Neutral Citation Number: [2011] EWCA Civ 802
Case No: A2/2010/0986
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON CIVIL JUSTICE CENTRE
HHJ WALDEN-SMITH
CHY09542

Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 12/07/2011
Before:
LORD JUSTICE WARD
LADY JUSTICE ARDEN
and
LORD JUSTICE MOORE-BICK
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Between:
	1.  Roy Shovelar
2.  Andrew Shovelar
3.  Susan Kelly
4.  David Shovelar
5.  Adele Shovelar
6.  Amy Shovelar	

Appellants	
	- and -		
	1.  Sidney Peter Lane
2.  Alfred Huddlestone Stokes
3.  Anthony Donald Walker
4.  Eileen Bramwell
5.  Jane Walker
6.  Teresa Stallwood
7.  Kelly Stallwood	

Respondents	

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Grant Crawford (instructed by Humphreys & Co) for the appellants 
Richard Dew (instructed by W.F. Smith & Co) for the respondents
Hearing date: 28th February 2011
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Judgment

LORD JUSTICE WARD: 
Introduction
1.	In 1996 Leslie Stallwood, a widower, married Alma Shovelar, a widow, both aged 71.  Les, as I shall call the husband, had three children by his first marriage and one grandchild.  Alma had two children and four grandchildren by her first marriage.  On 12th July 1999 they made wills in identical form, each leaving his or her net residuary estate to the other if she or he survived by 30 days, and otherwise to their children and grandchildren with one half going to Alma’s sons, now the first and fourth appellants, and the other half being divided between Alma’s four grandchildren, the other appellants, and two of Les’s daughters, now the fifth and sixth respondents, and the daughter of the third, the seventh respondent.  Alma died on 7th November 2001 without having revoked her will.  
2.	On 4th September 2003 Les made a new will leaving his residuary estate to his three daughters and his granddaughter.  No provision was made for Alma’s children or grandchildren.  He appointed two members of his solicitor’s firm and his son-in-law to be his executors: they are the first to third respondents.  Les died on 24th March 2006.
3.	The claim in this action was brought by the appellants, Alma’s descendants, on 24th January 2008 alleging that Alma and Les had made mutual wills in 1999 and claiming a declaration that the executors, the first to third defendants held Les’s net estate upon trust for those entitled under his will dated 12th July 1999, and, in particular, that they hold his net residuary estate upon trust as to one quarter for each of the first and fourth claimants and as to one fourteenth to each of the second, third, fifth and sixth claimants and the fifth to seventh defendants.  In a full and careful judgment handed down on 14th January 2010 Mrs Recorder Walden-Smith sitting in the Central London County Court found for the claimants and held that they were entitled to the declaration they sought.  There was no appeal against that order.  
4.	The appeal before us concerns the costs of that action.  Having considered the “detailed and helpful written submissions” of counsel, Her Honour Judge Walden-Smith, as she had become, handed down judgment on 31st March 2010 and ordered that:
“1.  The defendants are to pay the claimants’ costs, to be assessed on a standard basis if not agreed.
2.  The first defendant, the second defendant and the third defendant shall be indemnified from the estate to the extent of their own liability for the claimants’ costs.  For the avoidance of any doubt, the indemnity is not for the entirety of the defendants’ liability for costs.  
3.  The first defendant, the second defendant, and the third defendant shall be indemnified from the estate to the extent of their own costs.  
4.  The defendants will pay to the claimants the sum of £27,658 on account of the claimants’ costs.  The liability of the first defendant, second defendant and third defendant to this payment on account shall be indemnified from the estate.  This payment shall be made within 14 days of this judgment being handed down.”
Jackson L.J. gave permission to appeal.  I granted permission to the respondents to cross-appeal.
The issues
5.	The issues that arise in these appeals are as follows:
(1)  should the unsuccessful defendants pay the claimants’ costs or does the rule in probate actions apply by analogy so that if the testators, Les and Alma, were really the cause of the litigation, then costs should come out of the estate; alternatively if the circumstances reasonably led to the investigation of the matter, then those costs should be left to be borne by those who have incurred them;
(2)  are the first to third defendants, as executors, entitled to be indemnified by the estate:
(a) in respect of their own costs and 
(b) in respect of their own liability for the claimants’ costs; 
(3)  would it be unjust to order the defendants to pay indemnity costs and interest on costs pursuant to CPR 36.14; and 
  (4)  was the order for the interim payment on account of costs too low?  
The background in a little more detail
6.	Given the way the arguments have developed, it is necessary to set out as shortly as I can how this dispute and consequent litigation developed.  The matter unfolded in this way.  Alma’s family instructed solicitors in June 2006 and they wrote to the executors requesting information as to the circumstances surrounding the execution of the two wills.  That information was supplied.  On 11th July 2007 the claimants confirmed that they would not oppose the grant of probate to the executors of Les’s 2003 will but gave notice of their claim that the executors should hold Les’s estate on the trusts of the wills made in 1999.  In a letter sent some days later the appellants’ solicitors set out their case based on the doctrine of mutual wills in substantially the form in which it was advanced in the proceedings.  In reply the executors expressed their view that distribution should be made in accordance with Mr Stallwood’s 2003 will but they agreed not to dispose of the estate until the resolution of any litigation.  They indicated they were taking counsel’s advice.  
7.	In November 2007 the appellants’ solicitors who had no further response from the executors enclosed a copy of particulars of claim in draft, giving further time before issuing the proceedings and indicating a willingness “to engage in mediation or some other alternative method of dispute resolution before serving the proceedings if it seems appropriate to do so.”  The response was:
“As you will probably appreciate we are in some difficulties as executors in this matter because we have to steer a median course and in this particular matter we would have to be guided by the court.  We have passed the particulars of claim on to the family and asked them to discuss it among themselves and we will let you know what the result is in due course.  As some of the defendants are in fact minors there will have to be a court order at the end of the day.  Our feeling at the moment is that you should issue the proceedings and then we should do a defence and consideration should be given to this going to mediation.”
In their response the appellants again stated their preference for mediation.  The proceedings were issued in January 2008 and service was accepted by the executors’ firm on behalf of all defendants.  
8.	On 18th February 2008 the appellants’ solicitors wrote a letter without prejudice save as to costs asking for details of the value of the estate with a view to making a Part 36 offer.  Further letters of 26th March and 9th April seeking to initiate settlement negotiations were rebuffed on 2nd and 15th April respectively.  
9.	Meanwhile a defence was served.  That defence was filed on behalf of the first, second and third defendants only and no defence was then put in by the family members.  The defence denied the allegation in the claim that the 1999 wills were made pursuant to an agreement between Alma and Les that, following the death of the first of them to die, the other would not revoke his or her will, with the result that the doctrine of mutual wills applied.  The defendants simply averred that there was no binding agreement to that effect.  The claimants were put to proof.  The defence also alleged that any agreement was void for want of compliance with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 because the disposition of the interest in Alma’s bungalow was not made in writing.  
10.	There was some delay while the matter was transferred to the High Court in London.  On 18th June 2008 the appellants inquired whether the 4th-7th defendants, the family members, intended to file a defence.  There was no reply.  After receipt of the Allocation Questionnaire the appellants’ solicitors wrote suggesting a stay of the proceedings for one month “for the ADR process to be explored”.   The defendants were reminded that the claimants were acting with the benefit of a conditional fee agreement.  That letter also gave notice that the claimants would be seeking to amend their prayer for relief to include an order for costs against all of the defendants, not just the 4th-7th defendants as had been set out in the particulars of claim.  In response the executors’ solicitors confirmed “that we have now been instructed by all the defendants in relation to the matter”.  They were in agreement with the suggestion of adjourning for the ADR process to be explored.  Nothing in fact happened.   
11.	With a case management conference looming the appellants’ solicitors indicated their clients’ willingness to attend a round table, without prejudice meeting to which the defendants responded:
“We have discussed the possibility with counsel about putting the matter out for mediation.  Counsel has advised that it would be appropriate to put it out for mediation but feels this should not be put for mediation until such time as Discovery has taken place and witness statements have been exchanged.”
This response surprised the claimants who wrote:
“It seems to us that your clients have no real intention of making constructive attempts at settlement and are using the request for a stay as a delaying tactic.  …  Your clients are aware that we have entered into a CFA with ours, which provides for a success fee.  Your clients know that our costs as at 13th August 2008 excluding any success fee were £25,260.00.  It must be in both sides’ interests to make constructive attempts to resolve this claim as soon and as cost effectively as possible, and the court expects us as solicitors to encourage our respective clients to do so.”
12.	There was some delay because the defendants’ solicitors were not able to give disclosure or exchange witness statements even though the only witness statement eventually served was from Mr Lane, the partner with overall responsibility for Probate and Wills.  
13.	Meanwhile the appellants’ solicitors were again writing on 27th February repeating their willingness to consider settlement of the dispute through ADR but pointing out that the defendants had taken no steps to that end.  The defendants then offered to agree to a stay of the proceedings for two months for the purposes of mediation.  
14.	That elicited responses from the appellants’ solicitors on 6 March 2009 which have assumed importance in this appeal.  The first was a letter written without prejudice save as to costs repeating the gist of an open letter sent that day giving reasons for doubting the defendants’ willingness to negotiate and calling for “concrete evidence of your clients’ seriousness in wishing to address an early resolution.”  More relevantly, the third letter of that date was written without prejudice save as to costs and as a Part 36 offer.  That was made in these terms:
“9.  The offer is put forward in settlement of the whole of the claim.  
10.	The offer is that our clients’ will accept payment of:
10.1  The sum of £98,000 in full and final settlement of all claims under the above claim number.
10.2  Our clients’ costs in accordance with Rule 36.10 of the Civil Procedure Rules.
11.  For the avoidance of doubt, payment of our clients’ cost would include payment of the success fee due to this firm under its CFA with the client, notice of which has been given to you previously and in accordance with the Rules.
12.   This offer is intended to have the consequences of Part 36.  
13.  This offer will remain open for 21 days from the service of this notice, i.e. until 4.00 pm on 30th March 2009.”
There was no response within that time limit.
15.	On 15th April 2009 the defendants wrote without prejudice save as to costs, but not under Part 36.  The defendants, having had the opportunity of considering the witness statements served by the claimants took the view that there was no clear and satisfactory evidence of any binding agreement not to revoke a will after the death of the first to die and repeated that there was no compliance with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.  The letter continued:
“However, the fact of the matter is the estate of Mr Stallwood is modest.  Its net value is £134,272.69.  We have attached the draft estate accounts.  The costs of this litigation, should it go to trial, are likely to be significant and will simply serve to diminish what is already a modest estate.  We have in mind, in particular, the very high estimated costs set out in your Allocation Questionnaire.  In those circumstances, we have been instructed to put forward the following offer in order to settle the dispute between the parties.
The administration costs should be paid from the estate.  These costs are set out in the accounts.  Our clients then propose that once these costs have been paid, the net estate should be divided into equal shares.  One half of the net estate should be distributed in accordance with the terms of the 1999 will.  The other half of the estate should be distributed in accordance of Mr Stallwood’s 2003 will.  We further propose that there should be no order as to the costs of the litigation i.e. each side will pay their own costs.  
This offer will remain open for acceptance for a  period of 21 days.  …”
16.	That offer was rejected by the claimants for reasons which were fully expressed in the seven page letter dated 11th May 2009.  They pointed out that the consequences of the implementation of the offer would be that the appellants together would receive about £52,500 which would be swallowed by their costs then estimated at £77,400, so leaving them with a liability to their solicitors of a further £25,000 leaving aside any success fee.  According to the letter “the Shovelars would receive about 39.3% of the net estate”.  On the other hand the respondents would together receive £81,500 (about 60.7% of the net estate) less their costs estimated at £14,750.  Were the estate to be distributed in accordance with the claim the Shovelars would receive about 78.6% of the net estate and the Stallwoods 21.4% of the net estate.  This letter went on to give an estimate of the further costs likely to be incurred up to and including the trial in the sum of nearly £52,000, a total of £129,000 in all.  Then there was the success fee.  The letter went on to analyse the prospects of success as viewed by the claimants.  
17.	On 11th May 2009 the appellants’ solicitors sent a further Part 36 offer asserting that if the claim succeeded the claimants would recover about £105,484.62.  The claimants’ offered to accept £84,387.70 in settlement of the action, that representing a 20% discount of the value of the claim.  The defendants were to be liable for the claimants’ costs in accordance with Rule 36.10.  That offer would remain open for 35 days.
18.	Despite five requests for a response, none was forthcoming until 11th August when the offer was rejected, the defendants taking the view that the claim would fail as a matter of law.  
19.	On 25th August 2009, the trial was fixed for hearing on 12th January 2010.  
20.	On 3rd November 2009 the appellants’ solicitors wrote without prejudice save as to costs:
“In one final attempt to resolve the dispute short of the expense of a trial, our clients have indicated that they should be willing to attend a formal mediation.”
There was no response.  On 12th November there was a further without prejudice save as to costs offer to hold a round table meeting.
21.	It was not until 27th November when the respondents’ solicitors wrote that having spoken to counsel they were of the view that an ADR meeting would be of benefit to all the parties.  That could not take place while the fourth defendant was cruising in the Caribbean.  On 17th December the defendants finally put forward a further without prejudice offer (not expressed to be without prejudice save as to costs) to share the estate equally between the two families but with each party bearing their own costs.  
22.	The claimants replied on 5th January 2010 without prejudice save as to costs:
“2.  Whilst welcome, it has been made far too late to be of any constructive use.
3.  Such an offer may well have formed the basis for further negotiation had it been made at the outset of the matter.  
4.  However, at this point the offer is wholly inadequate as it fails to address to any degree the claimants’ substantial costs which they have incurred in pursuit of this case.
5.  We have made the defendants consistently aware of the costs position and of the fact that this firm has been instructed on the basis of a conditional fee agreement with a success fee and additional liabilities.  …
14.  Accordingly, unless the defendants are minded to make an offer which includes a substantial payment towards our clients’ costs we have had reluctantly to conclude that there is little prospect for this case settling and the trial listed to commence next Tuesday will now take place.”
23.	Even then there was a last ditch attempt on the day before the trial to settle the matter.  In response to that invitation the respondents’ solicitors offered to pay the claimants’ a total of £35,166.67 with a contribution of £32,000 their costs which represented an increase of just £30.66 on the unacceptable offer which had been made on 17th December.
24.	So the matter went to trial and the defendants lost.  
The judgment under appeal
25.	By that time the claimants’ base costs were in the region of £160,000 with an uplift of 100% as a success fee and an ATE premium.  The defendants were urging the judge to take the size of those costs into account.  She held:
“9.  In my judgment the size of costs has limited relevance, beyond the issue of assessment, in so far as it affected the manner in which the parties conducted themselves: did it mean, as is suggested in this case, that the defendants were simply unable to reach a settlement of the claim?”
26.	She noted that the claimants had been successful in their claim to establish the mutual will.  She was satisfied that the claimants did properly endeavour to reach a settlement of the matter.  
“23.  …  However, the difficulty behind any settlement being reached or offer being accepted was the size of the Claimants’ costs.  By the time of any offers to settle being made, the Claimants’ costs were of such a size that, once the costs were taken out of the equation, very little monies were left in the estate and neither side felt it was possible to settle.  The Defendants had no control over the Claimants’ costs and the Claimants must have been aware of the relatively small size of the estate being argued over.”
27.	The judge concluded that the claimants had succeeded in their claim and had succeeded in beating a Part 36 offer they had made to settle their claim in May 2009.  So she held:
“26.  In my judgment, the Claimants’ conduct was such that, taking into account the other matters set out in Part 44.3, including the fact that they are the winning party, they should be entitled to the costs of the claim, save for any argument that there should be no order as to costs or an order for costs to be paid out of the estate pursuant to the exceptions of the general rule in the case of probate actions.  However, the size of these costs meant that it was, in my judgment, not possible for the defendants to accept the offers made.  The nature of the claim that there was a constructive trust arising from mutual wills was not one where it can be said that the Claimants were bound to succeed and that the Defendants ought to have known that.  The conclusion that there were mutual wills was reached on the basis of all the pieces of evidence given at the trial and it was quite proper for the defendants to test the evidence of the claimants.
27.  In the particular circumstances of this matter, I have concluded that it would be unjust for the costs consequences of a Claimants’ Part 36 offer being rejected (as set out in Part 36.14 of the CPR) to be applied.  The nature of the case is such that the outcome could not be certainly predicted until after evidence had been given and the level of costs meant that any possibility of settlement was extremely limited, if not impossible.
28.  The fact that an offer to settle was not accepted is taken into account when determining whether an order for costs ought to be made.  It would be, in my judgment, unjust for the defendants to have to pay the additional costs penalties set out in Part 36.14 in the circumstances of this matter.
29.  I therefore order that the Claimants are entitled to their costs but not with the additional interest and indemnity basis as provided for by Part 36.14.  Those costs are to be subject to a detailed assessment.”
28.	The judge then went on to deal with the defendants’ contention that any order for costs in favour of the claimants should be paid out of the estate rather than personally by the defendants and further the costs liability of the executors should be covered by the estate.  It was submitted that the rule in a probate claim founded an exception to the normal rule that the losing party pays the costs of the winning party.  Having reviewed the authorities, and I will do the same, she concluded:
“36.  While this was a case about wills, the two of 1999 and the further one of 2003, in my judgment, this is not a case in which the exception to the general rule in contentious probate actions ought to be applied by analogy.  The claim was for a constructive trust arising under mutual wills.  In Olins v Walters [2008] EWCA Civ 782, a constructive trust arising under mutual wills was established and a general rule as to costs was applied by the Court of Appeal.
37.  While the circumstances that gave rise to the dispute arose from conversations between Les and Alma of which the defendants had no knowledge, what was said to be the content of those conversations was provided in witness statements served by the Claimants so that the Defendants knew the case they had to meet.  The law relating to mutual wills is settled: the Claimants were asserting rights under a constructive trust, which constructive trust was being denied by the Defendants.  The contention between the parties was not unlike any other hostile litigation and not such that would enable the court to move away from the general rule.  The Defendants were putting the Claimants to proof of their contentions.
…
39.  …  In this case there would be a plain injustice if the Claimants, who were successful in their claim for a constructive trust, were deprived of any benefit of that success by reason of an order for costs being made out of the estate with respect to the entirety of the costs against the Defendants.  The challenge by the Defendants was as to what had been said and done and the legal consequences of that behaviour.  It does not provide a reason for departing from the general rule that costs follow the event.”
29.	Dealing with the further contention that the executors’ liability should be restricted to the estate and should not be personal against them she held:
“42.  In my judgment D1-D3 were acting entirely reasonably when they entered a defence to the claim.  They cannot be criticised for being the only parties who defended the action at the beginning.  Solicitors acted for both the executors and beneficiaries of the 2003 will and the real dispute was between the claimants, who benefited under the 1999 will and the beneficiaries under the 2003 will (some of whom also benefited under the 1999 will).
43.  The conduct of the Defence was entirely reasonable: putting the Claimants to proof of their claim and putting proper questions in cross-examination.
44.  While the Claimants criticised the executors for having filed a Defence prior to the beneficiaries filing a Defence, in my judgment this was quite proper to protect the estate.
45.  In all the circumstances, while a costs order will be made against all the Defendants for which they will be jointly and severally liable, in my judgment the First to Third Defendants as executors are entitled to be indemnified from the estate so that once the individual liability of each Defendant is ascertained, that liability will be recovered by way of an indemnity from the estate with respect to the executors.  The executors are also entitled to recover their own costs from the estate.”
30.	Finally she dealt with the application for a payment on account of the costs.  She was concerned about the obvious disparity between the costs of the claimants and the costs of the defendants pointing out that, leaving aside the CFA uplift for 100% and the indemnity insurance payment, the defendants’ costs were £27,658 whereas the claimants’ base costs were £160,000.  There needed to be a detailed assessment of those costs carried out by an experienced costs judge.  Nevertheless she held:
“48.  In the meantime I do order a payment on account of the costs pursuant to the provisions of CPR Part 44.3(8).  The sum I award on account is £27,658, namely the amount of costs incurred by the Defendants.  The final assessed costs of the Claimants will not fall below that sum but prior to their detailed assessment I do not consider that it would be appropriate to order a significantly greater proportion of the estimated or actual costs of the Claimants.”
31.	She concluded by saying:
“49.  This costs judgment has not been straightforward and there is obvious concern that the costs of the Claimants should be so far in excess of the costs of the Defendants.  That, however, is in my judgment a matter for assessment and does not entitle me to go outside the general rule for the award of costs taking into account the matters set out in 44.3 of the CPR and the exercise of my discretion.”
The first issue: is the ordinary rule in civil litigation that costs follow the event displaced by a different rule that applies (or may apply) in probate actions?
32.	I begin with the rule in probate actions.  In Mitchell & Mitchell v Gard & Kingwell (1863) 3 Sw & Tr 275, a testamentary suit where after a long trial the will was pronounced for and admitted to probate, Sir J.P. Wilde held at p. 278:
“The court deduces two following rules for its future guidance: first, if the cause of litigation takes its origin in the fault of the testator or those interested in the residue, the costs may properly be paid out of the estate; secondly, if there be sufficient and reasonable ground, looking to the knowledge and means of knowledge of the opposing party, to question either the execution of the will or the capacity of the testator, or to put forward a charge of undue influence or fraud, the losing party may properly be relieved from the costs of his successful opponent.”
Some justification from this rule can be seen from the observation of the judge at p. 279 that:
“It is of high public importance that doubtful wills should not pass easily into proof by reasons of the cost of opposing them.  It is of equal importance that parties should not be tempted into a fruitless litigation by the knowledge that their costs will be defrayed by others.  These opposite reasons appear to have alternately swayed the decisions to be found in the books.  It is the desire of the court to keep both in view while yielding to neither and it is in this spirit that the above rules have recommended themselves for adoption.”
33.	That rule has since held sway: see, for example, Twist v Tye [1902] P. 92 and Spiers v English [1907] P. 122 where the President Sir Gorrell Barnes said this at p. 123:
“In deciding questions of costs one has to go back to the principles which govern cases of this kind [the plaintiff alleging that the will was not duly executed, that the deceased did not know and approve of its contents and that execution was obtained by the undue influence of the defendant].  One of those principles is that if a person who makes a will or persons who are interested in the residue have really been the cause of the litigation a case is made out for costs to come out of the estate.  Another principle is that, if the circumstances lead reasonably to an investigation of the matter, then the costs may be left to be borne by those who have incurred them.  If it were not for the application of those principles, which, is not exhaustive, are the two great principles upon which the Court acts, costs would now, according to the rule, follow the event as a matter of course.  Those principles allow good cause to be shewn why costs should not follow the event.  Therefore, in each case where an application if made, the Court has to consider whether the facts warrant either of those principles being brought into operation.”
Costs were in fact ordered to be paid by the losing plaintiff.  
34.	The rule was further considered in Re: Plant dec’d [1926] P. 139 where Scrutton L.J. added this salutary warning at p. 152:
“I should be reluctant to do anything to create the idea that unsuccessful litigants might get their costs out of the estate, without making a very strong case on [their] facts.  The lure of “costs out of the estate” is responsible for much unnecessary litigation.”
Re: Cutliffe’s Estate [1959] P. 6 is a more modern re-statement of the rule but to reflect contemporary thinking, I must refer to Kostic v Chaplin [2007] EWHC 2909 (Ch) where Henderson J. said:
“…it is I think fair to say that the trend of the more recent authorities has been to encourage a very careful scrutiny of any case in which the first exception is said to apply, and to narrow rather than extend the circumstances in which it will be held to be engaged.  There are at least two factors which have in my judgment contributed to this change of emphasis.  First, less importance is attached today than it was in Victorian times to the independent duty of the court to investigate the circumstances in which a will was executed and to satisfy itself as to its validity.  Secondly, the courts are increasingly alert to the dangers of encouraging litigation, and discouraging settlement of doubtful claims at an early stage, if costs are allowed out of the estate to the unsuccessful party.”
35.	The Rules of the Supreme Court made provisions for cases where no order for costs was to be made, Ord. 62 r.4(3) providing:
“In a probate action where a defendant has given notice with his defence to the parties setting up the will that he merely insists upon the will being proved in solemn form of law and only intends to cross-examine the witnesses produced in support of the will, no order for costs shall be made against him unless it appears to the court that there was no reasonable ground for opposing the will.”
Under the Civil Procedure Rules the rule is Rule 57.7(5) which provides as follows:
“(a) A defendant may give notice in his defence that he does not raise any positive case, but insists on the will being proved in solemn form and, for that purpose, will cross-examine the witnesses who attested the will.
(b) If a defendant gives such a notice, the court will not make an order for costs against him unless it considers that there was no reasonable ground for opposing the will.”
36.	CPR 44.3(3) provides that the general rule that costs follow the event does not apply to: 
“(b)  proceedings in the Court of Appeal from a judgment, direction, decision or order given or made in probate proceedings or family proceedings.”
In family proceedings costs invariably lie where they fall and this rule contemplates the same in probate proceedings.  There was some debate in the course of argument whether the rule does in fact survive at first instance.  I do not consider it necessary to resolve that question.  Although I see the good sense of the probate practice for the right category of cases, I am content to proceed on an assumption that the practice in the Ecclesiastical Court and the Probate, Divorce and Admiralty Courts still holds good.  
37.	The real question for the purposes of this appeal is whether that rule, assuming its survival, applies where the action is not a probate action but a Chancery action for a declaration of constructive trust, albeit one arising out of the execution of mutual wills.  
38.	A similar question arose in In Re: Basham, dec’d. [1986] 1 W.L.R. 1498.  There the plaintiff provided unpaid services to the deceased, her stepfather, on his assurances that she would inherit his property when he died.  In fact he died intestate and the plaintiff claimed against his nieces who were administrators de bonis non of his estate that she was absolutely and beneficially entitled to the house by operation of the principle of proprietary estoppel.  She was successful in obtaining a declaration that the defendants, as personal representatives of the deceased, held the whole of his net estate on trust for her.  Without having heard argument on the question of costs, Mr Edward Nugee Q.C. sitting as High Court Judge said at p. 1510/11:
“…it seems to me that the case is analogous to certain other cases in which personal representatives or other parties, although unsuccessful in the event, are not held personally liable for the costs of an action in which they have acted reasonably.  While costs are always a matter of discretion, there is a general principle in a probate action that, where the cause of the litigation takes its origin in the fault of the testator, the costs of the unsuccessful parties are allowed out of the estate; and if the circumstances lead reasonably to an investigation of the matter, then the costs may be left to be borne by those who incurred them: Spiers v English [1907] P. 122.  Similarly in an administration action, where the difficulty to be solved is created by the testator himself, the costs may be paid out of the estate, …
The present case has arisen solely out of the failure of the deceased to make the will which was necessary, in view of the absence of any blood relationship, in order that indisputable legal effect should be given to the expectations which he had encouraged in the plaintiff.  The defendants had little if any personal knowledge of some of the matters on which evidence has been given by or on behalf of the plaintiff, and were acting not only on their own behalf but on behalf of a number of other nephews and nieces of the deceased who would have been entitled to share in his estate had it passed on intestacy.  In all the circumstances I do not think they acted unreasonably in testing the case put forward by the plaintiff which, while based firmly on established principles, on its facts went beyond the facts of any reported case.  On learning of the plaintiff's claim they might, I think, have issued an originating summons making the plaintiff and one of the deceased's other next-of- kin defendants, to obtain the directions of the court as to how they should deal with the deceased's estate; and if they had done so it is reasonably clear that their costs would have been paid out of the deceased's estate.”
So he decided that to act fairly between the parties the defendants’ costs should indeed be paid out of the deceased’s estate on a standard basis.
39.	For an example of where an administrator sought a full Beddoe order [In Re: Beddoe [1893] 1 Ch. 547] we should consider In Re: Evans, dec’d [1986] 1 W.L.R. 101 where the deceased died intestate leaving an estate to be divided equally among his six adult nephews and nieces.  One of the nephews was granted letters of administration to the estate.  Another who had lived in one of the deceased’s properties all his life and worked on his farm claimed to be beneficially entitled to the whole estate relying on certain promises and assurances which were alleged to have been made to him by the deceased during his lifetime.  The administrator served a defence and counterclaimed for possession of the farm.  Then he issued an originating summons seeking leave to continue to defend the action and pursue the counterclaim and seeking an order that he might be indemnified against all the costs of and incidental to the action out of the estate.  Nourse L.J. held at p. 107: 
“[counsel for the plaintiff] said that it would be most unjust if his client were to succeed in the action only to find that the farm and the house which ought to have been his must be sold in order to meet the unsuccessful party’s costs of the action while, on the other hand, the deceased’s other nephews and nieces, who were in truth the losers, would have started by risking nothing and would have ended by losing nothing.  It seems that the master, who was very experienced in these matters, regarded that as a powerful argument.  I am entirely of the same opinion.  In my view, in a case where the beneficiaries are all adult and sui juris and can make up their own minds as to whether the claim should be resisted or not, there must be countervailing considerations of some weight before it is right for the action to be pursued or defended at the cost of the estate.”
40.	If one casts about for other analogous claims there are claims under the Inheritance (Provision for Family and Dependants) Act 1975.  In In Re: Fullard, dec’d [1982] Fam. 42 Ormrod L.J. commented at p. 46:
“Where the estate - like this one - is small, in my view the onus on an applicant of satisfying the conditions of section 2 is very heavy indeed and these applications ought not to be launched unless there is (or there appears to be) a real chance of success, because the result of these proceedings simply diminishes the estate and is a great hardship on the beneficiaries if they are ultimately successful in litigation.  For that reason I would be disposed to think that judges should reconsider the practice of ordering the costs of both sides in these cases to be paid out of the estate.  That is probate practice; this is something quite different.  I think judges should look very closely indeed at the merits of each application before ordering that the estate pays the applicant's costs if the applicant is unsuccessful.”
41.	As for cases involving mutual wills, our attention has been drawn to Gray v Perpetual Trustee Company Ltd [1928] A.C. 291 reporting the opinion of the Privy Council.  Their Lordships considered that the fact that a husband and wife have simultaneously made mutual wills giving each to the other a life interest with similar provisions in the remainder was not in itself evidence of an agreement not to revoke the wills and in an absence of a definite agreement to that effect there was no implied trust precluding the wife making a fresh will inconsistent with the former will even though her husband had died and she had taken the benefits conferred by his will.  The report concludes:
“For these reasons they will humbly advise His Majesty that the appeal should be dismissed.  They are always reluctant to give unsuccessful appellants their costs.  But in this case the questions which have arisen are so obviously the result of the obscure and unusual procedure of the husband and wife in relation to the settlement of 1879 that they think that the costs of all parties as between solicitors and client should be paid out of the settled funds.”
Similar orders were made in two Canadian cases to which we were referred, Re: Skippen [1947] 1 D.L.R. 858 and Re: Carr [1948] 3 D.L.R. 668. 
42.	I have looked at the English authorities cited in those cases.  I do not gain much from them.  In the estate of Heys, Walker v Gaskill [1914] P. 192 mutual wills had been executed and the survivor executed new wills in breach of a definite arrangement between herself and her husband that their wills were to be irrevocable.  Sir Samuel Evans, President, was constrained to pronounce in favour of the later will made by the survivor but he refused to deal with the defendants’ alternative claim for a declaration that the executors of that later will were trustees for the defendants to the extent of the benefits given to them under the earlier mutual wills.  He refused to entertain that claim saying:
“What I am asked to do appertains specially to proceedings of the character expressly assigned to the Chancery Division by s. 34 of the Judicature Act, 1873.  In my opinion I cannot accede to the prayer of the alternative claim of the defendants; I must leave them to pursue their remedies in the other Division.”
If the approach seems a bit old-fashioned, it nonetheless serves to emphasise the inherent difference between the strict probate action – whether or not to pronounce for the validity of a will – and the Chancery practice – whether or not to hold the executor bound by the trust to dispose of the estate in accordance with the terms of their trust.  So far as the Chancery practice is concerned, I have looked at a number of the cases referred to in the text books.  Most are silent as to the order for costs made at the conclusion of the hearing.  Certainly I have not found nor have we been referred to any authorities clearly establishing the Chancery practice for ordering costs as between the parties or out of the estate.
43.	Finally in this review of the authorities, I turn to Olins v Walters [2008] EWCA Civ 782, [2009] Ch 212 which is the most recent case about mutual wills in the Court of Appeal.  The report deals fully with the review of the facts and the law but merely notes that the appeal was dismissed with costs including costs of trial, subject to detailed assessment.  It is unlikely that the court was entertained with the arguments presented to us. 
44.	What follows from that review?  I conclude that the so-called rule in probate cases does not apply in the case before us.  The probate rule is rooted in the inquisitorial exercise that was conducted by the Ecclesiastical Courts and the Probate Division where the court had to be satisfied of the validity of the will before it could pronounce for the will and admit it to probate.  The effect of mutual wills upon the distribution of the estate under a later will which is admitted to probate is a matter for the Chancery Division applying the law of trusts; it is not a matter of probate law and practice.  The nature of that litigation is not inquisitorial: it is adversarial and, not infrequently, very adversarial as the two families disunited by death battle for their perceived true inheritance.  That is exactly what has happened here.  It may be unfortunate that the two sides of the family have locked horns in battle with no quarter given.  In my judgment the judge was entitled to find, indeed right to find, that “the contention between the parties was not unlike any other hostile litigation and not such that would enable the court to move away from the general rule”: see paragraph 37 of her judgment at [28] above.  The reasons she gave in paragraph 39 of her judgment which I have also cited at [28] above is beyond challenge: there would be a plain injustice if the claimants were deprived of any benefit of their success (compare Re: Evans).  The challenge by the defendants as to what had been said and done and the legal consequences of that behaviour do not provide a reason for departing from the general rule that costs follow the event.  
45.	It follows that in my judgment she was fully entitled to order the defendants to pay the claimants’ costs.  
The second issue: should the executors’ own costs be paid out of the estate and are they entitled to be indemnified by the estate against their liability for the claimants’ costs?
46.	It seems to me that there is some inconsistency between paragraph 1 of the order that the defendants are to pay the claimants’ costs and paragraphs 2 and 3 of the order, paragraph 2 providing that the first to third defendants should be indemnified from the estate to the extent of their own liability for the claimants’ costs (but the indemnity was not to be for the entirety of the defendants’ liability for costs) and paragraph 3 providing that they should be indemnified from the estate to the extent of their own costs.  Paragraph 3 is tolerably clear: the executors get their costs out of the estate.  But I am not at all sure how paragraph 2 operates.  The liability of the first to third defendants to pay the claimants’ costs as provided for in paragraph 1 is a joint and several liability.  It may be that what is intended is that the first to third defendants can recoup three-sevenths of the total costs from the estate leaving four-sevenths to be paid by the other defendants.  I confess I am puzzled.  
47.	The reasons given by the judge for those orders are set out in paragraphs 42 to 45 of her judgment recited at [29] above.  In essence she considered the executors acted reasonably in entering a defence and in putting the claimants to proof of their claim.  This has a slight echo of the second ground of the probate rule (sufficient and reasonable ground for investigation) but the probate rule was (or should have been) rejected by the judge.  Once CPR 44 applies then in deciding what order to make about costs the court must have regard to all the circumstances including the conduct of all of the parties and in considering conduct the court must decide whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue as well as the manner in which a party has defended his case or a particular allegation or issue: see CPR 44.3(4) and (5).  
48.	I conclude that the executors did not conduct themselves reasonably.  They accepted service on behalf of all defendants yet they assumed the responsibility at first of putting in the only defence, making no admissions and putting the claimants to proof of the agreement to treat the mutual wills as irrevocable.  They also took the bad point that section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 applied.  Although they had at an early stage written of their need “to steer a median course” and “to be guided by the court” they did not adopt that position of neutrality in their defence.  They did not indicate that they would be bound by the decision of the court and hold the estate to abide that decision.  They did not seek directions from the court.  Instead they assumed the role of defendants and when the defence was amended to join the family members, they, the executors, continued their stout resistance.  They did not stand aside.  There was nothing to distinguish their conduct from the conduct of the family members.  The questions put in cross-examination to test the claimants’ case were put as much for the benefit of the executors as for the beneficiaries under the 2003 will.  As paragraph 1 of the order makes plain, the judge properly lumped them together, to coin an inelegant phrase, and made an order against all of them.  If the conduct of the defence was entirely reasonable as she held, no good reason is given for separating the defendants in the way in which they conducted that defence.  
49.	I have some sympathy for the executors because it was, as the judge said in paragraph 44 of her judgment “quite proper to protect the estate” and quite proper, therefore, to put in some holding defence, but sadly the pleadings filed do not reflect any neutrality.  They engaged in adversarial litigation and even the warning shot across their bows delivered by the claimants in their amendment of the claim to make an express claim for costs against the executors did nothing to bring about any change in the executors’ stance to the litigation.  I do not doubt for one moment the bona fides of the executors or their good intentions but I fear they must be judged as the other defendants are judged and their conduct does not exculpate them from the rigour of the ordinary rule that costs follow the event.  
The third issue: would it be unjust to order the defendants to pay indemnity costs and interest on costs pursuant to CPR 36.14?
50.	The judge correctly found that the claimants had succeeded in their claim and had succeeded, furthermore, in obtaining judgment against the defendants which was more advantageous to them than the proposals contained in their Part 36 offer.  There was no suggestion at the trial that the offer did not comply with Part 36.  That was questioned before us, reliance being placed upon the judgment of Warren J. in C v D [2010] EWHC 2940 (Ch), [2001] 1 W.L.R. 331.  He held that an offer which the offeror has stated has to be accepted within a specified time and, if not accepted within the stated period, comes to an end, is not capable of being an offer within the meaning of Part 36.  The offer there was expressed to be open for 21 days.  So was the offer of 6th March set out at [14] above.  Warren J.’s decision has since been reversed by the Court of Appeal: see C v D [2011] EWCA Civ 646, a judgment handed down after the hearing before us.  This Court has held that although Part 36 does not permit an offer within the scheme to be time limited, stating that the offer would be open for 21 days was to be construed as informing the offeree that the offeror would not seek the court’s permission to withdraw it during that period.  It was not time limited.  It was, on the contrary, an offer which complied with Part 36.  
51.	So the judge proceeded upon the correct basis and she gave essentially three reasons for finding that it would be unjust for the defendants to have to pay the additional costs penalties set out in Part 36.14, namely (1) the size of the costs meant that it was not possible for the defendants to accept the offers made; (2) the nature of the case was such that the outcome could not be certainly predicted until after evidence had been given and (3) the fact that the offer was not accepted could be properly taken into account under Part 44 when determining what order for costs ought to be made.  In my judgment each of those reasons is flawed.  
52.	To start with the last consideration, Part 36 is a separate, self-contained code.  It must be applied as such.  If the offer is one to which the costs consequences under Part 36 apply, then it cannot be taken into account under Part 44 because, although CPR 44.3(4)(c) requires the court to have regard to “any payment into court or admissible offer to settle”,  those words are qualified by the words which follow namely “which is not an offer to which costs consequences under Part 36 apply”.  Part 36 trumps Part 44.  
53.	The second reason cannot be a good reason for excluding the operation of Part 36.  It is almost inevitable in all litigation that the nature of the outcome cannot be certainly predicted until after the evidence has been given and even then there is no certainty as to the outcome until the judge has decided the case on that evidence.  In this litigation the parties to the relevant agreement are both deceased with the result that the second-hand evidence as to what they agreed makes the litigation all the more speculative.  Far from there being a reason not to apply Part 36, it is in my judgment all the more reason for parties faced with that dilemma to make or to accept proper offers under Part 36.  Not to beat the Part 36 offer has hazardous consequences as this case demonstrates.  In these circumstances it is better to mediate than to litigate.  
54.	As for the first reason, I have very considerable sympathy with the defendants.  My first thoughts were that the judge was right in all respects to be so aghast at the spending of over £320,000 fighting over a £134,000 estate.  On reflection, and with some regret, I have concluded that the amount of the costs which would have to be paid is a matter for assessment by the costs judge and it is the costs judge who will question, and will no doubt question very closely indeed, whether the costs claimed were necessary and proportionate.  That assessment will produce the right figure for the claimants’ costs and the defendants will be properly condemned in that sum and no greater sum.  
55.	It follows that each of the reasons given by the judge is open to challenge.  In considering the justice of an order for indemnity costs, it is to my mind, wholly appropriate to bear in mind that it was the claimants who made every effort to settle with little effective response from the defendants.  
56.	In the result it cannot be considered to be unjust to allow the claimant interest on the costs and for payment of the costs on an indemnity basis.  I would allow that appeal and order that costs be paid on the indemnity basis from 30th March 2009, the relevant date for the first Part 36 offer, with interest on those costs from that date at 3.5% above base rate.  
The fourth issue: the amount to be paid on account of the claimants’ costs
57.	CPR 44.3(8) gives the court a discretion to order an amount to be paid on account before the costs are assessed.  The policy was explained by Elias L.J. in Blakemore v Cummings  [2009] EWCA Civ 1276, [2010] 1 W.L.R. 983 at [23]:
“it is an important consideration that a party should not be kept out of the moneys which will almost certainly be demonstrated to be due longer than is necessary.”
58.	The task of the court is to make some fair assessment of how much will “almost certainly demonstrated to be due”.  That exercise must necessarily be conducted by reference to the assessment of the costs of the party in whose favour the order for costs is being made.  Therein lay the judge’s error.  Understandably enough, she was concerned about “the obvious disparity between the costs of the claimants and the costs of the defendants”.  It is difficult to avoid an impression that the claimants’ costs are excessive, even allowing for the fact that it was the claimants who had to gather together the evidence to prove the agreement whereas the defendants had much less to do and relied mainly on the probate partner Mr Lane and the legal executive Mrs Raven who took instruction for the wills.  I can, therefore, understand that there should be some disparity between the parties’ costs.  The amount of costs incurred by the defendants cannot be a measure of the claimants’ costs.  
59.	I would therefore allow this appeal and, doing the best I can to be just and fair I would order the defendants to pay £50,000 on account of costs.  
Conclusion
60.	It follows that the appeal must be allowed and the cross-appeal dismissed.  Paragraph 1 of the order must be varied to reflect the assessment of the claimants’ costs on an indemnity basis after 30th March 2009 and to allow for interest on those costs at 3.5% above base rate.  Paragraphs 2 and 3 of the order must be discharged.  Paragraph 4 of the order must be amended to provide for an interim payment of £50,000 on account of costs, and the reference to indemnity from the estate will be discharged.  Counsel are requested to agree the order accordingly.
Footnote
61.	Making those orders gives no pleasure.  If the claimants are right in their assessment of their costs, then, even without a success fee, the costs incurred by them exceed the sum over which battle has been joined.  The great British public must think that something has gone wrong somewhere if litigation is conducted in that way.  I share that sense of horror.  One answer has to be to engage in mediation constructively and at the very earliest stage.  To be fair to the claimants they did offer to mediate in November 2007 when particulars of claim had been settled but not issued.  That offer was not accepted.  Instead the defendants waited until 17th December to write without prejudice, not under Part 36 nor in the form of a Calderbank offer, to settle by sharing the estate equally between the two families.  As the claimants responded, such an offer might well have formed the basis for further negotiation had it been made at the outset of the matter.  A thousand pities that that was not done but the awful costs consequences which have followed do lie at the defendants’ door.  
Lady Justice Arden:
62.	I agree.  
Lord Justice Moore-Bick:
63.	I also agree.