FRY v FRY [2015] NZHC 2716

FRY v FRY [2015] NZHC 2716 [4 November 2015]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2015-404-001072[2015] NZHC 2716IN THE MATTER of the estate of LAWRENCE WILLIAMFRYBETWEEN JASON LAWRENCE FRYAppellantAND CAROL MIZPAH FRYRespondentHearing: 17 September 2015Counsel: N Penman-Chambers for AppellantB Carter for RespondentK Muir for EstateJudgment: 4 November 2015JUDGMENT OF ASHER J(Appeal on costs decision)This judgment was delivered by me on Wednesday, 4 November 2015 at 11 ampursuant to r 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors/Counsel:Hesketh Henry, Auckland.Morgan Coakle Lawyers, Auckland.B Carter, Auckland.[1] This is an appeal against a detailed cost decision made in the Family Court byJudge D A Burns on 23 February 2015.1 It does exactly what the cost provisions ofthe Family Court, District Court and High Court Rules are designed to prevent. Ittraverses a lengthy and expensive argument about costs, which is undoubtedlyuneconomic for all parties. A day was spent on argument.[2] The background to these proceedings is that the deceased in his last will lefthis entire estate to his second wife, the respondent. Mr Fry is one of the threechildren of the deceased. He considered that provision should have been made forhim, and claimed the deceased had promised to bequeath him an interest in thefamily business. On 7 April 2010 Mr Fry issued proceedings in respect of hisfather's estate under the Family Protection Act 1955 (the FPA) and the Law Reform(Testamentary Promises) Act 1949 (the TPA).[3] The value of the estate at the date of the trial was $1.4 million. The trialproceeded on 11–13 February 2014. In a judgment of 15 April 2014 Judge Burnsdismissed both causes of action.2 Costs were not determined on the Family Courtproceedings at that point.[4] Mr Fry appealed the FPA part of the decision. There was no appeal againstthe dismissal of the TPA claim. In a decision delivered on 17 September 2014,Moore J allowed the appellant's appeal and awarded him $175,000 under the FPAtogether with costs and disbursements in the High Court on a 2B basis.3 Moore Jmade no order as to costs for the Family Court proceedings, and when the partiessought directions he determined that the issue should be remitted to the Family Courtto be determined by the trial Judge.[5] Memoranda as to costs were subsequently filed by all parties in the FamilyCourt. Judge Burns delivered the decision that is the subject of this appeal on23 February 2015. In that decision the Judge dismissed Mr Fry's application forcosts and ordered that Mrs Fry in a personal capacity be awarded costs anddisbursements on the TPA claim on a 2B basis. Each party was to bear their own1 Fry v Fry [2015] NZFC 1461.2 Fry v Fry [2014] NZFC 2650.3 Fry v Fry [2014] NZHC 2256.costs and disbursements on the FPA claim. The disbursements incurred were apportioned two-thirds to the TPA claim and one-third to the FPA claim.[6] Costs were also awarded to Mrs Fry in her capacity as executor and trusteeon a 2B basis on the TPA claim, together with disbursements applicable to thatclaim. There were no costs or disbursements awarded in relation to the FPA claim.Again, the disbursements incurred were apportioned two-thirds to the TPA claim andone-third to the FPA claim.[7] Judge Burns made these decisions because Mrs Fry in both capacities wassuccessful in defending the TPA claim, but was unsuccessful on appeal in defendingthe FPA claim. He found that the FPA claim would have taken one day to hear, andthe TPA claim two days, meaning that the two-thirds/one-third ratio fairlyapportioned the "time and energy" expended on each claim. That was because therehad been disputes about the value of the shares and argument about the size of theestate which required expert opinion, and the TPA claim had added costs to thevaluation exercise. He observed:4I do not consider it appropriate to order that the estate bear the costs of theapplicant because this would effectively amount to the respondent asresiduary beneficiary bearing those costs. I do not consider it appropriatethat the applicant be awarded costs in the FPA proceedings. He was notsuccessful in the Family Court. While a successful appeal in my view givesa good argument to prevent costs being made against the applicant, it is ashield not a sword and it would produce an injustice to the respondent if Iwas to award costs in favour of the applicant when in the Family Court theapplicant was not successful.[8] Overall he considered that having costs lie where they fall produced a fairoutcome in the FPA proceedings given that the appeal had been successful. He tookinto account the Calderbank offer and stated:5Whilst the award was greater than the offer, taking costs into account, Iconsider the Calderbank offer defeats any claim for costs by the applicant.[9] He was not prepared to find either party was more significantly at fault thanthe other. He considered that if there had been only FPA proceedings brought it was4 Fry v Fry, above n 1, at [18].5 At [17].possible that the case could have settled, and that the TPA proceedings increased thecosts.6 He noted that the actual costs were significantly in excess of scale and hecould see no reason for going beyond the scale set by in the District Court Rules.Approach[10] The scenario that has unfolded in this case is not uncommon. A deceased leaves his or her estate to the surviving partner. Children or a child of a formermarriage who receive nothing challenge that decision. If the parties do not settle,protracted litigation can result.[11] In such proceedings there is generally a need for the executor to berepresented in the proceedings as the notional defendant, and so that the net assets ofthe estate and any other issues relating to the estate can be properly put before theCourt. It is often the case that in such proceedings there is no actual appearance forthe executor at the trial, the executor having provided the necessary information andabiding the decision of the Court. The general approach in such cases is that theactual costs of the executor come out of the estate.[12] The approach is less settled as to how costs are dealt with in respect of theplaintiff who challenges the will and the beneficiary who seeks to uphold it. In thepast, like the practice for payment of the executor's costs, there may have beensomething of a practice for all costs accrued from a reasonably pursued claim tocome out of the estate. This position is reflected in the Court of Appeal's statementin Keelan v Peach that:7It is indeed the general practice in Family Protection Act proceedings for costs to be carried by an estate, although there are of course exceptions. Usually an unsuccessful claim will have failed on its merits rather than on issues of standing and often there will be reluctance on the part of the Court and, sometimes the parties, to exacerbate family rifts by personal costsorders. 6 At [20].7 Keelan v Peach [2003] NZFLR 727 at [7].This practice was why it was not infrequent, even though a party might have failed, to order that costs lie where they fell.8[13] However, as time has worn on the comparatively increased cost of legalservices has made such an outcome quite unfair for small to middle-sized estatesbecause the legal costs are quite capable of gobbling up the entire value of the estate.There is no longer a general rule that the costs of all parties should be paid out of theestate in a family protection claim.9[14] Thus, over the years an approach that more reflects the philosophy behind thepresent costs rules in the High Court Rules and District Court Rules has developed,whereby the estate does not bear the costs, and scale costs are awarded, payable byparties in accordance with established costs principles. The consequence of this isthat the estate does not bear all the burden of all the actual costs, and limited costs inthe amounts prescribed by the scale are awarded between the contesting parties.However, there is by no means a settled practice.[15] This position is reflected in the commentary in McGechan on Procedurewhere it is stated:10The traditional, but never invariable, practice was to order the costs of all parties to be paid out of the residue of the estate. However, such an ordercan impact unfairly on the residuary beneficiary, particularly if the estate isnot large. Perhaps for that reason, the court, in a defended Family Protectionproceeding, often left costs to lie where they fell, with the result that theparties had to meet their own costs out of their respective shares of theestate.More recent cases suggest costs in Family Protection cases should not beexcluded from r 1.42 costs principles, in particular the principle that costsshould follow the event.An order that costs follow the event was departed from where, for example, a plaintiff with a small share of a substantial estate is unsuccessful, but had aclaim that was arguable and had some merit. Vincent v Lewis HC AucklandCIV-2002-404-2440, 26 April 2006 was such a case.8 Vincent v Lewis HC Auckland CIV-2002-404-2440, 26 April 2006 at [5], and Weir v Hotham HC Auckland CIV-2005-404-5300, 1 August 2006 at [21].9 Re Miller (costs) (2001) 20 FRNZ 459 (HC) at [6]; Critchley v Saunders [2014] NZHC 1113 at [19].10 Andrew Beck and others McGechan on Procedure (online looseleaf ed, Brookers) at [HRPt14.16].Recent cases are helpfully collected by Asher J in Barker v Barker HC Auckland CIV-2006-404-181, 7 December 2006 at [18].[16] The modern approach to the allocation of costs is reflected in the statement ofthe Court of Appeal in Packing In Ltd (in liquidation) v Chilcott where it wasstated:11Success or failure in this context is better assessed by a realistic appraisal of the end result rather than by focusing on who initiated what step, and the extent to which that step succeeded or failed.[17] The following observations can be made about the allocation of costs incircumstances such as these:(a) The executor's full costs are paid by the estate, unless the executorhas acted unreasonably. Often no specific award of costs is requiredin this regard as the executor will be in a position to charge the coststo the estate with or without an order for costs. If, however, theexecutor has acted unreasonably then this approach may not apply.(b) The Family Court Rules apply to TPA and FPA proceedings in theFamily Court. Under r 207(1) costs are at the discretion of the Court,and under r 207(2) most of the cost rules in the District Court Rules2014 apply, so far as applicable and with all necessary modifications.These rules are now largely the same as the High Court Rules, and sofor all intents and purposes the same cost regime applies in the FamilyCourt and High Court.(c) The general principle is that the party who "fails" with respect to aproceeding "should pay costs to the party who succeeds".12 TheCourt may refuse to make an order for costs that would be otherwisepayable for the various reasons that are set out in r 14.7 of the DistrictCourt Rules. These include:11 Packing In Ltd (in liquidation) v Chilcott (2003) 16 PRNZ 869 (CA) at [6].12 District Court Rules 2014, r 14.2(a).(d) although the party claiming costs has succeeded overall, thatparty has failed in relation to a cause of action or issue thatsignificantly increased the costs of the party opposing costs; or(e) the party claiming costs has contributed unnecessarily to the time or expense of the proceeding or step in the proceeding by—(i) failing to comply with these rules or a direction of the court; or(ii) taking or pursuing an unnecessary step or an argument that lacks merit; or(iii) failing, without reasonable justification, to admit facts, evidence, or documents or accept a legal argument; or(iv) failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or any other similar requirement under these rules; or(v) failing, without reasonable justification, to accept an offer of settlement, whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or(f) some other reason exists that justifies the court refusing costs or reducing costs despite the principle that the determination ofcosts should be predictable and expeditious.[18] The system of awarding costs will break down if the examination of the facts and circumstances of the conduct of the case is minute in detail. Judges have to approach the issue of costs in a broad way, looking at the end result and the key developments during the course of the proceeding that have led to that result.Application of principles to this case[19] The overriding principle to be applied in this case is that the party who failswith respect to "a proceeding" should pay costs to the party who succeeds."Proceeding" is not defined by the Family Court Rules, but is defined by the Districtand High Court Rules as meaning any application to the Court for the exercise of thecivil jurisdiction of the Court other than an interlocutory application. Thisproceeding was an application on notice for orders under the TPA and FPA. It was asingle proceeding. Mr Fry succeeded. Whereas he was to get nothing from theestate, he has been awarded $175,000. Mrs Fry opposed him getting any award.[20] Contrary to the view of the learned Judge, the fact that the success wasachieved following an appeal is irrelevant. The consequence of the successfulappeal is that Mr Fry has been successful in his Family Court proceeding, and thestarting position is that he is entitled to costs.[21] These principles that are set out in the Family Court Rules were notconsidered or applied in the Family Court. The judgment allowing the appeal meantthat the appellant should have succeeded in the Family Court. The Judge shouldhave started by taking into account Mr Fry's success in the proceeding. Instead ofdoing this he focused on areas in which Mr Fry failed, and the fact that there hadbeen an appeal. The former were relevant, but only as a basis for reducing costs, andthe latter was irrelevant.[22] The Judge considered that the Calderbank offer defeated any claim for costsby Mr Fry. This also was an error. As the Judge acknowledged, the award of$175,000 was greater than the offer of $100,000. The effect of the making of aCalderbank offer has on the question of costs is at the discretion of the Court.13 Aparty is entitled to costs on steps taken after an offer if the offer exceeds the amountof the judgment, or if the offer was more beneficial than the judgment,14 and maystill be taken into account if it is close to the value or benefit of the judgment.15 Thisoffer fell into neither category. It was very considerably short of the judgment andshould have been disregarded.[23] I reject a submission that in carrying out this assessment of the value of thejudgment in comparison to the Calderbank offer it is necessary to consider anddeduct the costs involved in obtaining the judgment. The assumption implicit in therules is that costs are recovered through the application of the scale. "Judgment" inr 14.11 means "judgment sum", not "judgment sum minus actual litigation costs".[24] Given this errors in approach it is necessary to assess the allocation of costsafresh.13 Rule 14.11(1).14 Rule 14.11(3).15 Rule 14.11(4).Decision as to costs[25] Mr Fry has succeeded in his claim and the starting point is that he is entitled to costs for the Family Court hearing. This was a case of normal complexity andinvolving a normal amount of time, and 2B was the appropriate scale.[26] There has to be a reduction in the costs for the significant amount of time spent on the unsuccessful TPA claim. In terms of r 14.7(d) this claim undoubtedly significantly increased Mrs Fry's costs. There was also time wasted on arguments asto the value of the estate, where Mr Fry raised objections that were ultimately notsuccessful, in particular in unsuccessfully cross-examining Mr Hagen, the accountantcalled by the estate, on certain issues. I accept Judge Burns' assessment of the timespent at the hearing of two-thirds and one-third for the TPA and FPA claimsrespectively. Indeed the parties did not contest it. A straightforward FPA claim,which would not have involved oral evidence, was turned into a significant hearingwith cross-examination on contested factual issues.[27] Despite Mr Fry's success in the proceeding as a whole, I consider two-thirdsto be a reasonable reduction, taking into account Mr Fry's failure on the TPA causeof action. It did take a lot of time, and was a discrete issue where Mr Fry failed.[28] I determine therefore that Mr Fry should have been awarded 2B costs at scalereduced by two-thirds, payable by Mrs Fry in her personal capacity.The executor's costs[29] Executor's costs will come out of the estate. Mr Muir for Mrs Fry supportedthe order that costs for the estate against Mr Fry. He had been obliged to appear forpart of the hearing, because of Mr Fry's refusal to accept the valuation of the estate.Judge Burns accepted that submission and awarded costs in favour of Mrs Fry in hercapacity as executor and trustee on a 2B basis applying a two-thirds, one-thirdapportionment as discussed above.[30] This award again overlooks the fact that Mr Fry was successful in theproceeding. If, as is usual, the estate had provided all the necessary information tothe Court and then been in a position to not participate in the hearing and abide thedecision of the Court, no costs order in favour of Mrs Fry as executor to be paid byMr Fry would have been appropriate. The costs would have had to come from theestate. They should not have been increased by the TPA proceedings.[31] However, I accept Mr Muir's submission that Mr Fry acted unreasonablywhen he required the estate's accountant Mr Hagen to be called to give evidenceabout aspects of the value of the estate. He was cross-examined at some length, butin the end his figures were accepted. For parts of the hearing including the timeMr Hagen gave evidence Mr Muir attended in person.[32] These are unusual features of this case, and the Court's overall discretion canbe invoked to achieve a just result. It seems to me that the part of Mr Hagen's feethat can be attributed to Mr Fry's refusal to accept the estate's accounts should be athis cost. Similarly there should be some allowance for the time Mr Muir spent inCourt when Mr Hagen unnecessarily gave evidence.[33] In my view this is best dealt with by ordering Mr Fry to pay two-thirds ofMr Hagen's fee, and a one-off sum of $3,000 to Mrs Fry as executor of the estate, onaccount of the wasted costs of calling Mr Hagen.Result[34] The appeal is allowed and the orders made by Judge Burns on 23 February 2015 in relation to costs are set aside.[35] In substitution:(a) Mr Fry is entitled to one-third of the costs and disbursements on a 2B basis for the proceeding. Those costs are payable by Mrs Fry in hercapacity as a beneficiary.(b) Mrs Fry in her capacity as an executor is entitled to costs anddisbursements from the estate (I appreciate that these effectively willcome out of the money available to her as beneficiary). NeverthelessMr Fry is to pay two-thirds of Mr Hagen's fee and the sum of costs of$3,000 to Mrs Fry in her capacity as an executor to recognise in termsof r 14.7(e)(ii) and (iii) the unnecessary objection to Mr Hagen'sevidence...Asher J