At the Attorney-General's request, the Victorian Law Reform Commission is reviewing 'the application of costs rules in succession proceedings, taking into account any developments in rules or practice notes made or proposed by the Supreme Court'.
When costs may be paid out of the estate
A core principle in succession proceedings is that the estate should not be unduly depleted by legal costs in resolving a dispute about who the legitimate beneficiaries are and what they are entitled to receive.
Probate and administration proceedings
In probate and administration proceedings generally, the rule that 'costs follow the event' is usually applied. The unsuccessful party, when not the personal representative, pays party/ party costs.
However, costs that would normally be borne by an unsuccessful party are met from the estate in the following circumstances:
• in so-called 'testator's fault' cases, where the litigation arises from the conduct of the will-maker, such as in cases involving the interpretation of wills
• where the unsuccessful party has reasonably been led into the litigation by a bona fide belief and has felt it desirable to inquire into the testamentary disposition in issue
• where the unsuccessful party does not have the means to pay, and making a costs order against them would be 'wholly symbolic'.
Family provision applications
In family provision proceedings, the Administration and Probate Act specifies that the court may:
• under section 97(6)—subject to section 97(7), make any order that is, in the court's opinion, just, and
• under section 97(7)—order that the applicant bear their own costs and the costs of the defendant personal representative, if the court is satisfied that the application 'has been made frivolously, vexatiously or with no reasonable prospect of success'.
The Supreme Court has held that section 97(6) of the Administration and Probate Act is limited by section 97(7)—'in the ordinary course, an order for costs in family provision cases may not be made against the plaintiff simply because the application has failed'.
However, an unsuccessful family provision applicant cannot expect to have their costs paid by the estate. The court’s starting point is that the unsuccessful applicant should bear their own costs or, if their case was particularly unmeritorious, pay the party/party costs of the estate. In some cases, unsuccessful applicants will receive their costs out of the estate, but this is the exception rather than the rule. Most commonly, if an applicant has been unsuccessful there is no order as to costs, meaning that the unsuccessful applicant bears their own costs and the defendant personal representative receives their costs out of the estate.
The courts have very rarely exercised their power under section 97(7) to order an unsuccessful family provision applicant to pay the defendant personal representative's costs. Most matters that would satisfy section 97(7) of the Administration and Probate Act for the purposes of a costs order are likely to have been dismissed before they could proceed to trial.
A successful family provision applicant will usually receive solicitor/client costs out of the estate. Subject to any costs recovered from an unsuccessful applicant, the defendant personal representative will usually receive indemnity costs out of the estate.
Another core principle of succession proceedings is that the personal representative should not personally bear the costs of prosecuting or defending a claim on behalf of the estate.
The court rules allow for the personal representative's costs to be taken out of the estate 'insofar as they are not paid by any other person'. The costs are assessed on a solicitor/client basis unless the Court orders otherwise. In practice, they are often assessed on an indemnity basis.
In a number of situations, the personal representative has no choice but to become involved in litigation. For example, the personal representative is required to act as defendant in family provision proceedings and is bound to issue an originating motion when seeking to propound the final will.
A personal representative who is concerned about whether they should prosecute or defend a claim on behalf of the estate, or appeal a decision of the court, can obtain protection from the possibility of a costs order being made against them personally by seeking, ex parte, the direction of the court as to whether to become involved in the litigation. The cost of seeking this advice is borne by the estate on a solicitor/ client basis. A personal representative who proceeds with litigation even though the court has determined that they should not do so, and is unsuccessful, will not ordinarily have their costs paid out of the estate.
The VLRC is seeking views about how, if at all, the general application of costs rules in succession proceedings can be improved.
The review of costs rules forms part of a broader review of succession laws. The VLRC has published six consultation papers on the topics encompassed by the terms of reference—see www.lawreform.vic.gov.au. Specific questions about cost rules as they apply in family provision and statutory wills cases are asked in the consultation papers on family provision and wills. The closing date for submissions is 28 March 2013.