England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (PROBATE)
LEEDS DISTRICT REGISTRY

		03 April 2009

JUDGMENT No 2

1. History

Judgment in the case was formally handed down on 31^st March 2009. Following that judgment it was agreed between the parties that :

1. The grant of probate in favour of Mr Joslin and Mr Brock should be revoked.

2. Letters of Administration be granted to Jimmy and Willie.

3. (After some discussion) that Mr Joslin and Mr Brock should be entitled to their costs out of the estate to be assessed if not agreed on an indemnity basis and that they be entitled to an immediate interim payment on account of such costs which I assessed in the sum of £40,000.

There remained issues of permission to appeal and costs as between the Claimants and NOS. For reasons that I gave at the hearing I decided that the Court of Appeal might take a different view from me on the question of testamentary capacity and I granted permission to appeal.
The issues in relation to costs were more complex. There was a wide difference between the positions of the parties. Mr Blackett-Ord's primary case was that NOS should :

1. pay the Claimants' costs – mostly on an indemnity basis

2. Indemnify the Claimants against the executors' costs payable out of the estate.

3. Pay to the Claimants the costs incurred by the executors in employing professional help in running the farm for 2 years.

Mr Warner's primary submission was that NOS' costs should be paid out of the estate on a standard basis.
The sums involved are large. The Claimants' costs are approximately £195,000 inclusive of VAT. The executors' costs are said to be of the order of £53,000. There is no estimate of NOS' costs but they are no doubt substantial.
The time allotted for the hearing was 2 hours. The submissions were wide ranging and lasted for more than 2 hours. I was referred to a significant amount of authority. In the circumstances it was necessary to reserve the judgment on costs.

2. Representation

Representation was the same as in the trial save that Mr Blackett-Ord was not assisted by Mr Baxter and Mr Warner on behalf of NOS is now instructed by Spreecher Grier & Halberstam, 1 America Square, Crosswall, London EC3N 2SG.

3. The submissions

The submissions covered a number of discrete areas which can be conveniently dealt with separately.

3.1. The Law in relation to costs in contested probate proceedings

Mr Blackett-Ord referred me to the decision of Henderson J in Kostic v Chaplin [2007] EWHC 2909. In his careful analysis of the law Henderson J made a number of points:

1. The costs of a contentious probate action, like those of any other civil claim, are within the discretion of the court, and CPR Parts 43 and 44 will apply. The general rule, enshrined in CPR 44.3(2)(a), is that the unsuccessful party will be ordered to pay the costs of the successful party, or in other words that costs follow the event.

2. It was common ground that in contentious probate claims there are two long-established exceptions to the general rule which have survived the introduction of the CPR and are still valid. It was Henderson J's view that that the position is now governed by the CPR, but the considerations of policy and fairness which underlie the two exceptions remain as valid today as they were before the introduction of the CPR, and they should therefore continue to guide the court in deciding whether it is appropriate to depart from the general rule and to make a "different order" pursuant to sub-paragraph (2)(b).

3. The two principles derive from Spiers v English [1907] P 122 at 123:

One of those principles is that if a person who makes a will or persons who are interested in the residue have been really 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.

Henderson J made the point that the two principles are not exhaustive or rigidly prescriptive. They are guidelines. .In paragraph 9 of his judgment Henderson J pointed out that the first rule did not necessarily imply culpability on the testator and could apply to cases where there was mental incapacity.

4. In paragraph 10 Henderson J identified two principles of high importance:

The first being that "parties should not be tempted into a fruitless litigation by the knowledge that their costs will be defrayed by others", and the other being that "doubtful wills should not pass easily into proof by reason of the cost of opposing them"

5. In paragraphs 11 and 12 Henderson J reviewed the decision of Sir James Hannen in Davies v Gregory (1873) L R 3 P & D 28 citing with approval 2 passages:

"That principle having once been extracted from the decisions, we should no longer slavishly confine ourselves to precisely the same state of facts in applying it, but should apply it to all cases to which it is fairly applicable. The principle being as I have stated, the question to be determined in each case is this: Is the testator, by reason of his conduct, to be considered the cause of the reasonable litigation which has occurred after his death as to the validity of his will?"

"Where the facts show that neither the testator nor the persons interested in the residue have been to blame, but where the opponents of the will have been led reasonably to the bona fide belief that there was good ground for impeaching the will, there will be no order as to costs. Of course the opponents must have taken all proper steps to inform themselves as to the facts of the case, but if, having done so, they bona fide believe in the existence of a state of things which, if it did exist, would justify litigation, then, although no blame should attach to the testator or to the executors and persons interested in the residue, each party must bear his own costs."

6. After a review of more recent authorities Henderson J (in paragraph 21) concluded his review of the law with the following comment:

However, 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 Kostic Henderson J had set aside a will which had left the entire estate to the conservative party (CPA) on the grounds of lack of testamentary capacity. In the result for costs purposes Henderson J divided the litigation into 3 periods. For the first period (terminating on 18^th October 1986) he decided that CPA were justified in investigating Bane's testamentary capacity and were entitled to their costs out of the estate. For the second period (up to exchange of experts reports in February 2007) he decided that each party should pay its own costs. After February 2007 CPA should be regarded as having taken a stand on their own expert, and/or having taken a commercial decision. Thus, for that period (which included the costs of the trial) costs would follow the event.
Mr Warner took me to the substantive decision in Kostic and pointed out that there were many differences between that case and this. He submitted that the case for lack of testamentary capacity in Kostic was a very strong one. In the judgment on costs he referred me to paragraphs 27 of the judgment where Henderson J describes the opposing evidence in support of Zoran's case as being "very strong" and paragraph 32 where he referred to the important documents that had been disclosed including "Bane's diary and the domicile questionnaire". He also took me to paragraphs 26, 32, 39, 42, 45, 57, 64, 138 an 151 of the main judgment in Kostic to demonstrate that CPA's decision to fight the case was very much against the odds and, as he described it "a punt". He submitted that Henderson J's reference to the decision being a commercial decision had to be read in that context.
He contrasted Kostic to the facts of this case. He reminded me that an experienced probate solicitor, Mr Joslin, was firmly of the view that Mary had testamentary capacity. He reminded me that Mr Joslin had consulted Dr Whitcher and that Dr Whitcher had witnessed the will. He reminded me of the remarks of May LJ in Sharp v Adam as to the rarity of the occasions where the will be upset when a solicitor follows "the golden rule". He reminded me that there was nothing in the medical notes (save for the dust mite incident) to give any indication that Mary was suffering from any mental disease. He reminded me that NOS had no knowledge of Mary before he died and thus had no material on which to form their own view of her mental capacity.
Finally Mr Warner showed me two decisions where no order for costs was made.
In Tippett v Tippett (1865) LR 1 P&D 54 a medical man attended on the deceased as he was plainly dying. He drew up the will and assisted the testator in executing it. Afterwards he said he could not swear that the testator was in full possession of his faculties at the time. It appears that based on this statement a challenge was made to the will. That challenge failed because other attesting witnesses were called who said the deceased was in his rights senses when the will was executed. Sir J P Wilde found that in the circumstances the challenger to the will did not come in the first exception but did come within the second and therefore there would be no order as to costs.
In Aylwin v Aylwin [1902] P 203 the beneficiary instructed the solicitors to prepare the will and the solicitors never met the testator. The court held the circumstances were such as to invite inquiry and hence there was no order as to costs (i.e. it was within the second exception).

3.2. The History of the litigation culminating in the decision of NOS to fight the proceedings

Mary died on 12^th November 2006. Probate of the will was granted on 13^th February 2007. On 30^th March 2007 Mitchells wrote to Sykes Lee & Brydson and Thatcher & Hallam informing them of the challenge to the Will. The letter indicated that Mr Blackett-Ord had advised that there was a very strong case for overturning the will. It referred to the fact that Mary was suffering from delusions when she signed the will.
On 25^th April 2007 Mitchells sent to Sykes Lee & Brydson and Thatcher & Hallam draft Particulars of Claim and draft witness statements from all four children. The proceedings were issued on 11^th June 2007. It will be recalled that paragraph 8 of the Particulars of Claim only relied on 2 delusions – one of which was not proved at the trial. It will also be recalled that for reasons given in my judgment I was prepared to consider all of the evidence in relation to the delusions.
Following the filing of Defences there was a case management conference before District Judge Jordan on 13^th November 2007. Amongst other orders he directed that NOS identify their expert by 22^nd November 2007 and that reports be exchanged by 29^th February 2008. The case was then listed for hearing on 30^th June 2008.
There was a delay over experts. Dr Mahapatra's report was dated 23^rd April 2008. It was disclosed within a matter of days. Thatcher & Hallam said that they could not instruct an expert because they had no legible copies of the medical notes. This problem was not resolved till August 2008. Mr Blackett-Ord criticised Thatcher & Hallam for this delay. In any event Dr Campbell reported on 6^th November 2008. His report was disclosed within a matter of days.
In the course of his submissions Mr Warner made the point that there were problems over the disclosure made by the Claimants. He drew my attention to the affidavit of means of Margaret which was disclosed in the course of the trial. Mr Blackett-Ord told me that a huge amount of disclosure was granted and that I had only seen a small number of the disclosed documents. He accepted that much of this disclosure was made because of the proprietary estoppel claim.
The trial commenced on 5^th January 2008
Mr Blackett-Ord submitted that if I was going to follow the course taken by Henderson J in Kostic I should pick an early date from which costs should follow the event. He particularly relied on the letter of 25^th April 2007 as he said that witness statements were disclosed then. As a fall back he suggested that after Dr Mahapatra's report was disclosed on 2^nd May 2008 NOS should be taken to have made a commercial decision to fight the case and that costs should follow the event thereafter.

3.3. The Offers and Counter Offers and the effect of Part 36 of the CPR

A number of offers and counter offers have been made in this case. They are summarised in Mr Warner's skeleton argument:

1. Claimants to Executors to pay £200,000 to NOS without costs (25^th April 2007)

2. NOS to Claimants to pay them £250,000 without costs (3^rd December 2007)

3. NOS to Claimants £535,000 plus costs (29^th February 2008 – Part 36 compliant)

4. Claimants to NOS of £100,000 plus costs (22^nd May 2008 )

5. NOS to Claimants 25% net estate plus costs (5^th December 2008 – open offer).

It will no doubt be remembered that the value of this estate was of over £2 million. Thus the offers from the Claimants of £200,000 and £100,000 are of only a very small proportion of the claim.
The Claimants justify their reduced offer of £100,000 by reference to Dr Mahapatra's report. In May 2008 they had the benefit of a favourable report from Dr Mahapatra. Thus they felt justified in reducing the offer they had already made.
There is a dispute as to whether the 22^nd May 2008 offer is Part 36 compliant. There is no doubt that it was intended to be Part 36 compliant. Paragraph 5 of the letter reads:

This offer is open for 21 days from the date of service upon you and thus expires on 12^th June 2008. If this offer is accepted within that time our clients will be liable for your client's costs in accordance with rule 36.10 …

Paragraph 7 of the letter looked forward to hearing from NOS by 12^th June 2008. The problem with the letter is that 12^th June 2008 was 21 days from the date of the letter and not 21 clear days from the date of service. It was one or two days short. On 2^nd June 2008 Thatcher & Hallam pointed out (obliquely) that the deadline was too short. The oblique reference was not picked up by Mitchells. On 22^nd July 2008 Thatcher & Hallam wrote confirming that the "purported Part 36 Offer is not accepted"
In my view the court can construe the letter in accordance with its obvious intent. It refers to expiry 21 days after its service. The fact that the date has been wrongly calculated does not invalidate it. However even if I am wrong about this Mr Warner accepted in argument that under CPR 44.3(4)(c) I was required to take it into account. In my view it is appropriate to treat it as if it were a valid Part 36 offer even if technically it was not. It was plainly intended to be a Part 36 offer. It was not in fact withdrawn on 12^th June 2008. It was in fact rejected 22^nd July 2008.
Mr Blackett-Ord submits that in the result I am bound to award costs on an indemnity basis from the date on which the offer expired together with interest on those costs at a rate not exceeding 10% over base rate. He has referred me to some observations of Stanley Burnton J (as he then was) in Dan Matthews v Metal Improvements Co [2007] EWCA Civ 215 where he said

"It was only if she could properly conclude that it was unjust to order the Claimant to pay the costs in question that she could depart from the usual order. In other words, she did not have the unfettered discretion that she believed she had...

He submits that there are no grounds on which I can say it is unjust to order NOS to pay indemnity costs within the rule. I shall consider that submission in more detail below.

3.4. The effect of the proprietary estoppel claim

The Claimants sought the transfer of the whole of Chapel Farm (valued for probate purposes at £1.8 million) on the basis of a proprietary estoppel. That claim failed for the reasons set out in my judgment. I did however indicate that I would have allowed a limited claim for proprietary estoppel for Jimmy alone in that I would have compensated him for the work he carried out on the farm for the years since the death of his father. I assessed this at £140,000 basing it on Jimmy's own figure of £10,000 per year.
The claim for Chapel Farm took up a considerable amount of Court time. It involved the investigation of events involving all four of Mary's children going back to their school days. It involved the examination of precisely what promises were made to each of them. It involved an analysis of the partnership and of the dissolution of the partnership. It involved an investigation of the wills made by Francis. As Mr Blackett-Ord accepted (whilst dealing with a different point) it involved a huge amount of disclosure on the part of the Claimants.
Mr Blackett-Ord however submitted that the partial failure of the claim should not affect the position on costs. He made the point that the claim did not fail completely. Second he submitted that the facts relevant to the proprietary estoppel claim were relevant and necessary to the claim for testamentary capacity. It would have been necessary to go into Mary's delusions and the help being given by the children in any event.
I cannot accept Mr Blackett-Ord's submissions. Whilst a limited amount of family history might have been necessary in relation to Mary's testamentary capacity it would not have been necessary to go back before or significantly before Francis' death in 1992. It would not have been necessary to go into the early history at all.
In my view the issues on which the Claimants failed very significantly added to the length, the preparation for and the costs of the trial itself. I have not carried out a detailed analysis but I would not be surprised if 40% to 50% of the cross-examination of the Claimants was devoted to the proprietary estoppel claim. 50% of the submissions were devoted to it. I am not in a position to estimate the percentage of the preparation devoted to it. As already noted it involved extensive disclosure.

4. Discussion

4.1. The order apart from the Part 36 Offer

I propose to consider first the order I would have made in the absence of Mitchells' offer of 22^nd May 2008 and then to consider the effect of the offer.
In my view the claim that Mary lacked testamentary capacity was nothing like as strong as the correspondence from Mitchells indicated. I cannot, with respect, agree with Mr Blackett-Ord that as at 30^th March 2007 there was a very strong case for overturning the will based simply on the lengthy witness statements of the Claimants. At that stage there was not even any psychiatric evidence in favour of their claim.
There is, in my view, considerable force in the points made by Mr Warner. A careful and experienced probate solicitor and her GP had expressed the view that Mary had capacity to make the will. The will was made some 8 years before she died. There was no independent evidence that she was not of testamentary capacity. Furthermore NOS had no knowledge of Mary and thus had no independent knowledge of her state of health.
It is true that the claim has succeeded after a trial but to describe the claim as very strong or even strong in March 2007 is, to my mind, an exaggeration.
It seems to me that that stage the case was well within the first exception to the general rule and NOS could expect that their costs would be payable out of the estate. At that stage (without implying culpability to Mary) Mary's conduct was the cause of the reasonable litigation.
There is no significant development until the report of Dr Mahapatra in early May 2008. In their letter of 22^nd May 2008 Mitchells described the claim as very strong and almost certain to succeed. I cannot agree with that assessment. The difficulties with the claim remained. Dr Mahapatra however had never seen Mary and his report was based on the then untested allegations being made by the Claimants. Plainly Dr Mahapatra's report assisted the Claimants but to describe the claim as "almost certain to succeed" was another exaggeration.
Mr Blackett-Ord submitted that after the report of Dr Mahapatra NOS had sufficient information and advice to be able to assess the prospects of success, their decision to continue with the litigation whilst understandable was a commercial decision. NOS must take the commercial consequences of losing and pay the costs after that date.
I agree with Mr Warner that the observations of Henderson J about the commercial nature of CPA's decision have to be read in the context of the facts of Kostic. Otherwise it would be difficult for the second exception ever to apply to a trial. A decision by anyone to fight a probate claim could be described as a "commercial" decision.
It is then necessary to factor into the discretion the fact that the claim succeeded, the inadequacy of the pleadings, the partial success of the proprietary estoppel claim, and the substantial additional costs involved in the issues on which the Claimants failed.
Doing the best I can I think that the fair overall order would have been

1. that NOS's costs are payable out of the estate until the date of service of Dr Mahapatra's report and thereafter

2. that there be no order for costs as between NOS and the Claimants

3. that there be no indemnity by NOS in respect of the costs of the executors

4.2. The Part 36 Offer

It is then necessary to consider the effect of the Part 36 offer of 22^nd May 2008. As already discussed I think that the letter complied with Part 36. Even if I am wrong about that I would take it into account as if it complied. It is plain that NOS have been less successful than the offer. It follows that I must make an order in accordance with Part 36 unless I consider unjust to do so.
A number of matters seem relevant:

1. Challenges to testamentary capacity fall into what might be described as "all or nothing" litigation. The result was bound to be either that the will was valid (and the whole estate would pass to NOS) or it was invalid and the Claimants would recover the whole estate. There was no room for the Court to make a partial award. Thus the Part 36 offer by the Claimants of less than the whole claim could never reflect the order that the Court could make. If the challenge to the will succeeded the offer was bound to be exceeded because NOS would get nothing. If the challenge to the will failed the offer was bound to be inadequate because the whole estate would pass to NOS.

2. It seems to me that in those circumstances the question of whether it is unjust not to follow Part 36 depends on the reasonableness of the offer which in turn depends on an assessment of the offer in relation to the value of the estate and the prospects of success of the claim.

3. In this case the estate was worth at least £2.5 million and the offer was only £100,000. It was thus an offer of at most 4% of the estate. For reasons I have given Mitchells and (possibly) Mr Blackett-Ord greatly overestimated the prospects of success of the Claimants. In my view it was perfectly reasonable for NOS to continue the litigation in a case where the evidence of the solicitor making the will and of her GP was that she had testamentary capacity, where there was no other medical evidence of mental disease and where the allegations of delusions were untested. In my view an offer representing 4% of the value of the estate did not in the circumstances of this case make it unreasonable to continue.

4. In those circumstances I do consider that it would be unjust to make the order for costs set out in Part 36 and I shall not make it. Instead, I shall make the order I have indicated above.

5. Permission to Appeal

I have already granted NOS permission to appeal in respect of the main judgment. In my view questions of principle are involved in relation to the costs of Probate actions and to Part 36 offers in such a case. In those circumstances I propose to grant both sides permission to appeal the order for costs. I propose that this judgment be handed down formally tomorrow – 3^rd April 2009. No attendance will be necessary. The time for appealing will be extended so as to expire on the same day as any notice to appeal in the main judgment is required to be given. I should be grateful if Counsel would agree and submit an order in due course. If the order following the main judgment has not been perfected the orders can be combined.

JOHN BEHRENS

Friday, 03 April 2009