I add to that that I grant to any party liberty to apply on seven days' notice in respect of any application against either Mr or Mrs Ryner or both of them under Pt 52A r4 or under any other provision of the Supreme Court Act 1970 (NSW) or Rules. 30 I direct that all exhibits will be retained by the Court until further order, other than the original 1996 Will which can be released to the Probate Office for grant of Letters of Administration. – oOo –

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