COSTS, OFFERS AND ESTATES: A CASE IN POINT
There is an interesting discussion as to costs in the judgment of HH Judge Hodge QC in Goenka -v- Goenka  EWHC 2966 (Ch). This also shows the difficulty in dealing with costs issues at the end of a long trial.
The judgment was given at the end of a trial where the claimant brought an application under the Inheritance (Provision for Family and Dependants) Act 1975. One of the issues related to a £201,000 lump sum death in payment benefit. The judge found that the claimant should receive a further £67,670.00. The defendants had made various offers to settle prior to the action, ranging from £60,000 to £140,000.
JUDGE HODGE QC:
- This is my extemporary judgment on the issue of costs. I have already taken some three and a half hours delivering a substantive extemporary judgment in this matter which concluded at about 3.35 this afternoon. I then adjourned to enable counsel to take instructions on issues of costs arising from my extemporary substantive judgment. The court resumed at five-to-four this afternoon, and I have heard some one hour and five minutes by way of submissions on costs. It is now five-past-five and I have to deliver a further extemporary judgment on the issue of costs.
- For the Claimant, Mr Clark submitted that the Claimant should recover her costs, and that they should be ordered to be paid by the First Defendant on the indemnity basis. Mr Clark’s alternative submission was that if the First Defendant is not ordered to pay the costs personally, then they should be paid out of the death in service monies, and in advance of the costs of any other party. Mr Clark also sought a payment on account of the Claimant’s costs in the sum of £30,000.
- In support of his submissions, Mr Clark took me through a series of letters dealing with the issue of settlement, beginning with, effectively, a without prejudice save as to costs offer of the 8th January 2013 from the Second Defendant, Mr Victor Welsh, in his capacity as the solicitor for the executors and also, apparently, the trustees. That letter, written on the 8th January 2013, and thus even before the Grant of Probate, to the Claimant’s solicitors, was an offer from the trustees to advance to the Claimant £60,000 immediately as part of any settlement. That would be in addition to the Claimant’s widow’s occupational pension, her widow’s state pension, the Defendant’s pension, the child benefit, and the potential for her to receive for the children income from the Discretionary Trust Fund, and the Claimant’s own potential earnings. That, on its face, would appear to have been an offer on the part of the trustees. Mr Jackson says that on a true analysis it must have been an offer from the estate because, at that point, there had not even been any Grant of Probate.
- The response to that letter, on the 15th January 2013, was that the offer of £60,000 was not acceptable. The Claimant indicated that she would accept £175,000 in settlement of her claim. That was on the 15th January 2013.
- On the 25th January, the Second Defendant indicated that the First Defendant was not minded to increase his offer of £60,000 out of the Trust Fund. On the 3rd May 2013 the Claimant’s solicitors wrote indicating that counsel had settled the Claimant’s claim at £201,000. In an effort to bring the matter to a speedy conclusion, and to avoid any additional costs being incurred by the estate, the Claimant was prepared to repeat her earlier offer of the 28th January to accept £175,000, inclusive of costs, to settle her claim against the estate.
- On the 14th May 2013 the Second Defendant wrote saying that potentially any monies paid to the Claimant, additional to those provided in the will, would be taken from the Claimant’s own children. The First Defendant repeated his previous offer to settle and rested with the same.
- There matters rested until the 14th April 2014 when the Second Defendant made a without prejudice save as to costs Part 36 offer in the sum of £100,000 in full and final settlement of all claims which the Claimant might have against the executors, the First Defendant as statutory nominee, and the trustees of the will. That offer was expressed to be an “offer” on behalf of the First Defendant as executor of the estate. Mr Clark makes the point that by this stage the Third to Fifth Defendants had been joined as co-Defendants. The money was offered from the residuary estate, and not from the death in service payment. The offer was made without any consultation with the Official Solicitor on behalf of the infant Defendants. Thereafter the First Defendant steadfastly refused to make any offer out of the death in service payment.
- Mr Clark contends that the executors could not compromise the claim out of the estate otherwise than with the consent of the Official Solicitor, on behalf of the Third to Fifth Defendants, and the approval of the court. The only way in which the case could be compromised without the consent of the Official Solicitor and the approval of the court would have been if any payment had come from the death in service monies, but such a proposal was never forthcoming from the First Defendant. Rather he was making offers that he had no power to make.
- The offer of £100,000 was later increased on the 22nd May to £120,000 but, again, that was to be borne out of the Trust Fund. The Claimant’s solicitors questioned whether the Official Solicitor had ratified that offer, and it became clear that he was not prepared to do so.
- Much later, on the 21st July, the Claimant offered to settle for £150,000 exclusive of her costs to be borne rateably by the two funds, namely, the residuary estate and the nominated monies, but that would have to be subject to the approval of the Official Solicitor, which was never forthcoming. The First Defendant, at all material times, refused to countenance any payment out of the nominated monies, and he refused to proceed to mediation otherwise than on the basis that no payment would be made out of the death in service payment.
- Mr Clark accepts that the Claimant has not recovered as much as any of her offers, but the position of the First Defendant throughout had been that he had been unwilling to make any offer of settlement from the death in service monies. He made it clear that he was unwilling to budge one inch from that position, and he made it a pre-condition of any mediation. Mr Clark submitted that the First Defendant had made offers that he had no power to make, first of all, out of the Trust Fund, and then out of the estate, and in disregard of the interests of the children, whose interests lay in ensuring that the estate and the Trust Fund remained free from any claims of their mother and that the incidence of any award and costs was borne from the death in service payment, rather than out of the estate and the residuary Trust Fund. Mr Clark submitted that all of that took the case out of the norm. He referred me to the commentary on indemnity costs awards at paragraph 44×4.3 (at page 1687) of the current (2014) edition of the White Book. Mr Clark reminded me that although the Claimant had not succeeded in recovering as much as she had claimed, she had been successful in the disputed contention that the death in service payment monies formed part of the deceased’s net estate. For all of those reasons, Mr Clark submitted that the Claimant should be entitled to recover her costs from the First Defendant personally, to be assessed on the indemnity basis; but if not, those costs should be borne out of the death in service monies and should be paid in priority to the costs of any other party. He invited the Court to order an interim payment on account of £30,000.
- For the Official Solicitor, representing the Third to Fifth Defendants, Mr Goldsmith reminded me that the court has already ordered that the costs of the Official Solicitor should be paid out of the estate on an indemnity basis. I accept that any order for costs I make in relation to the Official Solicitor should be expressed to be without prejudice to paragraph 6 of the Order of the 31st March (as amended by paragraph 1 of the Order of 15th May 2014). Subject to that caveat, Mr Goldsmith submitted that the Official Solicitor’s costs should, in the first instance, be paid out of the death in service benefit rather than out of the estate generally. Alternatively, he submitted that the First Defendant should pay the Official Solicitor’s costs personally. He invited the Court to make an express finding that there was no need for the executor to incur any additional costs in a representative capacity after the date of the costs and case management conference.
- In the course of his submissions, Mr Jackson made it quite clear that he and his instructing solicitor were here, not at the expense of the estate, but at the expense of the First Defendant in his capacity as statutory nominee of the death in service benefit payment. I should not make a finding that there was no need for the executors to incur any additional costs since the date of the costs and case management hearing because the executors, as such, will inevitably have been involved in considering and making offers of settlement after that conference; but my order should record that the executors, in their capacity as such, are not entitled to recover any costs for representation at this trial. That is consistent with the position as explained to me by Mr Jackson. Mr Goldsmith finally invited me to order an interim payment on account of costs of £20,000 to the Official Solicitor.
- Mr Jackson, for the First Defendant, effectively accepted that the First Defendant should pay the costs of both the Claimant and the Official Solicitor out of the death in service payment. He proposed that the proper costs of all parties should come out of the death in service payment; and he indicated that that should be sufficient, even with the amount of the award in favour of the Claimant to cover the costs in full. To the extent that it did not, Mr Jackson submitted that any balance should be borne by the estate. Mr Jackson emphasised that the First Defendant had not been the author of the disposition which had given rise to this litigation. Everything originated with the authorship and draftsmanship of the First Defendant’s son. Mr Jackson utterly refuted the application for indemnity costs. He made the valid point that the Claimant had done considerably worse than either of the second or third offers from the estate; indeed, she had only just done a little better than the first offer from the estate, which had been made considerably before the Grant of Probate, and thus even considerably more in advance of the actual issue of proceedings. The Claimant’s position had been that she should be entitled to £175,000 initially from the estate. She then indicated that she was prepared to accept £120,000 from the estate, but subject to the approval of the Official Solicitor who, as Mr Jackson put it, “refused to come on board with the proposal.” In that refusal the Official Solicitor was vindicated by events because, as a result of my award, it is clear that it would have preferred the Claimant to too great an extent. Mr Jackson submitted that it was not unreasonable for the estate to take the view that the burden of any award should be borne by the estate. The estate was sufficient to meet the reasonable needs of the children, and the view that any award should be borne by the estate was supported by the statement in Tyler that any statutory nomination should be treated as a bequest, and that the burden of any award under the 1975 Act should be borne by the residuary estate rather than a bequest. Mr Jackson made the point that offers were being made out of the estate of monies to a Claimant who had not disclosed the full extent of her financial resources until April of this year, when she responded to the Request for Further Information. Mr Jackson made it clear that he was not resisting an award of standard costs to the Claimant; and he accepted that because of his special status, and in accordance with the earlier court order, the Official Solicitor should have his costs on the indemnity basis, although that was not due to any issue of conduct on the part of the First Defendant.
- In his response, Mr Clark made it clear that the First Defendant could not compromise the claim in his capacity as executor without the consent of the Official Solicitor, but the reason why an application for indemnity costs was made was because the First Defendant had refused to countenance making any offer to the Claimant from the death in service monies. He had made offers he had no power to make, and the Court had ultimately decided that the incidence of the award should, in fact, be borne out of the death in service monies. Those were the submissions.
- I must approach the application for costs by reference to the principles in CPR 44.2 and bearing in mind the guidance that indemnity costs are to be awarded only in cases outside the norm. It is unfortunate that in the present case the Claimant has been effectively pitching her case in competition with her children, save to the extent that any award was to be made out of the lump sum death in service payment. The Claimant had limited her claim to that sum in her claim form. To some extent that may be an illusory way of viewing the matter since I have little doubt that the First Defendant would have had recourse to the death in service payment should at any time the Trust Fund have proved inadequate to meet the needs of the children of his late son; but, nevertheless, although I am satisfied that the First Defendant was not intending to keep the death in service payment for his own benefit, without regard to the needs of his grandchildren, the fact is that he did refuse to countenance any payment from that source.
- In my judgment, that is not a sufficient reason for awarding costs against the First Defendant personally, nor is it any reason to order the costs to be paid out of the death in service payment on an indemnity basis. I have no doubt that the First Defendant was acting in good faith throughout in what he perceived to be the best interests of his grandchildren, and in a difficult situation that had been created by his own son, who had then compounded the difficulty by taking his own life.
- In the event, the First Defendant has, by his opposition, ensured that the estate has benefited because the Claimant has succeeded in recovering less than she was claiming, and less than the First Defendant had offered to settle her claim. To that extent, he has been proved right; indeed, had the Claimant not at the outset responded to an offer of £60,000 by requesting as much as £175,000 and sticking to it, this litigation might never have had to be brought, with unfortunate consequences in terms of costs for all. The effect is that the death in service payment has effectively been exhausted, apart from that part which will go to the Claimant, in legal costs, to the ultimate detriment of the deceased’s children. It would not be just, in accordance with the overriding objective, or a proper exercise of my discretion, to order the Claimant to recover indemnity costs either against the First Defendant or out of the lump sum payment.
- My order is that the costs of the Claimant should be assessed on the standard basis and should be paid out of the death in service payment sum. It would appear that that sum will be sufficient to defray the costs of the estate properly viewed, the costs of the Official Solicitor, and the costs of the Claimant; but insofar as there is any difficulty in that regard, the order of payment should be (1) the award to the Claimant, (2) the costs of the estate properly incurred, (3) the costs of the Official Solicitor on the indemnity basis, and then (4) the costs of the Claimant on the standard basis. Insofar as the death in service payment is insufficient to meet any of those costs, then the balance should be borne out of the estate generally.