“Costs out of the estate” – Are you sure?

A client may of course be well advised to concede a particular point to obtain a favourable settlement, but to come to that conclusion he must first be advised of its strengths and weaknesses. All too often that basic rule is not followed in contentious probate negotiations, because costs are not given the central role their contribution to the overall outcome demands.

Lawyers have a tendency to conduct such negotiations under the bland assumption that the costs will fall on the estate. They reach a settlement on that basis: is the outcome really as good as their client might have achieved at trial? Persuading the other side to pay costs, even where that would have been highly likely at trial, may well have been a hopeless enterprise, but the potential liability for costs could perhaps have been used to squeeze a slightly better settlement. At the very least the client should have been told the full price of his settlement – not just giving up the chance of bridging the gap between the settlement and the most favourable outcome in Court, but also giving up the chance of recovering his costs of the dispute. What then are the rules governing costs in contentious probate?

Except in the Court of Appeal [CPR r 44.2(3)(b)] the general rule is the same in probate as in any other case: costs follow the event under CPR r 44.2(2)(a). Since Jackson, the power to ‘make a different order’ under CPR r 44.2(2)(b) may have been exercised so freely in cases of every kind as to undermine the general rule, but the starting-point remains the same: is there any good reason why costs should not follow the event?

What amounts to a good reason is, of course, set out in CPR r 44.2(5). The only point peculiar to probate is to be found in CPR r 44.2(5)(a) where ‘any relevant pre-action protocol’ includes the ACTAPS Code.

In principle, therefore, the costs of contentious probate proceedings should be paid by one or more of the parties rather than by the estate. To this general rule there are, however, three exceptions. The first is found in the CPR, the other two in Spiers v English [1907] P 122, as explained in Kostic v Sir Malcolm Chaplin and Mr Martin Saunders (chairman and secretary of the Conservative Party Association) & HM Attorney-General [2007] EWHC 2909 (Ch); [2008] 2 Costs LR 271, where at [6] Henderson J described the exceptions as ‘neither exhaustive nor rigidly prescriptive…guidelines, not straitjackets’.

CPR r 57.7.5(a) lays down a procedure for requiring a will to be proved without advancing a positive case.  A defendant may ‘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.’ If he uses this procedure ‘the Court will not make an order for costs against him unless it considers that there was no reasonable ground for opposing the will’ [CPR r 57.7.5(b)].

The first exception laid down in Spiers v English applies where the testator himself has, or the residuary beneficiaries have, been the cause of the litigation: in these cases costs should come out of the estate.  The Spiers formulation rests on Mitchell v Gard (1863) 3 Sw &Tr 275, in which at 277-8 Sir James Wilde had said the ‘basis of all rule on this subject should rest upon the degree of blame to be imputed to the respective parties’. In Kostic at [9], however, Henderson J made clear that ‘blame’ is being used in a causal rather than a moral sense. Thus the testator’s incapacity triggers the exception just as readily as his failure to make a clear will.

As Norris J pointed out in Wharton v Bancroft [2012] EWHC 91 (Ch) [3], one unfortunate consequence of the first exception laid down in Spiers v English is in many circumstances to require a beneficiary who succeeds in proving the will to pay the costs of the losing challengers: where, for example, there is no residue. Henderson J noted in Kostic at [21] 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’. It certainly does not apply, for example, to a testator who gives beneficiaries a false impression of what is going to be in his will: Re Cutcliffe’s Estate [1959] P.6.

The second exception laid down in Spiers v English applies where neither the testator nor the residuary beneficiaries are to blame for the litigation, but circumstances lead reasonably to an investigation of the matter: in these cases there should be no order for costs. This time the Spiersformulation derives from not just from Mitchell v Gard, but also from Davies v Gregory (1873) LR 3 P&D 28, where Sir James Hannen had said at 33 that if having ‘taken all proper steps to inform themselves as to the facts of the case’ the challengers nevertheless ‘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’.

Although Henderson J in Kostik applied Spiers v English as establishing limited exceptions to a straightforward general rule about costs, he went on to exercise his jurisdiction to ‘make a different order’ under CPR r 44.2(2)(b) with great enthusiasm, making a series of orders limited to particular aspects of the case: in the end very little of the general rule in fact remained. Costs should, therefore, not only play a central role in any negotiations in this field; costs should be a consideration in every aspect of the case. Will we recover for this item, or that item, even if we succeed? If not, will the costs fall on the estate? Is there a risk that, even if we win, we will have to pay the costs of this or that?

Nor is Part 36 as useful a tool in contentious probate as in other areas of litigation, because most cases of this kind are won or lost outright. In one case, for example, the sole beneficiary of an estate running to several million made a Part 36 offer of £5,000 to each of two challengers. The challengers rejected the offer as derisory, even though acceptance would have carried an order forcosts in their favour of £200,000 to £300,000. When they lost at trial, the challengers were ordered to pay costs thought to lie between £750,000 and £1,000,000. The assumption that costs come from the estate can be very dangerous indeed.

If you would like to speak to John Hamey about the topics in this article, please contact the clerking team at EA Law – East Anglian Chambers on 01473 214481.