ON APPEAL FROM CENTRAL LONDON CIVIL JUSTICE CENTRE
Strand, London, WC2A 2LL
B e f o r e :
LADY JUSTICE ARDEN
LORD JUSTICE MOORE-BICK
| 1. Roy Shovelar
2. Andrew Shovelar
3. Susan Kelly
4. David Shovelar
5. Adele Shovelar
6. Amy Shovelar
|- and -
|1. Sidney Peter Lane
2. Alfred Huddlestone Stokes
3. Anthony Donald Walker
4. Eileen Bramwell
5. Jane Walker
6. Teresa Stallwood
7. Kelly Stallwood
Richard Dew (instructed by W.F. Smith & Co) for the respondents
Hearing date: 28th February 2011
Crown Copyright ©
LORD JUSTICE WARD:
"1. The defendants are to pay the claimants' costs, to be assessed on a standard basis if not agreed.
2. The first defendant, the second defendant and the third defendant shall be indemnified from the estate to the extent of their own liability for the claimants' costs. For the avoidance of any doubt, the indemnity is not for the entirety of the defendants' liability for costs.
3. The first defendant, the second defendant, and the third defendant shall be indemnified from the estate to the extent of their own costs.
4. The defendants will pay to the claimants the sum of £27,658 on account of the claimants' costs. The liability of the first defendant, second defendant and third defendant to this payment on account shall be indemnified from the estate. This payment shall be made within 14 days of this judgment being handed down."
Jackson L.J. gave permission to appeal. I granted permission to the respondents to cross-appeal.
(1) should the unsuccessful defendants pay the claimants' costs or does the rule in probate actions apply by analogy so that if the testators, Les and Alma, were really the cause of the litigation, then costs should come out of the estate; alternatively if the circumstances reasonably led to the investigation of the matter, then those costs should be left to be borne by those who have incurred them;
(2) are the first to third defendants, as executors, entitled to be indemnified by the estate:
(a) in respect of their own costs and
(b) in respect of their own liability for the claimants' costs;
(3) would it be unjust to order the defendants to pay indemnity costs and interest on costs pursuant to CPR 36.14; and
(4) was the order for the interim payment on account of costs too low?
The background in a little more detail
"As you will probably appreciate we are in some difficulties as executors in this matter because we have to steer a median course and in this particular matter we would have to be guided by the court. We have passed the particulars of claim on to the family and asked them to discuss it among themselves and we will let you know what the result is in due course. As some of the defendants are in fact minors there will have to be a court order at the end of the day. Our feeling at the moment is that you should issue the proceedings and then we should do a defence and consideration should be given to this going to mediation."
In their response the appellants again stated their preference for mediation. The proceedings were issued in January 2008 and service was accepted by the executors' firm on behalf of all defendants.
"We have discussed the possibility with counsel about putting the matter out for mediation. Counsel has advised that it would be appropriate to put it out for mediation but feels this should not be put for mediation until such time as Discovery has taken place and witness statements have been exchanged."
This response surprised the claimants who wrote:
"It seems to us that your clients have no real intention of making constructive attempts at settlement and are using the request for a stay as a delaying tactic. Your clients are aware that we have entered into a CFA with ours, which provides for a success fee. Your clients know that our costs as at 13th August 2008 excluding any success fee were £25,260.00. It must be in both sides' interests to make constructive attempts to resolve this claim as soon and as cost effectively as possible, and the court expects us as solicitors to encourage our respective clients to do so."
"9. The offer is put forward in settlement of the whole of the claim.
10. The offer is that our clients' will accept payment of:
10.1 The sum of £98,000 in full and final settlement of all claims under the above claim number.
10.2 Our clients' costs in accordance with Rule 36.10 of the Civil Procedure Rules.
11. For the avoidance of doubt, payment of our clients' cost would include payment of the success fee due to this firm under its CFA with the client, notice of which has been given to you previously and in accordance with the Rules.
12. This offer is intended to have the consequences of Part 36.
13. This offer will remain open for 21 days from the service of this notice, i.e. until 4.00 pm on 30th March 2009."
There was no response within that time limit.
"However, the fact of the matter is the estate of Mr Stallwood is modest. Its net value is £134,272.69. We have attached the draft estate accounts. The costs of this litigation, should it go to trial, are likely to be significant and will simply serve to diminish what is already a modest estate. We have in mind, in particular, the very high estimated costs set out in your Allocation Questionnaire. In those circumstances, we have been instructed to put forward the following offer in order to settle the dispute between the parties.
The administration costs should be paid from the estate. These costs are set out in the accounts. Our clients then propose that once these costs have been paid, the net estate should be divided into equal shares. One half of the net estate should be distributed in accordance with the terms of the 1999 will. The other half of the estate should be distributed in accordance of Mr Stallwood's 2003 will. We further propose that there should be no order as to the costs of the litigation i.e. each side will pay their own costs.
This offer will remain open for acceptance for a period of 21 days. "
"In one final attempt to resolve the dispute short of the expense of a trial, our clients have indicated that they should be willing to attend a formal mediation."
There was no response. On 12th November there was a further without prejudice save as to costs offer to hold a round table meeting.
"2. Whilst welcome, it has been made far too late to be of any constructive use.
3. Such an offer may well have formed the basis for further negotiation had it been made at the outset of the matter.
4. However, at this point the offer is wholly inadequate as it fails to address to any degree the claimants' substantial costs which they have incurred in pursuit of this case.
5. We have made the defendants consistently aware of the costs position and of the fact that this firm has been instructed on the basis of a conditional fee agreement with a success fee and additional liabilities.
14. Accordingly, unless the defendants are minded to make an offer which includes a substantial payment towards our clients' costs we have had reluctantly to conclude that there is little prospect for this case settling and the trial listed to commence next Tuesday will now take place."
The judgment under appeal
"9. In my judgment the size of costs has limited relevance, beyond the issue of assessment, in so far as it affected the manner in which the parties conducted themselves: did it mean, as is suggested in this case, that the defendants were simply unable to reach a settlement of the claim?"
"23. However, the difficulty behind any settlement being reached or offer being accepted was the size of the Claimants' costs. By the time of any offers to settle being made, the Claimants' costs were of such a size that, once the costs were taken out of the equation, very little monies were left in the estate and neither side felt it was possible to settle. The Defendants had no control over the Claimants' costs and the Claimants must have been aware of the relatively small size of the estate being argued over."
"26. In my judgment, the Claimants' conduct was such that, taking into account the other matters set out in Part 44.3, including the fact that they are the winning party, they should be entitled to the costs of the claim, save for any argument that there should be no order as to costs or an order for costs to be paid out of the estate pursuant to the exceptions of the general rule in the case of probate actions. However, the size of these costs meant that it was, in my judgment, not possible for the defendants to accept the offers made. The nature of the claim that there was a constructive trust arising from mutual wills was not one where it can be said that the Claimants were bound to succeed and that the Defendants ought to have known that. The conclusion that there were mutual wills was reached on the basis of all the pieces of evidence given at the trial and it was quite proper for the defendants to test the evidence of the claimants.
27. In the particular circumstances of this matter, I have concluded that it would be unjust for the costs consequences of a Claimants' Part 36 offer being rejected (as set out in Part 36.14 of the CPR) to be applied. The nature of the case is such that the outcome could not be certainly predicted until after evidence had been given and the level of costs meant that any possibility of settlement was extremely limited, if not impossible.
28. The fact that an offer to settle was not accepted is taken into account when determining whether an order for costs ought to be made. It would be, in my judgment, unjust for the defendants to have to pay the additional costs penalties set out in Part 36.14 in the circumstances of this matter.
29. I therefore order that the Claimants are entitled to their costs but not with the additional interest and indemnity basis as provided for by Part 36.14. Those costs are to be subject to a detailed assessment."
"36. While this was a case about wills, the two of 1999 and the further one of 2003, in my judgment, this is not a case in which the exception to the general rule in contentious probate actions ought to be applied by analogy. The claim was for a constructive trust arising under mutual wills. In Olins v Walters  EWCA Civ 782, a constructive trust arising under mutual wills was established and a general rule as to costs was applied by the Court of Appeal.
37. While the circumstances that gave rise to the dispute arose from conversations between Les and Alma of which the defendants had no knowledge, what was said to be the content of those conversations was provided in witness statements served by the Claimants so that the Defendants knew the case they had to meet. The law relating to mutual wills is settled: the Claimants were asserting rights under a constructive trust, which constructive trust was being denied by the Defendants. The contention between the parties was not unlike any other hostile litigation and not such that would enable the court to move away from the general rule. The Defendants were putting the Claimants to proof of their contentions.
39. In this case there would be a plain injustice if the Claimants, who were successful in their claim for a constructive trust, were deprived of any benefit of that success by reason of an order for costs being made out of the estate with respect to the entirety of the costs against the Defendants. The challenge by the Defendants was as to what had been said and done and the legal consequences of that behaviour. It does not provide a reason for departing from the general rule that costs follow the event."
"42. In my judgment D1-D3 were acting entirely reasonably when they entered a defence to the claim. They cannot be criticised for being the only parties who defended the action at the beginning. Solicitors acted for both the executors and beneficiaries of the 2003 will and the real dispute was between the claimants, who benefited under the 1999 will and the beneficiaries under the 2003 will (some of whom also benefited under the 1999 will).
43. The conduct of the Defence was entirely reasonable: putting the Claimants to proof of their claim and putting proper questions in cross-examination.
44. While the Claimants criticised the executors for having filed a Defence prior to the beneficiaries filing a Defence, in my judgment this was quite proper to protect the estate.
45. In all the circumstances, while a costs order will be made against all the Defendants for which they will be jointly and severally liable, in my judgment the First to Third Defendants as executors are entitled to be indemnified from the estate so that once the individual liability of each Defendant is ascertained, that liability will be recovered by way of an indemnity from the estate with respect to the executors. The executors are also entitled to recover their own costs from the estate."
"48. In the meantime I do order a payment on account of the costs pursuant to the provisions of CPR Part 44.3(8). The sum I award on account is £27,658, namely the amount of costs incurred by the Defendants. The final assessed costs of the Claimants will not fall below that sum but prior to their detailed assessment I do not consider that it would be appropriate to order a significantly greater proportion of the estimated or actual costs of the Claimants."
"49. This costs judgment has not been straightforward and there is obvious concern that the costs of the Claimants should be so far in excess of the costs of the Defendants. That, however, is in my judgment a matter for assessment and does not entitle me to go outside the general rule for the award of costs taking into account the matters set out in 44.3 of the CPR and the exercise of my discretion."
The first issue: is the ordinary rule in civil litigation that costs follow the event displaced by a different rule that applies (or may apply) in probate actions?
"The court deduces two following rules for its future guidance: first, if the cause of litigation takes its origin in the fault of the testator or those interested in the residue, the costs may properly be paid out of the estate; secondly, if there be sufficient and reasonable ground, looking to the knowledge and means of knowledge of the opposing party, to question either the execution of the will or the capacity of the testator, or to put forward a charge of undue influence or fraud, the losing party may properly be relieved from the costs of his successful opponent."
Some justification from this rule can be seen from the observation of the judge at p. 279 that:
"It is of high public importance that doubtful wills should not pass easily into proof by reasons of the cost of opposing them. It is of equal importance that parties should not be tempted into a fruitless litigation by the knowledge that their costs will be defrayed by others. These opposite reasons appear to have alternately swayed the decisions to be found in the books. It is the desire of the court to keep both in view while yielding to neither and it is in this spirit that the above rules have recommended themselves for adoption."
"In deciding questions of costs one has to go back to the principles which govern cases of this kind [the plaintiff alleging that the will was not duly executed, that the deceased did not know and approve of its contents and that execution was obtained by the undue influence of the defendant]. One of those principles is that if a person who makes a will or persons who are interested in the residue have really been the cause of the litigation a case is made out for costs to come out of the estate. Another principle is that, if the circumstances lead reasonably to an investigation of the matter, then the costs may be left to be borne by those who have incurred them. If it were not for the application of those principles, which, is not exhaustive, are the two great principles upon which the Court acts, costs would now, according to the rule, follow the event as a matter of course. Those principles allow good cause to be shewn why costs should not follow the event. Therefore, in each case where an application if made, the Court has to consider whether the facts warrant either of those principles being brought into operation."
Costs were in fact ordered to be paid by the losing plaintiff.
"I should be reluctant to do anything to create the idea that unsuccessful litigants might get their costs out of the estate, without making a very strong case on [their] facts. The lure of "costs out of the estate" is responsible for much unnecessary litigation."
Re: Cutliffe's Estate  P. 6 is a more modern re-statement of the rule but to reflect contemporary thinking, I must refer to Kostic v Chaplin  EWHC 2909 (Ch) where Henderson J. said:
" it is I think fair to say that the trend of the more recent authorities has been to encourage a very careful scrutiny of any case in which the first exception is said to apply, and to narrow rather than extend the circumstances in which it will be held to be engaged. There are at least two factors which have in my judgment contributed to this change of emphasis. First, less importance is attached today than it was in Victorian times to the independent duty of the court to investigate the circumstances in which a will was executed and to satisfy itself as to its validity. Secondly, the courts are increasingly alert to the dangers of encouraging litigation, and discouraging settlement of doubtful claims at an early stage, if costs are allowed out of the estate to the unsuccessful party."
"In a probate action where a defendant has given notice with his defence to the parties setting up the will that he merely insists upon the will being proved in solemn form of law and only intends to cross-examine the witnesses produced in support of the will, no order for costs shall be made against him unless it appears to the court that there was no reasonable ground for opposing the will."
Under the Civil Procedure Rules the rule is Rule 57.7(5) which provides as follows:
"(a) A defendant may give notice in his defence that he does not raise any positive case, but insists on the will being proved in solemn form and, for that purpose, will cross-examine the witnesses who attested the will.
(b) If a defendant gives such a notice, the court will not make an order for costs against him unless it considers that there was no reasonable ground for opposing the will."
"(b) proceedings in the Court of Appeal from a judgment, direction, decision or order given or made in probate proceedings or family proceedings."
In family proceedings costs invariably lie where they fall and this rule contemplates the same in probate proceedings. There was some debate in the course of argument whether the rule does in fact survive at first instance. I do not consider it necessary to resolve that question. Although I see the good sense of the probate practice for the right category of cases, I am content to proceed on an assumption that the practice in the Ecclesiastical Court and the Probate, Divorce and Admiralty Courts still holds good.
" it seems to me that the case is analogous to certain other cases in which personal representatives or other parties, although unsuccessful in the event, are not held personally liable for the costs of an action in which they have acted reasonably. While costs are always a matter of discretion, there is a general principle in a probate action that, where the cause of the litigation takes its origin in the fault of the testator, the costs of the unsuccessful parties are allowed out of the estate; and if the circumstances lead reasonably to an investigation of the matter, then the costs may be left to be borne by those who incurred them: Spiers v English  P. 122. Similarly in an administration action, where the difficulty to be solved is created by the testator himself, the costs may be paid out of the estate,
The present case has arisen solely out of the failure of the deceased to make the will which was necessary, in view of the absence of any blood relationship, in order that indisputable legal effect should be given to the expectations which he had encouraged in the plaintiff. The defendants had little if any personal knowledge of some of the matters on which evidence has been given by or on behalf of the plaintiff, and were acting not only on their own behalf but on behalf of a number of other nephews and nieces of the deceased who would have been entitled to share in his estate had it passed on intestacy. In all the circumstances I do not think they acted unreasonably in testing the case put forward by the plaintiff which, while based firmly on established principles, on its facts went beyond the facts of any reported case. On learning of the plaintiff's claim they might, I think, have issued an originating summons making the plaintiff and one of the deceased's other next-of- kin defendants, to obtain the directions of the court as to how they should deal with the deceased's estate; and if they had done so it is reasonably clear that their costs would have been paid out of the deceased's estate."
So he decided that to act fairly between the parties the defendants' costs should indeed be paid out of the deceased's estate on a standard basis.
"[counsel for the plaintiff] said that it would be most unjust if his client were to succeed in the action only to find that the farm and the house which ought to have been his must be sold in order to meet the unsuccessful party's costs of the action while, on the other hand, the deceased's other nephews and nieces, who were in truth the losers, would have started by risking nothing and would have ended by losing nothing. It seems that the master, who was very experienced in these matters, regarded that as a powerful argument. I am entirely of the same opinion. In my view, in a case where the beneficiaries are all adult and sui juris and can make up their own minds as to whether the claim should be resisted or not, there must be countervailing considerations of some weight before it is right for the action to be pursued or defended at the cost of the estate."
"Where the estate - like this one - is small, in my view the onus on an applicant of satisfying the conditions of section 2 is very heavy indeed and these applications ought not to be launched unless there is (or there appears to be) a real chance of success, because the result of these proceedings simply diminishes the estate and is a great hardship on the beneficiaries if they are ultimately successful in litigation. For that reason I would be disposed to think that judges should reconsider the practice of ordering the costs of both sides in these cases to be paid out of the estate. That is probate practice; this is something quite different. I think judges should look very closely indeed at the merits of each application before ordering that the estate pays the applicant's costs if the applicant is unsuccessful."
"For these reasons they will humbly advise His Majesty that the appeal should be dismissed. They are always reluctant to give unsuccessful appellants their costs. But in this case the questions which have arisen are so obviously the result of the obscure and unusual procedure of the husband and wife in relation to the settlement of 1879 that they think that the costs of all parties as between solicitors and client should be paid out of the settled funds."
Similar orders were made in two Canadian cases to which we were referred, Re: Skippen  1 D.L.R. 858 and Re: Carr  3 D.L.R. 668.
"What I am asked to do appertains specially to proceedings of the character expressly assigned to the Chancery Division by s. 34 of the Judicature Act, 1873. In my opinion I cannot accede to the prayer of the alternative claim of the defendants; I must leave them to pursue their remedies in the other Division."
If the approach seems a bit old-fashioned, it nonetheless serves to emphasise the inherent difference between the strict probate action whether or not to pronounce for the validity of a will and the Chancery practice whether or not to hold the executor bound by the trust to dispose of the estate in accordance with the terms of their trust. So far as the Chancery practice is concerned, I have looked at a number of the cases referred to in the text books. Most are silent as to the order for costs made at the conclusion of the hearing. Certainly I have not found nor have we been referred to any authorities clearly establishing the Chancery practice for ordering costs as between the parties or out of the estate.
The second issue: should the executors' own costs be paid out of the estate and are they entitled to be indemnified by the estate against their liability for the claimants' costs?
The third issue: would it be unjust to order the defendants to pay indemnity costs and interest on costs pursuant to CPR 36.14?
The fourth issue: the amount to be paid on account of the claimants' costs
"it is an important consideration that a party should not be kept out of the moneys which will almost certainly be demonstrated to be due longer than is necessary."
Lady Justice Arden:
Lord Justice Moore-Bick: