There is an assumption that costs in family provision will be paid out of the estate. However, an unsuccessful party may be required to pay both their own costs and the other side’s costs if they unreasonably refused an offer which was better than the outcome of the case.

Settlement Offers & Costs Orders

In Family Provision Proceedings the Court has a broad discretion to make any order as to costs as it thinks fit, including ordering that the costs be paid out of the estate. However, the ordinarily rules as to costs as found in the Uniform Civil Procedure Rules (UCPR) still apply. Accordingly, a party who refuses a settlement offer runs the risk that an adverse costs order will be made against them.

The Default Position

Per the UCPR if a party who refuses a settlement offer which was more favourable than judgment, the party who made the offer is entitled to costs. This means that the party who refused the offer may be required to pay both their own legal costs and the other party’s legal costs.

The UCPR is only enlivened if the offer made complies with rule 20.26. That is, it must:

  • Identify the claim to which the offer is related and the proposed orders.
  • Must not include an amount for costs.
  • Must include a statement that the offer is made in accordance with the UCPR.
  • Must specify a time period within which the offer is open for acceptance.

Calderbank Offer

If an offer fails to comply with rule 20.26, it may still be considered a Calderbank Offer. The refusal of a Calderbank Offer which was more favourable than the judgment enlivens a discretion rather than a right (as is the case under the UCPR) to award costs where an offer has been rejected.

To enliven the discretion, the offer must constitute a genuine offer of compromise and it must have been unreasonable for the unsuccessful party to reject.

A Case in Point: Sun v Chapman

The Facts

The deceased left his $2.5 million-dollar estate to be divided between his children and grandchildren. The applicant, Rose, sought family provision on the basis that she had been living in a de facto relationship or a close personal relationship with the deceased at the time of his death.

The existence of the de facto relationship was disputed at trial. While the de facto relationship was registered under the Relationships Register Act and the deceased had made a statutory declaration claiming a de facto relationship in support of Rose’s visa in 2003, on the balance of the evidence, the Court rejected that a de facto relationship had existed at the time of the deceased's death.

Although Rose was found to have been in a close personal relationship, the Court ultimately concluded that no provision should be made, and Rose’s case was dismissed.

The Offer

Prior to the commencement of the hearing, the Executor’s Lawyers made a settlement offer, whereby Rose would receive a $420,000 provision with the remainder of the estate to be distributed per the will. The offered provision represented 22.5% of the distributable estate when the offer was made.

Costs Order

The Court concluded that Rose’s decision to reject the offer was not unreasonable in the circumstances. Although Rose was ultimately unsuccessful, her claim was not unrealistic or untenable. In particular, the statutory declaration executed by the deceased supported the argument that a de facto relationship had existed, which was contrary to the Executor’s position at the time the offer was made.

Further, the Court concluded that the deceased bore some responsibility because of his conduct, which contributed to the costs of determining the nature of the relationship that existed between Rose and the deceased.

Accordingly, the Court refused to make costs orders requiring Rose to pay the Executor’s costs. Rather it was ordered that the Executor’s costs be paid from the estate.

The Takeaway

 If a party refuses a settlement offer that was better than the outcome of the proceedings, they may be required to pay both their own and the other side’s legal costs particularly where their refusal of the offer was unreasonable.

DISCLAIMER: The information provided above is published for general informational purposes only and is not intended to be nor should it be relied upon as a substitute for legal or other advice.