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Balancing costs and claims in family provision applications
Costs are an important consideration in all legal proceedings. Deceased estate litigation, however, often involves litigants with modest means, and the associated financial implications can therefore be vastly different to that of commercial disputes. Indeed, where a claim is made upon a small or moderately sized estate, it may become more difficult to justify the cost of litigation.
In the context of family provision applications and by reference to recent cases, this article will explore the important role of the Court in ensuring proportionality between the cost of litigation and achieving justice for the involved parties.
Family provision applications
Family provision applications are often sought when an individual believes they were entitled to a share of, or a greater share in, a deceased person’s estate. These applications are lodged with the Supreme Court of New South Wales and are governed by Part 3.2 of the Succession Act 2006 (NSW). Applicants are required to:
- demonstrate that they are an “eligible person” to apply for such an order; and
- satisfy the Court that “adequate provision for the proper maintenance, education or advancement in life” of the applicant has not been made by the will of the deceased person.
In accessing these elements, section 60 of the Succession Act provides a non-exhaustive list of factors which the Court may take into consideration. These include:
- the nature and duration of the relationship between the applicant and the deceased person;
- the nature and extent of any obligations or responsibilities owed to the applicant by the deceased;
- the nature and extent of the deceased estate (including any property or notional estate);
- the financial resources (including earning capacity) and (present and future) financial needs of the applicant;
- whether the applicant was being maintained, either wholly or partly, by the deceased before their death; and
- evidence of the testamentary intentions of the deceased.
Costs orders in family provision applications often differ to that of other matters. Generally, costs are awarded against the unsuccessful party. However, Gaudron J in Singer v Berghouse (1993) 114 ALR 521 observed that in family provision applications, costs largely depend upon achieving justice in the circumstances of the case. As such, Gaudron J remarked (at 522): “It is not uncommon, in the case of unsuccessful applications, for no order to be made as to costs, particularly if it would have a detrimental effect on the applicant’s financial position. And there may even be circumstances in which it is appropriate for an unsuccessful party to have his or her costs paid out of the estate.”
As it will be demonstrated below, this form of cost order may in some situations encourage applicants to pursue expensive litigation against comparatively small estates.
The principle of proportionality
Over the past couple of years, Courts have frequently stressed the importance of proportionality when it comes to the costs of deceased estate litigation. That is, the costs of pursuing legal proceedings in family provision matters should be commensurate with the value of, and the size of the claim on, the estate of the deceased person. This principle is established more generally by section 60 of the Civil Procedure Act 2005 (NSW) which requires costs to be “proportionate to the importance and complexity of the subject matter”.
Proportionality is particularly important where the value of the estate is modest. As noted above, it is not uncommon for an unsuccessful applicant of a family provision application to have a no costs order made against them, or alternatively, to have their legal costs paid out of the estate. While the estate may be comparatively more financially capable of servicing those costs, it does ultimately serve to reduce the value of the estate remaining to be distributed between the rightful beneficiaries.
The following cases demonstrate the critical role of the Court in upholding the principle of proportionality in order to achieve fairness for all parties involved.
Oslen v Oslen [2019] NSWSC 217 (Oslen)
In Oslen, the applicant was a 61-year-old solicitor who made a family provision claim against the estate of his late father. The applicant had only lived with the deceased for the first 9 months of his life and, after the separation of his parents, only saw his father on rare occasions. The will of the deceased left the entire estate to the deceased’s second wife, and in the event that she predeceased him, his three children to his second wife. No allowance was made in favour of the applicant.
In assessing this claim, Pembroke J was critical of the claimant for having little to no regard for the principle of proportionality. The legal costs of the proceedings were said to be in the region of $125,000 which, when paid out of the estate, would reduce the value of the estate to approximately $140,000.
The applicant’s claim was ultimately held unsuccessful on a number of grounds, with Pembroke J (at [48]) remarking that the matter “achieved nothing except unnecessary cost and unwanted misery and stress”. However, as the estate was held to be comparatively more financially able to absorb the costs than the applicant, no order as to costs was made.
Harris v Harris [2018] NSWCA 334 (Harris)
Similarly to the facts in Oslen, the applicant in Harris also made a family provision claim against the estate of his late father. The applicant suffered from a psychiatric illness and was dependent upon a disability support pension for income. He had not, however, received any substantial financial support from the deceased during the past decade. The will of the deceased left his entire estate to his widow. Notably, the value of the estate was less than $8,000. The notional estate was valued at approximately $600,000, however, the Court refrained from determining whether the notional estate would be available for distribution in the event of a successful family provision order.
At first instance, the judge dismissed the application for a family provision order. This was primarily on the basis that the testator would not have been under an obligation to provide for his adult son given that his widow also held a valid and competing claim to the estate.
In upholding the decision of the judge at first instance, the NSW Court of Appeal questioned the justification behind pursuing a claim that was likely to incur disproportionate costs. Indeed, Basten JA stated (at [8]):
“Assuming, favourably to the [applicant], that the potential notional estate was valued at $600,000, the costs incurred at trial exceeded 20% of the total value of the notional estate and were almost ten times the amount the primary judge would have awarded, had she been minded to make any award by way of provision from the estate.”
In addition, Basten JA noted the role of the Court in potentially encouraging applicants to pursue costly claims against smaller sized estates. He observed (at [18]):
“That the surviving wife has had to expend a significant proportion of a modest estate, and one almost entirely comprised of notional estate, in defending these proceedings suggests that the beneficial provisions relating to family provision can operate unfairly. It is clear that a costs order in her favour will not allow her to recoup her legal expenses. The Court’s willingness to entertain comparatively expensive litigation of this sort may well have encouraged the pursuit of such claims. Consideration should be given in such cases to orders capping the costs of both parties at an early stage of the proceedings.” [Emphasis added.]
Ultimately, the appeal was dismissed, and the applicant was ordered to pay the widow’s costs. Importantly, however, Basten JA suggested that in future matters, leave to appeal should be required where the judge at first instance does not find a reasonably arguable claim greater than $100,000. In this way, the Courts may be better able regulate family provision applications in order to avoid the accrual of disproportionate costs.
Conclusion
Cost management in family provision applications involves a delicate balancing act between meeting the competing needs of the parties in a fair and just manner. The cases of Oslen and Harris demonstrate the important role the principle of proportionality plays in informing the Court’s decision in respect of costs. As Basten JA in Harris suggested, however, additional processes may be needed to more efficiently regulate those weaker claims which are likely to incur disproportionate costs against small estates.