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Schmidt (a pseudonym) & Anor v Walter & ors; Wagner (a pseudonym) v Walter & ors (No 2) [2020] VSC 122 (31 March 2020)

Last Updated: 6 April 2020

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

TESTATORS FAMILY MAINTENANCE LIST

S CI 2016 04134

IN THE MATTER of Part IV of the Administration and Probate Act 1958

- and –

IN THE MATTER of the Will and Estate of KLAUS RICHARD SCHMIDT (a pseudonym), deceased

BETWEEN:

BERNHARD SCHMIDT (a pseudonym) (who brings this proceeding by his Administrator, State Trustees Limited)	First Plaintiff

JENS SCHMIDT (a pseudonym) (who brings this proceeding by his Administrator, State Trustees Limited)	Second Plaintiff

v

MICHAEL WALTER (who is sued as one of the Executors of the Estate of Klaus Richard Schmidt, deceased)	First Defendant

KLAUS HORST SCHMIDT (a pseudonym) (who is sued as one of the Executors of the Estate of Klaus Richard Schmidt, deceased)	Second Defendant

MARCUS SCHMIDT (a pseudonym)	Third Defendant

AND BETWEEN:

S CI 2016 04980

ANNA WAGNER (a pseudonym)	Plaintiff

v

MICHAEL WALTER (who is sued as one of the Executors of the Estate of Klaus Richard Schmidt, deceased)	First Defendant

KLAUS HORST SCHMIDT (a pseudonym) (who is sued as one of the Executors of the Estate of Klaus Richard Schmidt, deceased)	Second Defendant

MARCUS SCHMIDT (a pseudonym)	Third Defendant

---

JUDGE:	Daly AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	16 September 2019. Further written submissions filed on 26 September, 3 and 9 October 2019
DATE OF JUDGMENT:	31 March 2020
CASE MAY BE CITED AS:	Schmidt (a pseudonym) & Anor v Walter & ors; Wagner (a pseudonym) v Walter & ors (No 2)
MEDIUM NEUTRAL CITATION:	[2020] VSC 122

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COSTS – Claim under Part IV of the Administration and Probate Act 1958 (Vic) – Inadequate cash reserves to meet the costs of the parties — Whether executors entitled to indemnity costs owing to conduct of one executor in managing the estate — Whether payment of costs sought to be postponed — Where offer made after mediation and before trial — Offer refused — Whether refusal of offer reasonable — Disclosure of protected information under Chapter 4 Part 2 of the National Disability Insurance Scheme Act 2013 (Cth).

---

S CI 2016 04134

APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr P Pascoe	State Trustees Limited Legal Branch

For the First and Second Defendants	Mr R Wells	Pearce Webster Dugdales

For the Third Defendant	Mr S Pitt	McDonald Slater & Lay

S CI 2016 04980

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S Gannon	KHQ Lawyers

For the First and Second Defendants	Mr R Wells	Pearce Webster Dugdales

For the Third Defendant	Mr S Pitt	McDonald Slater & Lay

*On 23 September 2019, orders were made to the effect that the names of the deceased, family members of the deceased, and companies associated with the deceased would be anonymised, in order give effect to the privacy provisions of the National Disability Insurance Scheme Act (Cth) 2013.

HER HONOUR:

The primary proceedings

1 On 21 June 2019 I delivered reasons for judgment and in two proceedings concerning the estate of the late Klaus Richard Schmidt (‘estate’). Those reasons (‘reasons’) included a framework for the distribution of the estate, following which I sought submissions concerning the question of the parties’ costs. These reasons concerns the final form of orders to be made and the question of costs. While the orders necessary to give effect to the reasons are quite complex, there is generally a consensus between the parties as to the form of order required to give effect to the reasons. The issue of greater controversy is the question of costs.

2 The reasons concerned a proceeding brought by State Trustees Limited (‘STL’) on behalf of the deceased’s profoundly intellectually disabled sons, Jens and Bernhard Schmidt, and a proceeding brought by the deceased’s former de facto spouse, Anna Wagner, against the executors of the estate, seeking further and better provision from the estate (“proceedings”). The executors were the deceased’s eldest son, Klaus Schmidt (‘Klaus Jr’), and Mr Michael Walter, the deceased’s former accountant.

3 The administration of the estate and the determination of the proceedings were complicated by a number of matters, including the deceased’s preparation of two handmade codicils to his will (‘will’), the fact that the non‑real estate assets of the estate largely comprised of loans to a family trust and shareholdings in private investment companies (the assets of which were primarily shares in small, speculative mining ventures), and disputes between Klaus Jr and his estranged mother, which led to Jens and Bernhard living in supported accommodation rather than at the deceased’s home in Donvale (’Donvale property’), as contemplated by the deceased in his will. The Donvale property, valued at approximately $1.65 million, is the most substantial asset of the estate.

4 The will was made on 30 September 1997, with two codicils personally prepared by the deceased in 2008 and 2013, the deceased having commenced a relationship with Anna in 1999. Anna has lived in Australia permanently since 2006, and was fully dependent upon the deceased at the time of his death in December 2013. The relevant terms of the will (as modified by the codicils) were as follows:

(a) the Donvale property was to be available to Anna, Bernhard and Jens to live in for the rest of their lives, with Klaus Jr and his minor children being able to live there as long as they wished, with the estate to fund all of their meals;
(b) the sum of $1,500,000.00 was left to Klaus Jr; and
(c) the sum of $500,00.00 was left to Marcus Schmidt, another adult son.

5 Unfortunately, the size of the estate is insufficient to give effect to the cash legacies referred to in the will.

6 The parties were unable to reach a resolution of the issues between them prior to trial, and the trial commenced on 20 February 2019. In hindsight, it is unfortunate that a further mediation was not held immediately prior to trial, when the somewhat dire financial position of the estate became clearer, and before the parties incurred the costs of a trial. A court ordered mediation took place sometime in July 2017, following which STL considered making an application to remove the executors, but ultimately did not proceed. In most cases in this jurisdiction, the parties benefit from early mediation as it provides an opportunity for the speedy resolution of disputes before the parties and the relevant estate incur steep legal costs. However, in the current case, the full picture, including the asset position of the estate, the severity of the health issues facing Anna, and the nature and value of the services provided to Bernhard and Jens through the National Disability Insurance Scheme (‘NDIS’) was not fully clear to the parties until the weeks immediately prior to the trial.

7 The trial of the proceeding took place over six sitting days, notwithstanding efforts on the part of the parties to streamline the trial process. Contrary to the submissions made by some of the parties, particularly Anna, little of the time at trial was wasted. While it was apparent that Anna found the trial process arduous, I do not accept the submissions advanced on her behalf which, while not expressly stated that way, were to the effect that if evidence was led or tested in a way which did not advance or conform with the position adopted by her (and Klaus Jr) in the proceedings, it was irrelevant, and consumed unnecessary time and costs. I disagree. To the contrary, most of the evidence led by the parties, or elicited by cross‑examination, was illuminating in some respects, and assisted me in reaching the determination I made. That said, a trial of such length and involving so many parties was an extremely expensive exercise for the parties and the estate. Based upon the estimates of the parties, the total legal costs incurred by the parties over the course of the proceedings totals approximately $660,000.00. One might expect that at least one‑third of those costs were incurred during the course of the running of the trial, if not more.

8 The three issues which received most attention at trial were:

(a) the state of Anna’s health, and her contention that her psychological wellbeing would be severely compromised should she be required to leave the Donvale property. Anna, and her treating general practitioner and psychologist were cross‑examined by counsel for Marcus, and, to a lesser extent, counsel for STL;
(b) the financial position of Bernhard and Jens, and the availability, nature, and value of the services provided to them, and likely to be provided, under the NDIS. STL called three witnesses, including an expert witness retained by it, in relation to the question of the current and future support needs of Bernhard and Jens, who were cross‑examined by counsel for the executors, and (briefly) by counsel for Anna; and
(c) the management of the estate by Klaus Jr after the death of the deceased. Klaus Jr, and to a lesser extent, Anna and Mr Walter, were cross‑examined by counsel for Marcus and counsel for STL regarding this issue.

9 Given that the deceased died in 2013, the applications for further provision were determined in accordance with the provisions of Part IV of the Administration and Probate Act 1958 (Vic) (‘Act’) as they stood prior to the amendments in 2015. The most significant difference between the pre‑2015 Act and the post‑2015 Act for present purposes is that, in determining whether to make an order for further provision, a more stringent test is imposed upon applications made by able-bodied adult children. However, even if these proceedings were determined according to the post‑2015 Act, this would not have substantially altered the position, as both Klaus Jr and Marcus were beneficiaries under the will, and were thus merely defending their entitlements under the will.

10 There was a dispute between the parties as to whether the legacy to Marcus was, by reason of the terms of the will, to be paid with priority over the other pecuniary legacies in the will, or that legacy abated pursuant to the terms of s 39B of the Act. However, the real debate at trial was whether the Donvale property should be sold in order to fund the immediate payment of substantial cash amounts to Bernhard, Jens and/or Marcus.

11 There was no dispute that the deceased owed a moral obligation to make proper provision for Anna, Jens and Bernhard. All parties agreed that the deceased did not make adequate provision for Anna, by failing to provide her with a portable life interest in the Donvale property which could provide her with sufficient flexibility to move to more appropriate accommodation should the need arise in later years. However, both STL and Marcus submitted that those needs could be met by half of the proceeds of sale of the Donvale property being set aside to purchase a suitable property in which she could hold a life interest, freeing up funds to enable immediate cash payments to the children of the deceased, and the payment of the parties’ legal costs.

12 However, this proposal was vociferously resisted by Anna and the executors, not on the basis that it would not provide sufficient funds for Anna’s needs, but because it would cause her to leave her beloved home in circumstances where she was particularly psychologically fragile. A substantial part of the evidence at trial concerned the question of whether the sale of the Donvale property would unreasonably jeopardise Anna’s mental health, with its associated risks. Other factors supporting the retention of the Donvale property included the fact that the will provided for the Donvale property to be available for Klaus Jr, Bernhard and Jens to live in, and the conclusion to be drawn from the evidence that, owing to the services available to them under the NDIS, Bernhard and Jens were unlikely to need substantial additional financial support until they were over 65, that is, not for another two decades, or thereabouts.

13 In determining what further provision ought to be made for Anna, and Jens and Bernhard under the pre-2015 Act, the Court was required to take into account the factors enumerated in s 91(4) of the Act. The relevant factors, along with other relevant principles derived from the authorities, included the following:

(a) the testamentary intentions of the deceased;
(b) the general principle that a testator’s primary moral obligation is to his or her surviving spouse;
(c) there is no obligation to treat all children equally, and a profligate adult child is not disqualified from receiving provision under an estate;
(d) the benefits provided to a beneficiary or potential beneficiary during his or her lifetime are relevant;
(e) a beneficiary is not obliged to prove their entitlement under a will, but the circumstances of a beneficiary may be relevant to the question of determining where the burden of ordering further provision for an applicant should fall; and
(f) the conduct of the parties, in particular, in the current case, in the management of the estate.

14 Having regard to all of the relevant factors, I determined to order as follows:

(a) the Donvale property be retained, so that both Anna and Klaus Jr can continue to live there;
(b) if the Donvale property is sold prior to Anna’s death, the proceeds of sale be distributed as follows:

(i) fifty per cent to fund appropriate accommodation for Anna in the future pursuant to a Crisp^[1] order;
(ii) twenty per cent to STL to be held for the benefit of Jens and Bernhard in equal shares;
(iii) thirty per cent to be paid to Klaus Jr and Marcus in the following proportions: two‑thirds to Klaus Jr and one‑third to Marcus; and

(c) upon Anna’s death, the proceeds of sale of any property purchased for her (or refund of any bond payable for her accommodation) be divided between Klaus Jr, Marcus and on trust for both Jens and Bernhard in accordance with the above proportions: that is, ten per cent for each of Jens and Bernhard , with the balance to be divided between Klaus Jr and Marcus as to two-thirds and one-third respectively;
(d) for the avoidance of doubt, STL may apply first the income and then the capital of the trusts created by the terms of paragraph (b)(ii) and (c) above (‘trusts’) to meet the needs of Jens and Bernhard ; and
(e) upon the death of either Jens or Bernhard , the balance of the trusts is to be divided in equal shares between the surviving children of the deceased.

15 During the course of the parties’ submissions with respect to costs, counsel drew my attention to an apparent gap in my proposed framework for the distribution of the estate, namely, how the estate would be administered should Anna die while still living at the Donvale property. That omission will be rectified in the final orders.

16 Finally, after outlining the proposed framework for the distribution of the estate, the reasons went on to say as follows:

For the avoidance of doubt, in the unlikely event that there is any residuary estate after the outstanding liabilities of the estate are met, the balance of the residue should pass to Anna in order to provide her with a modest nest egg. I see no difficulties with the executors’ proposed allocation of the deceased’s chattels.
However, while the framework I have adopted most closely follows that proposed by the executors, I have departed from the executors’ proposed allocation of the proceeds of the Donvale property, which in my view unduly benefits Klaus Jr. In my view, the distribution to Klaus Jr should reflect the fact that Klaus Jr has received considerable benefits from the deceased during his lifetime, and from the family trust and Tinnid after his death. While the true value of the benefits Klaus Jr has received is difficult to calculate precisely, it cannot be disputed that what he has received has been a considerable down payment upon his legacy under the Will. He does not deny having received approximately $400,000.00 from the family trust, Tinnid, and the estate since November 2013. He has been able to support himself, his children and Anna for some five years. Further, while I do not propose to provide Klaus Jr with an independent right of residence at the Donvale property, there would have to be a dramatic change in the relationship between Anna and Klaus Jr for him to be unable to continue to reside at the Donvale property. Apart from any other consideration, I would expect that Anna’s loyalty to the deceased is so strong as to ensure that Klaus Jr and his children will always have a home with her at the Donvale property while she remains there, in accordance with the wishes of the deceased.
My conclusion that the Donvale property ought be retained for the foreseeable future is based upon the following considerations (in roughly descending order of importance):
(a) it most closely aligns with the deceased’s wishes that the Donvale property be available to live in by Anna, Klaus Jr and his children, and Jens and Bernhard;
(b) the significant attachment Anna has to the Donvale property, and her family and friends, and the risk of serious harm to her mental health should she be forced to leave the Donvale property within the immediate future; and
(c) the benefits to Jens’ wellbeing of continuing to have regular access to the Donvale property to spend time with his family; and
(d) the rather dire financial circumstances of Klaus Jr.

Costs – relevant principles

17 As the deceased died before 1 January 2015, the question of costs is governed by s 97 of the Act, which provides as follows:

(6) Subject to subsection (7), the Court may make any order as to the costs of the application s 91 that is, in the Court’s opinion, just;
(7) If the Court is satisfied that an application for an order under s 91 has been made frivolously, vexatiously or with no real prospect of success, the Court may order the costs of the application to be made against the applicant.

18 Section 97(7) has no application to the current case, as it could not be said that either of the applications made by Jens and Bernhard, or Anna, was frivolous or vexatious, or had no real prospect of success.

19 Essentially, s 97(6) does no more than confirm the general principle that the Court has an extremely broad discretion as to costs, although the reference to making any order which is ‘just’ indicates that the range of considerations which may be taken into account in determining the question of costs may be broader than what might be able to be taken into account in an ordinary civil litigation, such as the financial position of the parties. Indeed, prior to 2015, the usual order as to costs in civil litigation (that is, that costs follow the event) was the exception rather than the rule in applications for further provision under the Act.

20 The following extract from Seng Hpa v Walker^[2] provides a useful summary of the applicable principles (footnotes omitted):

In Briggs v Mantz (No 2) the Court reviewed those subsections, noting that s 97(7) does not restrict the general discretion afforded in s97(6). Instead, it serves as a reminder to the Court and ‘would-be applicants whose claim to a moral entitlement are tenuous’.
Certain characteristics of family provision cases inform the Court’s discretion, including the existence of a fixed fund and that parties may be participating in the proceeding through no fault of their own. For example, a defendant executor is ordinarily indemnified out of the estate, although the extent of this indemnity can vary with the reasonableness of that party’s conduct. Similarly, the estate usually bears the costs of a successful plaintiff and, in the context of an unsuccessful plaintiff, there will generally be no order as to costs.
At times however, an unsuccessful plaintiff may be ordered to pay the costs of the defendant, or rarely, have their costs paid out of the estate. In this regard, considerations include the size of the estate, the financial burden of any costs order and the reasonableness of the party’s actions. Where a defendant beneficiary elects to join the proceeding, they do so with the risk that their costs, as additional to those of the defendant executor, will not be borne by the estate. As stated in Large v Higham (No 3) with reference to the Family Provision Act 1982 (NSW):

Family Provision Act proceedings are not a vehicle for persons with like interests to those directly involved as parties to participate in the proceeding on the basis that they will automatically be entitled to costs out of the estate; the estate does not automatically bankroll the legal costs of every party who wishes to be heard...

Further, at times unsuccessful defendants have been ordered to pay the costs of plaintiffs and other defendants. Relevant considerations reflect those identified in the context of unsuccessful plaintiffs.
Ultimately, the general principles of costs in civil litigation still apply and the Court of Appeal’s comments in Forsyth v Sinclair (No 2) remain pertinent:

Parties should not assume that litigation can be pursued safe in the belief that costs will always be paid out of the estate. Every effort should be made to resolve the dispute before costs get out of proportion.

In light of the fixed fund and often emotive family circumstances, issues of proportionality and reaching settlement are heightened. In particular in relation to estates of modest value, reference has been made to the need for a ‘practical and reasonable approach’. In Smith v Smith (No 2) Hallen AsJ, as his Honour then was, commended parties to:

... conduct negotiations frankly and openly, to try to resolve the proceedings, and if there are issues or concerns about an offer that has been made, to raise any issues at the first convenient opportunity with the offeror's solicitors, so that any ambiguities, or other concerns, can be resolved. The Court should be able to see that the parties have considered what is being offered in a sensible, practical, and commercial way.

The Court’s Practice Note No 7 of 2015 reflects such considerations, with express reference to the overarching obligations set out in Part 2.3 of the Civil Procedure Act 2010 and the Court’s expectation that the ‘resources of the estate and of the Court will not be used in a manner that is out of proportion to the size of the estate and the provision that may be made’.^[3]

21 Having regard to all of the circumstances, the relevant considerations with respect to the question of costs in the current case are as follows:

(a) the relative success of the parties at trial;
(b) the offers made by the parties in the course of the proceedings, in particular, in assessing the entitlement to costs of any particular party, whether any party had unreasonably rejected any offer during the course of the proceeding.^[4] The only offers in evidence are offers made by the executors in January 2018 and December 2018 (‘2018 offers’);
(c) whether it was necessary for any party to be a party to the proceedings;
(d) the parties’ conduct of the litigation, including, but not limited to the question of whether any party caused the trial of the proceedings to be prolonged;
(e) any other conduct which might disentitle a party to their costs; and
(f) the financial circumstances of the parties.

22 In relation to the last matter, I accept that, in the ordinary course of events, the financial position of the parties is not a relevant factor in determining the question of costs. In particular, an unsuccessful party cannot, all other things being equal, resist an order for costs on the basis of impecuniosity alone.^[5] However, the question of the financial position of the parties is relevant in two respects to the current application. First, both Anna and the executors submit that the Court should avoid making a costs order which, by reason of Anna’s precarious financial position (she has no assets of any substance, and is dependent upon government benefits for her income),^[6] undermines my primary conclusion that Anna should have a life interest in, and she and Klaus Jr should be permitted to continue to live at the Donvale property for the time being. Secondly, Marcus has advanced evidence of his financial position in order to rebut the submissions advanced on behalf of Anna and the executors to the effect that he is better placed than other family members to bear his own costs. Similarly, STL is understandably anxious not to bear a disproportionate share of the costs burden on the basis that it is the only party to the proceedings which has deep pockets.

23 Before turning to the parties’ submissions in greater detail, I should note that any synthesis of the above factors does not lead to a clear cut outcome, particularly when the amount of the personal assets of the estate available to meet any order for costs is approximately $150,000.00 (which may be optimistic) and the total costs incurred by the parties are in the order of $660,000.00. The following paragraphs provide a snapshot of the relevant matters with respect to each party when it comes to considering the question of costs.

24 Anna was successful in the proceedings, in that the primary contentious issue, being the retention and regularisation of her life interest in the Donvale property, was resolved in her favour. Further, the making of any order other than an order for costs in her favour risks undermining the outcome of the proceedings. However, there is a real question as to whether it was necessary for her to be a party to the proceedings, particularly once the parlous financial position of the estate became clear, given that her position and interests were ably represented at trial by the executors. Further, the evidence suggests that she acquiesced, or at least partially benefited from, Klaus Jr’s mismanagement of the estate.

25 Representing Jens and Bernhard, the other plaintiffs, STL was largely unsuccessful in its primary position, being that the Donvale property should be sold, and substantial cash payments be made for the benefit of its clients immediately. However, it is going too far to say that STL should not have brought the proceeding at all. After all, the will, properly construed, and having regard to the change in circumstances following the death of the deceased, made no provision for Jens and Bernhard whatsoever. Further, the evidence advanced by STL in the running of the trial, while not necessarily advancing its clients’ position to the extent it may have preferred, was very helpful in informing the Court of the relevant circumstances, in particular, the availability of NDIS support for Jens and Bernhard. However, there is a real issue as to whether it was prudent or reasonable for STL to reject the 2018 offers.

26 Marcus was criticised by counsel for Anna in particular for his role in these proceedings and his conduct at the trial. As a beneficiary of the estate, strictly speaking, it was not necessary for him to be a party to the proceedings, and he had been warned that he was at risk of not receiving his costs out of the assets of the estate. He was unsuccessful in his primary submission that the Donvale property should be sold and that he be paid his full legacy under the will immediately, and in priority to all other claims upon the estate. However, it became apparent during the course of the trial that in order for his interests to be adequately defended, he needed to have his own legal representation. There is no suggestion that he unreasonably rejected any offers of settlement, and, in any event, he was not called upon to respond to the 2018 offers, as STL’s refusal of the 2018 offers in effect put an end to settlement negotiations. Further, contrary to the submissions advanced on behalf of Anna, his role at trial went no further than acting as a proper contradictor to the contentions put forward by Anna, the executors, and STL.

27 The executors are in a somewhat different position to the other parties, being involuntary defendants to both proceedings. They also benefit from the general principle that trustees are entitled to an indemnity for expenditure properly incurred by them in the administration of the trust. I accept that the administration of this estate and the defence of the claims in these proceedings carried their particular complications, and they cannot be criticised for their conduct in defending these proceedings. Indeed, the ultimate outcome at trial, at least in terms of the framework adopted for the resolution of the issues in the proceedings, largely reflected the submissions advanced by the executors at the conclusion of the trial.

28 However, the position of the executors is complicated somewhat by the position and conduct of Klaus Jr, in that he stood to benefit personally from the orders which were ultimately made, and he was the subject of some (largely justified) criticism of his management of the estate after the death of the deceased. In particular, it was contended by both Marcus and STL that Klaus Jr had utilised the funds of the estate (and the funds of companies in which the estate had a direct or indirect interest) for his own purposes, and that he had allowed those companies to continue to trade unprofitably, to the detriment of the estate and the other beneficiaries of the estate.

29 While I accepted that Klaus Jr should bear some responsibility for the current financial predicament of the estate, I formed the view (as best as I could upon the evidence available) that the value of the estate was never as large as shown in the probate inventory, by reason of the accounting and valuation practices adopted by the companies in which the estate had a direct or indirect interest, upon the instructions of the deceased, prior to his death. In particular, the deceased instructed Mr Walter, who was then his accountant, to value the shares held by the trustee of the family trust, and the family investment company, at their cost price, rather than their market value, which meant that the value of the share portfolios held by each company was substantially inflated. However, Klaus Jr’s unprofitable share trading activity also extended to his own assets, such that it appears that he is now in some need, having never been engaged in paid employment in the mainstream workforce.

The evidence

30 The executors relied upon an affidavit sworn by their solicitor, Mr David Phelan. This affidavit concerned two issues: first, the terms of the 2018 offers and STL’s response to the 2018 offers, and secondly, the difficulties involved in obtaining access to the NDIS plans of Jens and Bernhard, which was said to have caused the executors to incur unnecessary legal costs.

31 The 2018 offers were exhibited to Mr Phelan’s affidavit. The first, in a detailed letter dated 25 January 2018, was directed at STL, and included the following terms:

(a) the estate would pay $330,000.00 to STL to be used as a ‘fund of last resort’ (‘fund’) for Jens and Bernhard, to be used for accommodation, medical expenses, occupational therapy, clothing, and general living expenses, including recreational activities in Melbourne;
(b) upon the death of either Bernhard or Jens, the balance of the fund would pass to the survivor, and upon the death of the survivor, the fund would be returned to the estate for distribution between Anna, Klaus Jr, and Marcus;
(c) Anna would receive the balance of the cash in the estate, and a portable life interest in the Donvale property;
(d) upon the sale of the Donvale property, 45 per cent of the proceeds would be set aside for Anna, 45 per cent for Klaus Jr, and ten per cent for Marcus; and
(e) the balance of the offer concerned how the affairs of the companies would be wound up.

32 The January 2018 offer was specified to be open for fourteen days, and was conditional upon acceptance by Anna and Marcus. The January 2018 offer also contained details about the administration of the estate, as well as responding to specific complaints made by STL concerning the administration of the estate (including the salary paid to Klaus Jr), and stated, among other things:

The Estate will then hold $432,098 in cash after the sale of its 60,000 shares in [Tinnid] Pty Ltd, payment of Council rates on the [Donvale property], the discharge of the debt due to the German Hospital and payment of the Estate’s debt to [Tinnid] Pty Ltd, as well as payment of Estate administration expenses and legal costs.
The only other asset of the Estate is the [Donvale] property which is in effect the matrimonial home of the deceased and [Anna], who is the surviving domestic partner of the deceased and who was substantially involved in the care of and welfare of your clients. [Anna]through her lawyers has indicated clearly that she wishes to remain living at this property for as long as she is able to do so. In our view [Anna] has a very strong competing claim against the Estate. However, as there are also the competing claims of the deceased’s other children ([Klaus Jr] and Marcus), these must also be provided for. However, the competing claims of [Klaus Jr] and Marcus can in our view be largely accommodated by providing them a future interest in that property (or its proceeds of sale).
We accept that some immediate provision should be made for your clients. Thus, we believe that the substantial majority of the available cash in the Estate ought to be applied in settlement of your clients claims, but the use of the [Donvale] property is required to meet the immediate needs of [Anna], and the capital of the [Donvale] property is required to meet the longer term needs of [Anna] and also to provide some benefit for [Klaus Jr] and Marcus.
Further, we believe that the $432,098 cash in the Estate is more than enough to enable the Estate to make a payment into a fund, which we address in more detail below, for the benefit of your clients in full and final settlement of their claim for further provision. It is self-evident that there is no realistic prospect of your clients receiving more than the amount that will be held by the Estate at the conclusion of a trial given the excessive and unrealistic claims made in the occupational therapist reports.

33 On 27 February 2018, the solicitor for STL replied as follows:

The settlement offer set out in that letter is rejected. The matter will need to proceed for trial directions before Justice McMillan. I will draft the necessary orders and provide them for your consideration.

34 On 4 December 2018, the solicitors for the executors sent another offer to STL (‘December 2018 offer’). In the December 2018 offer, the executors rejected an offer made by STL (which was not in evidence), and explained why the executors did not accept that offer, namely, because the executors considered that the funds available to Jens and Bernhard from their disability support pensions and the NDIS would be sufficient to meet their needs.

35 The December 2018 offer also included some explanation of the financial affairs of the estate and the companies in which the estate had an interest, and included a spreadsheet setting out the executor’s view as to the assets and liabilities of the estate. Apart from the Donvale property, the main assets of the estate at that time was a cash fund of $192,676.69.

36 The December 2018 offer provided, in summary, as follows:

(a) the cash held in the estate be applied as follows:

(i) the discharge of the estate’s liabilities;
(ii) payment of STL’s legal costs fixed at $70,000.00;
(iii) payment of Anna’s legal costs fixed at $40,000.00;
(iv) payment of Marcus’ legal costs, assumed to be $25,000.00;
(v) payment of $19,900 to each of Jens and Bernhard, to be held by STL as administrator;
(vi) payment of $17,250.00 to Anna; and
(vii) payment of $300.00 to each of Klaus Jr and Marcus;

(b) the Donvale property be charged to secure a payment to each of Jens and Bernhard of $25,000.00 each, until the death of both of them, up to a total of $400,000.00, provided that certain conditions were satisfied by STL (that is, that they provide evidence of a specific medical need not capable of being funded from their income or through the NDIS);
(c) in the event that there was any default of the payment of any instalment, the Donvale property would be sold, and the proceeds of sale would be distributed by a payment to Jens and Bernhard of the balance of the instalments due to them pursuant to the charge. In the event that one of them had died in the meantime, the amount due to either of them would be distributed 55 percent to Anna, 35 percent to Klaus Jr, and 10 per cent to Marcus;
(d) Anna and Klaus Jr could remain living at the Donvale property subject to them paying rates and insurance premiums. Once the charge in favour of Jens and Bernhard is discharged by their death or payment of the full amount of the instalments, the Donvale property could be sold at Anna’s discretion (or that of her representative), and be distributed 55 percent to Anna, 35 percent to Klaus Jr, and 10 percent to Marcus;
(e) the remainder of the December 2018 offer concerned the mechanism by which the financial affairs of the estate could be wound up, which is not of particular relevance here, save as to explain how the immediate payment to Jens and Bernhard of $34,800.00 would be funded; and
(f) the December 2018 offer included the following:

We note that our clients made a previous ‘without prejudice save as to costs’ offer to your clients by letter dated 25 January 2018. At that time the extent of the financial support that the NDIS provides to each of your clients was not known and it was assumed that your clients had immediate or long term financial needs that could not be met. Accordingly, the offer at that time was for ‘one off’ cash payments to each of your clients of $165,000 inclusive of costs on the conditions set out in the offer.
Unless the Court were to order the sale of the [Donvale] property (and thereby deprive both the deceased’s widow and his son of having a roof over their head), which we think is highly unlikely, then having regard to the nature and extent of the remaining Estate assets and the Estate liabilities as explained herein and set out in the spreadsheet, it is our opinion that your clients have no prospect of obtaining any judgment that even approaches the amount of our previous offer. In those circumstances, unless this matter resolves, we think your clients are at serious risk of an adverse costs order.
We therefore urge you to give careful and serious consideration to this offer, which attempts to use the limited (and dwindling) resources of this Estate for the benefit of all of those to whom the deceased had a responsibility to provide for.
This offer would also permit [Jens] to continue to enjoy and benefit from his visits to [the Donvale property] each Wednesday for dinner with the added capacity to visit on a fortnightly basis from Friday afternoons through to Sunday evenings, as he presently does when circumstances permit. His enjoyment of the visits is referred to at page 6 of the report of Tania Wiley dated 4 June 2018. We are also instructed that [Jens] spends a substantial proportion of his holidays at [the Donvale property] and when he visits he is familiar with the layout of the property and this is something of tremendous comfort to him.
As for [Bernhard], the retention of [the Donvale property] will permit him to visit again as regularly as circumstances permit. Therefore, in an overall sense the retention of [the Donvale property] is consistent with both the deceased’s wishes as expressed in his Will and Codicils and the overall best interests of your clients.
We note briefly in relation to Marcus that he was well provided for by the deceased during his lifetime and he earns a relatively substantial salary. Further, the net asset position of Marcus and his wife is materially better than that of any other named beneficiary. The above offer includes a payment from the Estate for the legal costs incurred by Marcus even though the usual course is that a defendant in his position is required to meet their own costs.
This offer remains open for acceptance until 21 December 2018 subject to the approval of both [Anna] and Marcus, as well as Court approval. The current shareholders of [Tinnid] P/L would also need to pass a unanimous resolution of its shareholders authorising the loan specified at paragraph 10 of the offer. The implementation will commence 28 days after receipt of Court approval.
We will not commence seeking confirmation of acceptance by [Anna] and Marcus until we know the offer is acceptable to your clients.
This offer is made in accordance with the principles enunciated in the decisions of Calderbank v Calderbank [1975] 3 All ER 333, Cutts v Head [1983] EWCA Civ 8; [1984] 1 All ER 597 and Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435.
Should your clients continue with their proceeding for further provision from the Estate and fail to achieve an outcome more favourable than the above offer, this letter will be used in support of an application for an order that your clients pay the Estate’s legal costs as from the date of the offer.

37 On 21 December 2018, Anna’s solicitors sent a letter to STL confirming her agreement with the December 2018 offer.

38 On 30 January 2019 (that is, three weeks prior to trial), STL wrote to the solicitors for the executors rejecting the December 2018 offer, and making a counter offer. STL stated as follows with respect to the December 2018 offer:

The proposal requires our clients to continuously justify further distributions from the Estate. This would only lead to further costs to be incurred by our clients. We respectfully suggest that no Judge would put our clients, two disabled people with virtually no assets, to such expense and trouble.
Further [Klaus Jr] would obviously be one of the persons to determine our clients’ request for funds. He is therefore in a position of conflict given that it would be in his interest to refuse the requests so as to not sell the Sowter Court property which he is currently occupying.
The offer is unreasonable and has no prospect of being approved by the Court.

39 STL also queried the asset position of the estate, and the amount of legal costs incurred by the estate in the proceedings. It went on to say further about Jens’ and Bernhard’s claims for further provision:

Our client’s claims for further provisions
Our clients are the Deceased’s children. They are people under disabilities. They both suffer from intellectual disabilities and they are both currently living in supported accommodation.
[Jens] was born on 28 September 1971 and he is 47 years old. [Jens] is mobile. He requires some prompting and some physical assistance in dressing and cleaning himself. He is non-verbal. He requires full assistance in domestic tasks.
[Bernhard] was born on 5 September 1977 and he is 41 years old. [Bernhard] is mobile, but requires assistance for dressing and cleaning himself and other domestic tasks. He has behavioural issues and reduced language skills. [Bernhard] also suffers from Tuberous Sclerosis, which may cause further medical complications in the future.
[Jens] and [Bernhard] have virtually no assets.
Both [Jens] and [Bernhard] have been approved for NDIS funding, the details of which have already been provided. while it is pleasing that they would [be] receiving funding, we make the following observations:

The funding is not provided by way of a direct payment, rather an amount is budgeted for a particular service and the NDIS pay for that service up to the budgeted amount.
The plans are reviewed every year, and there is no guarantee that they would receive the same funding at the next review.
There is political uncertainty as to how the scheme would be funded in the future. As an example, you will recall that as recently as October 2018 the Government decided to use funds previously earmarked for the NDIS to fund drought relief.

Accordingly, it is our view that while the Court will take into account their potential entitlement under the NDIS, the Court would not find that our clients are without needs, especially given that the Deceased’s estate is relatively substantial.
We acknowledge that the Deceased also had a moral obligation to provide for his partner [Anna] and his other sons [Klaus Jr] and Marcus. We also accept that none of them could be said to be without any financial needs. However, we make the following comments in relation to their claim/position:

In light of the duration of [Anna’s] relationship with the Deceased, and in light of the Deceased’s obligation to his children, the Court is unlikely to award her a substantial interest in the [Donvale] property absolutely. Further, she has occupied the [Donvale] property rent free since the Deceased’s death more than 5 years ago.
[Klaus Jr] has already derived substantial benefits from the Deceased’s estate. He had occupied the trust property at Wantirna, seemingly without paying rent, until the middle of 2014. He has occupied the [Donvale] property since then without paying rent. He has paid himself a total of approximately $400,000 from the Family Trust and [Tinnid] Pty Ltd, thereby reducing the amount recoverable by the Estate from the Trust and [Tinnid] Pty Ltd.
Marcus and his wife have relatively substantial assets and income.

40 STL’s counter offer provided as follows:

(a) the sum of $110,000.00 be paid to the Senior Master on behalf of each of Jens and Bernhard within 90 days of the date of Court approval of the settlement;
(b) payment of STL’s costs, capped at $70,000.00;
(c) in the event of the death of Jens and/or Bernhard the balance of the funds held by the Senior Master on their behalf pass to the survivor, and then to Klaus Jr and Marcus in equal shares;
(d) the Donvale property be sold by 28 February 2029, with Anna and Klaus Jr to remain there subject to them paying rates and outgoings;
(e) upon the sale of the Donvale property, fifteen per cent of the net proceeds of sale were to be paid to Bernhard and Jens on the same terms as set out in (c) above, with STL having no position as to how the balance ought to be distributed.

41 The executors’ solicitor also exhibited to his affidavit a spreadsheet comparing the outcome at trial to the terms of the 2018 offers, and correspondence between his firm and STL regarding the NDIS plans of Jens and Bernhard, which is reproduced in part below.

Estate KR Schmidt Analysis of judgment outcome – comparison to offers sent to STL on 25 January 2018 and 4 December 2018 Judgment outcome
Donvale property (not to be called in or converted money) – Anna and Klaus Jr to live there
Sale price – after repairs		$1,650,000.00
Less sale costs		$50,000.00
Net sale proceeds		$1,600,000.00

Paragraph 128(b) – Sale of Donvale property prior to death of Anna – net proceeds
	Percentage
Anna – Crisp order	50%	$800,000.00
STL for Bernhard	10%	$160,000.00
STL for Jens	10%	$160,000.00
Klaus Jr	20%	$320,000.00
Marcus	10%	$160,000.00
	100%	$1,600,000.00

Paragraph 128(c) – remainder after Katrin’s death
Anna – balance of Crip order (estimate % reduction – aged care fees)	10%	$720,000.00
STL for Bernhard	10.00%	$72,000.00
STL for Jens	10.00%	$72,000.00
Klaus Jr	53.33%	$384,000.00
Marcus	26.67%	$192,000.00
	100%	$720,000

Paragraph 128(e) – remainder after Bernhard or Jens die
Total received by STL for Bernhard
On sale of Donvale property	$160,000.00
On death of Anna	$72,000.00	$232,000.00

Total received by STL for Jens
On sale of Donvale property	$160,000.00
On death of Anna	$72,000.00	$232,000.00
Sub-total		$464,000.00
Deduct – estimate capital applied to needs (paragraph 128(d))		$156,000.00
Amount available on death of both Bernhard and Jens		$308,000.00

Distribution of amount available
Klaus Jr	50%	$154,000.00
Marcus	50%	$154,000.00

Summary of judgment outcome
Anna – Crisp Order		$800,000.00
Bernhard (use of)		$232,000.00
Jens (use of)		$232,000.00

Klaus Jr
On sale of Donvale property	$320,000.00
On death of Anna	$384,000.00
On death of Bernhard and Jens	$154,000.00	$858,000.00

Marcus
On sale of Donvale property	$160,000.00
On death of Anna	$192,000.00
On death of Bernhard and Jens	$154,000.00	$506,000.00

Comparison of judgment outcome with 2018 offers

STL for Bernhard
December 2018 offer
STL for Bernhard (immediately)	$19,900.00
STL for Bernhard (after Tinnid share transactions)	$17,400.00
Charge in favour of Bernhard*	$200,00.00	$237,300.00
*accessible during life time of Anna if conditions met and balance paid to STL if Bernhard alive at time of sale

Judgment outcome
On sale of Donvale property	$160,000.00
On death of Anna (nothing available immediately or while Anna lives at Donvale property)	$72,000.00	$232,000.00

December 2018 superior to judgment outcome by (ignoring financial detriment of delay in receipt of funds under judgment)		$5,300.00

January 2018 offer
Bernhard (use of) (accessible immediately)	$165,000.00

Judgment outcome – funds accessible immediately	$ –

January 2016 superior to judgment outcome by	$165,000.00

STL for Jens
Offer of compromise outcome (4 December 2018 offer)
STL for Jens (immediately)	$19,900.00
STL for Jens (after Tinnid share transactions)	$17,400.00
Charge in favour of Jens*	$200,000.00	$237,300.00
*accessible during life time of Anna if conditions met and balance paid to STL if Jens alive at time of sale

Judgment outcome
On sale of Donvale property	$160,000.00
On death of Anna (nothing available immediately or while Anna lives at Donvale property)	$72,000.00	$232,000.00

Offer superior to judgment outcome by (ignoring financial detriment of delay in receipt of funds under judgment)		$5,300.00

January 2018
Jens (use of) (accessible immediately)	$165,000.00

Judgment outcome – funds accessible immediately	$ –

January 2018 superior to judgment outcome by	$ 165,000.00

42 Accordingly, provided that one ignores the need to discount future payments to achieve a net present value of the deferred payments, which may in effect be offset by rising property values (given that the judgment provides for a percentage of the sale of the Donvale property to pass to Jens and Bernhard), it appears that the December 2018 offer was modestly superior to the outcome of the judgment. The sums payable pursuant to the January 2018 offer fell short of the sums payable as a result of the judgment, but the payments were to be made immediately.

43 Marcus filed two affidavits sworn on 12 September 2019 and 16 September 2019. In his affidavit sworn on 12 September 2019, Marcus deposed, in summary, as follows:

(a) the council valuation of the home owned by him and his wife in Mont Albert North is $1,855,000.00, with a mortgage balance of $547,147.00, which is the maximum amount they can borrow;
(b) he has paid $135,875.00 in legal costs associated with the proceedings, which has been funded by refinancing their mortgage and borrowing $35,000.00 from a friend;
(c) he and his wife hold shares valued at $167,030.00, cash of $23,484.00, combined superannuation of $266,000.00 and motor vehicles of negligible value;
(d) his wife has a HECS debt of $25,000;
(e) he earns $136,986.46 plus superannuation per annum, in his employment as a software engineer. His wife is only able to work on a limited basis because of the needs of their children, aged thirteen and ten, both of whom have special needs, and whose educational and therapeutic needs consume considerable resources; and
(f) he deposed as follows:

Our finances are very tight, we have no savings to speak of. We have been forced to max out our mortgage to pay our legal costs to date. With further legal costs to come we hope that all our legal costs will be met from the estate

44 In his affidavit sworn on 16 September 2019 (the day of the hearing of the parties’ applications with respect to costs), Marcus deposed, in summary, as follows:

(a) prior to trial, Klaus Jr deposed that his assets as including shareholdings valued for tax purposes at $756,400.00. He exhibited a spreadsheet headed ‘[Klaus Schmidt] Share Trading Year ended 30 June 2016’ which provided that the market value of Klaus Jr’s shareholdings was $1,063,300.00;
(b) on the fourth day of the trial of the proceedings, Klaus Jr produced up to date documents concerning his financial position, and gave evidence that he no longer had financial resources of any significant value, which was highly relevant to the Court’s consideration of the issues in the proceeding;
(c) as such, he was concerned that Klaus Jr may have been concealing assets. He noted that Klaus Jr had a one percent shareholding in Neptune Design Limited (‘Neptune Design’), a company incorporated in New Zealand, in which the estate held 99 percent of the shares. Klaus Jr had been a director of Neptune Design from 1992 to the date of the death of the deceased. The executors had deposed to the fact that Neptune Design was insolvent, and the 99 shares were assigned no value;
(d) on 27 March 2019 (while judgment was reserved), his solicitors wrote to the solicitors for the executors requesting the financial statements for Neptune Design. No response was received to that request, which was repeated on 12 September 2019;
(e) on 13 September 2019 (the business day prior to the hearing), the solicitors for the estate provided the 2016 financial report for Neptune Design, stating:

The only documents available to the Estate about the financial states of the company is the enclosed draft set of accounts showing that is assets are vastly exceeded by its liability to you (sic) client and [Klaus Jr].

(f) however, a search for Neptune Design on the New Zealand equivalent to the ASIC database showed filings of annual returns on 4 October 2017 and 3 October 2018;
(g) the 2016 financial returns showed shareholdings as at 30 March 2016 valued at $NZ 183,759.00, and debts to Klaus Jr and Marcus of $NZ 967,142 and $NZ 367,528 as at 31 March 2015 (of which Marcus was not aware). The debt to Klaus Jr reduced by $NZ 189,999.00 to $NZ 777,143.00 between 30 March 2015 and 30 March 2016; and
(h) he deposed as follows:

At no time since Dad’s passing had [Klaus Jr] communicated to me that I had a debt owed to me by Neptune Design Ltd nor informed me that he was trading in Neptune Design even though it appears that its debts exceeded its assets and was insolvent. Page 6 of the provided financial statements states “The Directors understand that the Shareholders’ advances will not have to be repaid in the near future” was made without my consultation, the second largest apparent creditor.
Page 4 of the Neptune Design Ltd financial statements states the “Statement of movements in equity”. At the beginning of the 2105 [sic] year ie. 31 March 2014, the equity in Neptune was a negative $NZ 93,556, just 4 months after the date of death. This however, increased in the following years to negative $NZ 574,323 by 31 March 2016 notwithstanding a down payment to [Klaus Jr’s] loan of $NZ 189,999 (approximately $AU 169,339) in the same year.

Submissions

45 In his written outline of submissions, counsel for Anna submitted, in summary, as follows;

(a) The structure and effect of the Court’s judgment should be preserved;
(b) any costs orders should avoid a sale of the [Donvale] property;
(c) the residue of the estate would appear insufficient to pay both the plaintiff’s costs (estimated at $170,000) and any outstanding costs of the first and second defendants (estimated to be $64,938) and to effect any necessary repairs to the Donvale property;
(d) costs orders against the estate immediately would likely require a sale of the Donvale property unless another solution is found;
(e) the estate’s costs and disbursements appear to total $300,478 as set out in the document provided to the parties on 13.9.19;
(f) the estate’s costs appear disproportionately high and should be taxed on a trustee indemnity basis;
(g) Marcus Schmidt is able to bear his own costs of the proceeding and should do so;
(h) State Trustees, as a state owned company, owes the duties of a model litigant;
(i) State Trustees is able to bear the burden of the costs of this litigation;
(k) there should be no orders for costs in favour of State Trustees, and no recourse to the funds of [Jens] and [Bernhard];
(l) if there is an order for the costs of State Trustees, payment of such costs should be postponed until any sale of the Donvale property;
(m) in the event that costs orders are contemplated which will exceed the liquid assets of the estate, costs should be structured to avoid a sale of the Donvale property;
(n) State Trustees should pay the costs of the plaintiff insofar as residue of the estate is insufficient and be re‑imbursed those costs upon the sale of [the Donvale property], with interest if necessary;
(o) State Trustees should pay the costs [of] any party who obtains a favourable costs order but be entitled to be re‑imbursed those costs upon the sale of [the Donvale property], with interest if necessary;
(p) doing so is not likely to disadvantage any party since the property is likely to rise in value over time.

46 Counsel for Anna submitted that the Court proceeded on the basis that the residuary assets of the estate would be insufficient to pay the costs of all of the parties to the proceeding, but nevertheless conferred upon Anna a portable life interest in the Donvale property. The Court should not make orders with respect to costs which would defeat this position, as Anna succeeded in the primary submission she advanced at trial. Accordingly, Anna should have her costs paid on an indemnity basis. STL was unsuccessful in seeking provision in the form of an immediate cash payment to Jens and Bernhard, and unreasonably rejected the 2018 offers. Both STL and Marcus unnecessarily prolonged the trial of the proceeding, and ought bear their own costs. Alternatively, if the other parties are to receive their costs, they should be borne in the first instance by STL, with any recovery by STL to be postponed until after the sale of the Donvale property.

47 Counsel for Anna did not disagree with the submissions of the executors that they should receive their costs from the estate, but submitted that, given the quantum of the costs, they should be taxed.

48 Counsel for Anna submitted that STL should bear the greater share of the costs burden, as it was unreasonable for STL to reject either or both of the 2018 offers. The January 2018 offer provided for an immediate cash payment to be made to Jens and Bernhard, which accorded with the submissions advanced by STL at trial. However, the evidence at trial established that Jens’ and Bernhard’s needs were future needs, and any provision from the estate could be safely postponed.

49 Counsel for Anna was critical of the role played by Marcus at the trial, noting that while counsel for Marcus cross-examined Anna’s medical witnesses at some length, and challenged their objectively and professionalism, their evidence was ultimately accepted in full. Further, the cross-examination of Mr Walter and Klaus regarding the financial position of the estate took place in circumstances where Marcus had done nothing to pursue his concerns prior to trial. He submitted:

The presence of Marcus Schmidt as a defendant did not add any value or assist the questions in issue in the proceeding .... his presence unduly prolonged the proceeding and opened up many irrelevant questions. Marcus should bear his own costs of the proceedings.

50 STL submitted that it should have its costs paid by the estate, as it had been substantially successful in the proceeding, given that there was in effect no provision made at all for Jens and Bernhard under the terms of the will. Further, the executors’ submissions that STL was unreasonable in failing to accept the 2018 offers lacked an evidentiary foundation, in that there was no evidence that the estate had sufficient funds to make the payments to Jens and Bernhard contemplated by either of the 2018 offers. Further, the December 2018 offer in particular imposed unreasonable restrictions upon the ability of STL to obtain funds from the estate for the benefit of Jens and Bernhard. No court would ever put disabled people in such a position. In contrast, the judgment provided for the payment of a cash sum with no conditions attached, albeit deferred.

51 Alternatively, STL submitted that in the event that STL’s entitlement to costs was to be postponed, then those costs ought to be fixed in a gross sum secured by a charge against the Donvale property, and attract interest at the penalty interest rate.

52 Counsel for STL objected to the assertion made by the solicitors for the estate in his affidavit that the outcome achieved by STL was inferior to its offer of 30 January 2019 (‘counter offer’), observing that the counter offer provided for Anna and Klaus JR to remain in the Donvale property for another ten years. Other relevant considerations include:

(a) the extent to which the responsibility for the reduction in the value of the estate could be sheeted home to Klaus Jr;
(b) the fact that, as at January 2018, the estate had the opportunity to quarantine $400,000.00 to provide a fund for Jens and Bernhard but failed to do so;
(c) in excess of $230,000.00 has been paid to the estate’s solicitors to date; and
(d) STL is not only a model litigant, but has a duty to act in the best interests of their clients.

53 Counsel for STL rejected the criticisms made of STL by the other parties: STL issued the proceeding prior to the roll out of the NDIS, and the judgment contains no findings of fact against STL. There was no deliberate withholding of the NDIS plans by STL.

54 Marcus submitted that he should be paid his costs, and that any entitlement to costs should not be postponed until after the sale of the Donvale property. The evidence of his financial position was advanced in order to meet the submissions advanced by Anna and the executors to the effect that Marcus was better placed than other parties to bear his own costs, not to be excused from any liability to pay the costs of any or all of the other parties, as there would be no grounds for making such an order, given the outcome of the judgment. In fact, the evidence shows that Marcus and his family are under considerable financial strain, caused in part by his children’s health and educational needs, and his involvement in these proceedings. At trial, Marcus was successful in obtaining an award far in excess of what was submitted by Anna (who submitted that his legacy under the will should abate entirely), and in excess of what was offered by the executors in the 2018 offers (being, eventually, ten per cent of the value of the Donvale property).

55 Marcus submitted that he properly sought to be joined as a defendant to the proceeding, as the executors did not effectively represent his position in the proceedings. To the contrary, it was Anna who was not a necessary party to the proceedings, as her interests were adequately represented by the executors. Further, Marcus’ role in the trial did not unnecessarily prolong the trial: it was reasonable to test the evidence of Anna’s treating medical professionals regarding her state of health, and it was reasonable to explore issues concerning Klaus Jr’s (mis)management of the estate. The latter issue is a matter which should sound in costs: if the payment of any party’s costs is to be deferred, it is the executors’ costs.

56 The executors submitted that the legal costs incurred by it were not unreasonable given the complications associated with the affairs of the estate, many of which were caused by the deceased during his lifetime, and the deceased’s preparation of two codicils to the will without legal assistance. The executors submitted that the residue of the estate should be left to Anna, so that she can determine how the remaining assets of the estate are to be allocated between making necessary repairs to the Donvale property and her legal costs. The executors submitted that STL should not receive its costs, given that its refusals to accept the 2018 offers were unreasonable. STL did not say at the time that it rejected the January 2018 offer because it was not confident that the offer could be funded – it flatly rejected the 2018 offer. The additional restrictions imposed upon the December 2018 offer were reasonable having regard to the other claims upon the estate. Further, regardless of how the broader issue of costs is determined, STL should pay the costs incurred by the executors in attempting to obtain the NDIS plans from STL.

57 The executors submitted that STL failed on the main issues in the proceeding, and their costs should be discounted accordingly, to fifty per cent of its actual costs. If the payment of those is to be postponed, then those should come out of the share of the estate to pass to Jens and Bernhard upon the sale of the Donvale property. The fact that it is not possible to directly compare the outcome of the judgment with the 2018 offers and the counter offer does not prevent the Court from forming the view that STL’s rejection of the 2018 offers was unreasonable.

58 The executors submitted that Marcus should bear his own costs: he was warned when he sought to be joined as a defendant that he may not be able to obtain a costs order in his favour. Further, he was unsuccessful in obtaining an order that his legacy be paid immediately and in priority to other claims upon the estate. To the extent that Marcus relies upon the conduct of Klaus Jr as being relevant to the question of costs, this issue has already been taken into account through a reduced share of the ultimate distribution of the proceeds of sale of the Donvale property than if the Court had made an award which more closely adhered to the terms of the will.

59 The executors rejected the contention that the value of the estate was a ‘moving feast’: the executors had been clear from the outset that apart from the Donvale property, the assets of the estate were difficult to value, as a result of the deceased’s management of the family’s financial affairs during his lifetime.

60 The executors submitted that an appropriate interest rate payable upon any deferred reimbursement of costs should be no more than two per cent above the Reserve Bank of Australia cash rate (‘legacy interest rate’), as prescribed by s 39B(3) of the Act.

61 Finally, the executors submitted that there was no basis for depriving the executors of any or all of their costs. The executors were required to deal with a difficult estate and complex litigation, and they have been entirely transparent about the costs they have incurred and paid along the way. It is unsurprising that the executors’ costs are greater than the other parties’ costs, and the position adopted by the executors was similar to the result at trial, with only minor adjustments to the amounts payable to Klaus Jr and Marcus. The authorities make it clear that executors are entitled to have their costs paid on the trustee basis.

62 Following the hearing on 16 September 2019 and the provision of further documents regarding the financial position of Neptune Design by the executors to the other parties, each of Marcus, STL and the executors filed and served further written submissions.

63 Counsel for Marcus submitted, in summary, as follows:

(a) the documents produced by the executors’ solicitors show that Klaus Jr, despite having resigned as a director, signed off on the director’s reports and accounts of Neptune Design for 2016, 2017 and 2018;
(b) despite the only debts of Neptune Design being non-current related party loans, the executors described Neptune Design as ‘insolvent’;
(c) it appears that Klaus Jr sold down the shareholdings of Neptune Design and paid down his own loan account without telling Marcus, in continuation of his practice of preferring his own interests over others and taking what he could from the available assets;
(d) at the time that Klaus Jr deposed as to his financial position (on 21 July 2017) the amount owing to Klaus Jr by Neptune Design was over half a million dollars;
(e) the value of Neptune Design’s share portfolio was substantially depleted since 2015, from $262,849 in 2015 to $10,392 in 2018, with the only possible explanation being that Klaus Jr sold off the shares and kept the proceeds. This issue was not ventilated at trial because of the failure of Klaus Jr to disclose the true position regarding his financial position and the financial position of Neptune Design;
(f) these matters should be taken into account by the Court in exercising its discretion as to costs;
(g) the executors’ entitlement to their costs of the proceedings should be deferred, as it is largely due to the actions of Klaus Jr that the estate is not in a position to pay the parties’ costs of these proceedings. It was presumptuous of the executors to pay their own costs during the course of the proceeding; and
(h) the estate’s costs should be paid from Klaus Jr’s share of the first tranche of funds from the sale of the Donvale property, and Marcus’ costs should be taxed and paid from the estate in priority to the costs of the other parties.

64 Counsel for STL submitted, in summary, as follows.

(a) the value of Neptune Design’s share portfolio reduced by $541,577.00 between 2014 and 2018;
(b) in the absence of evidence to the contrary (which was not adduced at trial) the Court should infer that:

(i) Klaus Jr has applied the proceeds of sale of Neptune Design’s shares for his own benefit;
(ii) the estate has not benefited from the liquidation of Neptune Design’s assets; and
(iii) given that Marcus makes no assertion that he advanced money to Neptune Design, the loan accounts in favour of Klaus Jr and Marcus were created on the instructions of the deceased;

(c) Klaus Jr’s lack of transparency concerning the financial affairs of Neptune Design should lead to a conclusion that he has breached his overarching obligation under the Civil Procedure Act 2010 (Vic) not to engage in conduct which is misleading or deceptive or likely to mislead or deceive, and this breach should sound in costs; and
(d) there is no basis for preferring any parties’ entitlement to the costs of the proceeding, including the executors, who have already had the great majority of their costs paid from the estate on an indemnity basis.

65 In response, the solicitors for the executors submitted, in summary, as follows:

(a) the 99 shares in Neptune Design were listed as having a net value of nil in the inventory of assets and liabilities of the estates, and three further affidavits sworn by Mr Walter. None of these affidavits stated that Neptune Designs was insolvent;
(b) the Notice to Produce served by the solicitors for Marcus on 14 February 2019 sought production of a wide range of financial documents, but no documents relating to Neptune Designs. No questions were asked about Neptune Designs at trial, and no application has been made to reopen the trial;
(c) even if the Court was to accept that the amounts shown in the loan accounts were correct, they greatly exceed the value of the shareholdings of Neptune Design, about which there also may be some doubt, as the shares may have been unmarketable;
(d) if Marcus has a complaint about the affairs of Neptune Design, it is open to him as a creditor to exercise his rights under New Zealand law;
(e) the submission that the Court exercise its discretion as to costs adversely to the executors pursuant to s 97 of the Act is unsupported by the evidence, and s 97(7) concerns an applicant, not a defendant to a claim for further provision under the Act;
(f) the allegations made by Marcus to the effect that the inability of the estate to meet the costs of the parties is almost entirely due to the conduct of Klaus Jr, is misconceived, and contrary to the findings in the reasons. Rather, it is the conduct of STL in rejecting the 2018 offers which is substantially responsible for diminishing the assets of the estate;
(g) any winding up of Neptune Design would not result in any financial return to the estate;
(h) Marcus produced copies of the NDIS plans for his children in response to a Notice to Produce served by the solicitors for the executors, but failed to disclose the value of services funded by the NDIS in his affidavit sworn on 12 September 2019, in circumstances where Marcus is asking the Court to take into account his financial position when exercising its discretion with respect to costs;
(i) there is no basis for any criticism of the executors’ payment of their legal costs from the estate, given the principle that the costs of the executors in defending a proceeding be paid or retained out of the estate on the usual trustee indemnity basis;
(j) the Court in the reasons largely adopted the submissions of the executors regarding the distribution of the estate; and
(k) the solicitors for the executors submitted as follows:

There is no basis for making the orders [sought by Marcus]. [Marcus] has, by making submissions on costs without a sufficient and proper evidentiary basis for an allegation that [Klaus Jr] did not properly disclose his financial position under oath, caused the Estate the unnecessarily incur further legal costs. It is submitted that the Court should order that [Marcus] should pay the costs of the Estate incurred after 16 September 2019 on a standard basis.

Discussion and conclusion

66 I propose to make the following orders with respect to costs:

(a) the balance of the executors’ legal costs be paid on an indemnity basis upon the sale of the Donvale property, from the share of the proceeds of sale due to Klaus Jr;
(b) Marcus’ costs be paid from the estate upon the sale of the Donvale property, to be paid rateably from the proceeds of sale received by all of the beneficiaries of the estate (including Marcus) upon the sale of the Donvale property;
(c) two thirds of STL’s costs be paid by the estate upon the sale of the Donvale property, with fifty percent of the sum payable to be paid from the proceeds payable to Jens and Bernhard, and fifty percent of the sum payable from the proceeds payable to the other beneficiaries rateably;
(d) the legacy interest rate be payable on the outstanding costs payable pursuant to paragraphs (a) to (c) above;
(e) the residue of the estate be payable to Anna, and there be no order as to her costs of the proceedings; and
(f) liberty be granted to any party to apply to have their costs fixed in a gross sum, with any such application to be determined on the papers^[7].

67 My reasoning follows.

68 First, I agree that the Court should not make an order with respect to costs which undermines the key element of the judgment, which is that the Donvale property be preserved for Anna to live in until she is no longer able to do so, or no longer wishes to do so. In practical terms, this means that the payment of Anna’s costs from the limited cash assets of the estate must be given priority over the costs of the other parties. This is necessary, notwithstanding that there is a strong argument that it was not necessary for Anna to be separately represented at the trial of the proceeding given that the executors were supporting her claims in the proceedings. However, the creation of a life interest in the Donvale property could confer upon her an asset from which her creditors (such as her solicitors) could seek recovery against, thus undermining the primary outcome of the proceedings, being that Anna should be able to remain in the Donvale property.

69 Secondly, I see no reason to deprive the executors of their costs, in that I accept that there was nothing in their conduct of the proceedings which disentitled them to their costs. To the contrary, subject to one (significant) exception the executors were generally transparent regarding the financial position of the estate, made thoughtful and sensible offers to resolve the proceedings prior to trial, and the outcome of the proceedings largely reflected the framework proposed by the executors.

70 Of course, there is a clear example of non-disclosure on the part of the executors, being the failure of the executors to provide a more fulsome explanation of the financial position of Neptune Design. I agree that an inference can be drawn that Klaus Jr liquidated the assets of Neptune Design, and retained any proceeds for his own benefit. However, one queries what the practical impact of this conduct was, given that the outstanding balances in the accounts of Neptune Design (fictitious as they may have been) exceeded the assets of Neptune Design. If there has been any breach of duty on Klaus Jr’s part, it was in his capacity as the controller of Neptune Design, not as the executor of the estate, and the person adversely affected by any breach of duty was Marcus, not the estate.

71 That said, the conduct of Klaus Jr in the administration of the estate ought to be taken into account in the allocation of the costs burden between the parties. I accept that the fact that Klaus Jr has received substantial benefits from the estate was something that led to a reduced distribution to him from the proceeds of sale of the Donvale property. Based upon the calculations prepared by the executors, Klaus Jr will receive 63 percent of the pool of assets available to Klaus Jr and Marcus, rather than 75 percent, as contemplated by the will. In dollar terms, this is $165,000.00 less than if the cash gifts in the will were distributed rateably today, ignoring the effect of discount rates and property price growth, which may work to roughly cancel each other out. This is a rather modest reduction, having regard to the benefits Klaus Jr has received from the estate, which are, while difficult to quantify for the reasons set out in the judgment, likely to have exceeded $165,000.00.

72 Accordingly, it seems to me that the most just outcome is that the payment of the balance of the executors’ legal costs be postponed until the sale of the Donvale property, and that they be paid entirely from the proceeds of sale payable to Klaus Jr.

73 Thirdly, I accept that it was necessary for Marcus to be represented in this proceeding, and I accept that he did substantially better at trial than he would have under the terms of the 2018 offers, although the outcome of the judgment was only a moderate improvement on the executors’ proposal at the end of the trial. Further, I do not accept that his participation at the trial unnecessarily prolonged the trial: the issues upon which his counsel cross-examined witnesses upon were significant, and in any event, were issues which counsel for STL clearly also wished to pursue. There was little or no unnecessary overlap between the cross-examination undertaken by counsel for Marcus and counsel for STL.

74 Fourthly, I accept that it was reasonable for STL to bring the proceeding seeking further provision for Jens and Bernhard, given that in 2016 the amount of funding and services available to them under the NDIS was uncertain, and given the lack of any meaningful provision for them in the will. However, as time passed, and particularly once the precarious financial position of the estate became clear, I consider that it was probably unreasonable for STL to refuse to accept either of the 2018 offers, in particular the January 2018 offer.

75 I say probably, given that I accept that it is difficult to make a direct comparison between the outcome at trial and the 2018 offers, particularly when comparing the outcome with the December 2018 offer, which also involved deferred payments and very stringent conditions for the payments of instalments. I also note that the payments to Jens and Bernhard contemplated by the January 2018 offer fell short of what they are likely to receive upon the eventual sale of the Donvale property, and no provision was made in the January 2018 offer for STL’s costs.

76 Further, knowing what we now know, it seems to be unlikely that the executors could have funded any instalment payments pursuant to the terms of the December 2018 offer without forcing a sale of the Donvale property. Finally, there seems to me to be some real doubt as to whether either of the 2018 offers would have been acceptable to Marcus, although there is no evidence of any response by him to either of the 2018 offers, given that the negotiations appeared to have been primarily conducted between STL and the executors. However, each of the 2018 offers would have led to a substantially smaller payment to Marcus than provided for in the judgment.

77 This is not a proceeding which lends itself to be dealt with strictly in accordance with Calderbank principles. Taking those principles into account, combined with all of the other relevant factors, including the important fiduciary role played by STL, leads me to the conclusion that STL should have two thirds of its costs, with payment to be deferred until the sale of the Donvale property. This is based on my estimate that approximately one third of STL’s costs would have been incurred prior to trial, and that, to the extent that further costs were incurred at trial, they should be discounted by half to reflect STL’s failure to accept either of the 2018 offers, or at least engage in meaningful negotiations regarding the terms of the 2018 offers. While during the course of the hearing counsel for STL submitted that STL was justified in refusing the 2018 offers because it did not consider that the assets of the estate were sufficient to make the payments contemplated by the offers, that concern was not raised at the time. In any event, had either of the 2018 offers been accepted, the estate would have been liable to make those payments, even if doing so required the sale of the Donvale property. The discount upon the costs payable to STL also reflect’s STL’s lack of success on one of the key issues at trial.

78 Another reason why the costs payable to STL should be discounted is because some of those costs would relate to the second reports provided by Ms Willey, an occupational therapist, regarding the needs of Jens and Bernhard, the usefulness of which was diminished by the fact that Ms Willey was instructed not to take into account the services received by them through their NDIS plans when preparing her updated reports. That said, the reports prepared by Ms Willey were useful in that the information and recommendations contained in those reports assisted me to reach the conclusion that the legacies payable to Jens and Bernhard could be safely postponed. I do not see any basis for reducing the amount of costs payable to STL by reason of the correspondence between STL and the executors regarding the provision of Jens’ and Bernhard’s NDIS plans: as can be seen from the following section of these reasons, the privacy provisions of the relevant provisions involve real practical difficulties for agencies such as STL, and other parties involved in proceedings where the needs of NDIS beneficiaries are in issue.

79 Finally, the executors also submitted that Marcus should bear the costs incurred by them after the hearing on 16 September 2019, which relate to the submissions made by them with respect to the financial affairs of Neptune Design. I disagree. While I accept that the executor’s submissions that the estate’s shareholding in Neptune Design was valueless, the accounts of Neptune Design showed that Klaus Jr had derived some benefit from the liquidation of Neptune Design’s assets, which was a matter which was relevant to the issues in the proceeding. The parties’ costs incurred by the parties after 16 September 2019 should be their costs in the proceeding.

The privacy provisions of the National Disability Insurance Scheme Act 2013 (Cth).

80 This section concerns the privacy provisions of the National Disability Insurance Scheme Act 2013 (Cth) (‘NDIS Act’) and the difficulties these provisions create for the parties, their legal representatives, and the Court in proceedings of the current kind.

81 Section 60 of the NDIS Act provides as follows:

Protection of information held by the Agency etc.
(1) A person may collect protected information for the purposes of this Act.
(2) A person may:

(a) make a record of protected Agency information; or
(b) disclose such information to any person; or
(c) otherwise use such information;
if:
(d) the making of the record, or the disclosure or use of the information, by the person is made:

(i) for the purposes of this Act; or
(ii) for the purpose for which the information was disclosed to the person under section 66; or
(iii) with the express or implied consent of the person to whom the information relates; or

(e) the person believes on reasonable grounds that the making of the record, or the disclosure or use of the information, by the person is necessary to prevent or lessen a serious threat to an individual's life, health or safety.

(3) Without limiting subsections (1) and (2), the collection, recording, disclosure or use of information by a person is taken to be for the purposes of this Act if the CEO believes, on reasonable grounds, that it is reasonably necessary for one or more of the following purposes:

(a) research into matters relevant to the National Disability Insurance Scheme;
(b) actuarial analysis of matters relevant to the National Disability Insurance Scheme;
(c) policy development.

82 ‘Protected Agency^[8] information’ is defined as follows:

(a) information about a person that is or was held in the records of the Agency; or
(b) information to the effect that there is no information about a person held in the records of the Agency.

83 Section 62 of the NDIS Act provides as follows:

Offence--unauthorised use or disclosure of protected Agency information
A person commits an offence if:
(a) the person:

(i) makes a record of information; or
(ii) discloses information to any other person; or
(iii) otherwise makes use of information; and

(b) the person is not authorised or required by or under this Act to make the record, disclosure or use of the information that is made by the person; and
(c) the information is protected Agency information.
Penalty: Imprisonment for 2 years or 120 penalty units, or both.
Note: If a body corporate is convicted of an offence against this section, subsection 4B(3) of the Crimes Act 1914 allows a court to impose a fine of up to 5 times the pecuniary penalty stated above.

84 Section 63 of the NDIS Act also makes it an offence to solicit the disclosure of protected Agency information.

85 Section 66 of the NDIS Act provides as follows:

Disclosure of information by CEO
(1) Despite sections 62, 64 and 67G, the CEO may:

(a) if the CEO is satisfied on reasonable grounds that it is in the public interest to do so in a particular case or class of cases--disclose information acquired by a person in the performance of his or her functions or duties or in the exercise of his or her powers under this Act to such persons and for such purposes as the CEO determines; or
(b) disclose any such information:

(i) to the Secretary of a Department of State of the Commonwealth, or to the head of an authority of the Commonwealth, for the purposes of that Department or authority; or
(ii) to a person who has the express or implied consent of the person to whom the information relates to collect it; or
(iii) to the Chief Executive Centrelink for the purposes of a centrelink program; or
(iv) to the Chief Executive Medicare for the purposes of a medicare program; or
(v) to the chief executive (however described) of a Department of State of a State or Territory, or to the head of an authority of a State or Territory, for the purposes of that Department or authority.

(2) In disclosing information for the purposes of paragraph (1)(a) or subparagraph (1)(b)(i) or (v), the CEO must act in accordance with any National Disability Insurance Scheme rules made for the purposes of section 67.
(3) Despite any other provision of this Part, the CEO may disclose protected Agency information to a participant's nominee if the protected Agency information:

(a) relates to the participant; and
(b) is or was held in the records of the Agency.

(4) If:

(a) the CEO or an Agency officer is served with a summons or notice, or is otherwise subject to a requirement, under the Royal Commissions Act 1902 ; and
(b) in order to comply with the summons, notice or requirement, the CEO or Agency officer would be required to disclose information that is protected Agency information;

then, despite sections 62 and 67G of this Act, the CEO or Agency officer must, subject to the Royal Commissions Act 1902 , disclose that information. The information is taken to have been disclosed for the purposes of the Royal Commissions Act 1902 and of the Royal Commission concerned.

86 Also relevant are the National Disability Insurance Scheme (Protection and Disclosure of Information) Rules 2013. A compilation prepared by the Commonwealth Department of Social Services regarding these rules states as follows:

These Rules are about safeguarding the privacy of people whose information is held by the Agency. These Rules deal with the circumstances in which a State or Territory law may prevent the disclosure of information or a document by a person to the Agency, and the ability of the CEO of the Agency to disclose information in the public interest or to a Commonwealth, State or Territory Department or authority.
...

87 Part 4 concerns the circumstances in which protected Agency information may be disclosed.

Part 4 Disclosure of information by the CEO in the public interest
4.1 The Act restricts the circumstances in which information that the Agency has about a person, and certain other information, can be disclosed. However, the CEO may disclose information acquired by a person in the performance of his or her functions or duties or in the exercise of his or her powers under the Act (NDIS information), including information about a person, if the CEO certifies that it is necessary in the public interest to do so in a particular case or class of cases. The NDIS information can in these circumstances be disclosed to such persons and for such purposes as the CEO determines.
...
4.2 This Part sets out guidance for the CEO in the exercise of the power to certify that disclosure is necessary in the public interest—that is, to give a public interest certificate—in particular classes of cases. These Rules are not intended to limit the circumstances in which the CEO may give a public interest certificate under paragraph 66(1)(a) of the Act.
General considerations
4.3 In cases where this Part applies, identified below, the CEO may give a public interest certificate for the disclosure of NDIS information if:

(a) the information cannot reasonably be obtained from a source other than the Agency; and
(b) the person to whom the information will be disclosed has sufficient interest in the information.

4.4 A person has sufficient interest in the NDIS information if:

(a) the CEO is satisfied that, in relation to the purpose of the disclosure, the person has a genuine and legitimate interest in the information; or
(b) the person is a Commonwealth, State or Territory Minister.

4.5 In considering whether to give a public interest certificate under paragraph 4.3 to disclose information about a particular person, the CEO should have regard to whether the person would be likely to be in a position to seek assistance themselves or give notice of their circumstances.

88 It is not necessary for present purposes to traverse this issue at any great length in these reasons, but there was some correspondence between the solicitors for the executors and STL during the course of 2018 regarding the executors gaining access to the NDIS plans. Ultimately, the NDIS plans were annexed to an affidavit of Ms Sneh Nand of STL on 8 August 2018, after STL made a successful application to the CEO of the NDIA pursuant to s 66 of the NDIS Act. The letter from the NDIA dated 1 June 2018 authorising STL to use the NDIS plans provided as follows:

The NDIA acknowledges that both [Jens] and [Bernhard’s] NDIS plans may be relevant to the Supreme Court proceeding as they go to the issue of their financial needs. This is one of the factors set out in section 91(3) of the AP Act (as it stood at 23 October 2013).
Authorised Disclosure of Protected Information
The NDIA confirms that both [Jens] and [Bernhard] are participants of the NDIS and each have a current NDIS plan (Documents).
The information within the documents is protected information as defined in section 9 of the National Disability Insurance Scheme Act 2013 (NDIS Act) as it is information about persons, namely the two participants [Jens and Bernhard Schmidt] and others and is held in the records of the NDIA.
The NDIA may only disclose protected information if it is authorised to do so under the NDIS Act. A delegate of the of the CEO of the NDIA has decided to release any protected information within the Documents to STL in accordance with section 66(1)(a) of the NDIS act on the basis that it is necessary in the public interest to do so in this particular case. The documents will be provide to you via email and is to be used only for the purpose described above.
Importantly, the information about persons within the Documents remains ‘protected information’ for the purposes of the NDIS Act and, pursuant to section 62 of the NDIS Act, any further use or disclosure of this information must be authorised under the NDIS Act.
Use of Documents in court proceedings
The NDIA recognises that all documents protected during a court proceeding, including the Documents provided by the NDIA, are protected under the Harman principle (i.e. parties are not permitted to use a document for any other purpose other than those related to the court proceeding). However, we request that parties to the proceeding make every effort (i.e. by seeking leave of the Court) to prevent any public disclosure of the protected information contained in the Documents (i.e. in oral arguments or written judgments of the Court).

89 In accordance with the above request, pseudonyms have been used for STL’s clients and other family members in the reasons.

90 While the application by STL to the NDIA to obtain copies of the NDIS plans was ultimately successful, the privacy provisions of the NDIS Act did affect the adducing of relevant evidence at the trial of the proceeding. As noted above, Klaus Jr is the NDIS plan nominee for both Jens and Bernhard, which means that he has access to details of funds budgeted and spent for services under NDIS for Jens and Bernhard, through the NDIS online portal. He is also involved, along with his mother, in preparing and reviewing the NDIS plans.

91 Jens’ NDIS plan was in the process of being under review at the time of the trial in February 2019, and Klaus Jr attended a meeting which included a representative of the NDIA. During the course of his examination in chief, counsel for the executors sought to question Klaus Jr to give evidence about what he was told by the NDIA representative. Previously, the solicitors for the executors had filed a notice pursuant to s 67 of the Evidence Act 2008 (Vic) (‘Evidence Act’), seeking to invoke the exception to the hearsay rule contained in s 63 of the Evidence Act, as the NDIA as representative at the meeting could not be compelled to give evidence upon subpoena.

92 Counsel for STL (supported by counsel for Marcus) objected to Klaus Jr giving evidence of what was said by the NDIA representative at the meeting. I upheld the objection, on the basis that, in the absence of any broad ranging exemption to the privacy provisions of the NDIS Act for the purpose of court proceedings, Klaus Jr was at risk of giving evidence which would disclose protected Agency information, notwithstanding that the evidence that would have been adduced could well have been of substantial relevance to an issue in the proceeding, going as it did to the nature and value of the NDIS services to be provided to Jens going forward. It was of course impractical to suspend the trial to enable STL or the executors to seek the consent of the NDIA to the court receiving evidence which may be information protected from disclosure by the NDIS Act.

93 Accordingly, there are real practical difficulties facing parties in proceedings seeking further provision under part 4 of the Act, given that the nature and value of NDIS services provided to claimants and beneficiaries may be of significant relevance to the outcome of such proceedings, particularly when such proceedings concern modest estates. One also might expect the provision of such services to be relevant to proceedings under the Family Law Act 1975 (Cth).

94 I accept that it may be difficult and perhaps not appropriate to make changes to the NDIS Act to provide for a broad carve-out for all court proceedings, rather than on a case by case basis. However, it would be helpful if, once the NDIA forms a view that it is in the public interest for protected information to be disclosed for the purpose of court proceedings, the ambit of the consent provided extend beyond it allowing NDIS plans to be produced for discovery to, for example, enabling service providers, experts and NDIS plan representatives to give oral evidence regarding the nature, value, and efficacy of NDIS services provided to claimants and beneficiaries.

^[1] See Crisp v Burns Philp Trustee Company Ltd (Supreme Court (NSW), Holland J, 18 December 1979, unreported). A Crisp order provides a claimant with an interest for life in a property of sufficient flexibility to enable him or her to substitute that interest for an interest in a more appropriate property, or to fund an accommodation bond for a nursing home.

^[2] [2017] VSC 320.

^[3] Ibid, [85]-[91]

^[4] Having regard to the principles in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) 13 VR 435.

^[5] Northern Territory v Sangare [2019] HCA 25.

^[6] The evidence suggests that from April 2020, Anna will become eligible to receive a pension from the German government, which is apparently more generous than the Australian equivalent. However, this will still provide Anna with only a modest income, and there was no evidence as to what impact this will have upon her access to income support from the Australian Government, given that most Australian social security payments are means-tested.

^[7] Consistent with the Court’s procedures for the resolution of civil disputes arising from the measures required by the Covid 19 pandemic, which commenced while this judgment was reserved.

^[8] The reference to “Agency” in the NDIS Act is to the National Disability Insurance Agency (“NDIA”)

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