Australian Executor Trustees Limited v Lokit Investments Pty Ltd (No 2)
[2023] VSC 307
•7 June 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2022 01783
| AUSTRALIAN EXECUTOR TRUSTEES LIMITED as trustee of THE YING MUI TRUST, THE AMORE TRUST and THE FRG INVESTMENTS TRUST | Plaintiff |
| v | |
| LOKIT INVESTMENTS PTY LTD (ACN 006 855 741) and others (according to the schedule attached) | Defendants |
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JUDGE: | LYONS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | Determined on the papers |
DATE OF JUDGMENT: | 7 June 2023 |
CASE MAY BE CITED AS: | Australian Executor Trustees Limited v Lokit Investments Pty Ltd & Ors (No 2) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 307 |
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COSTS – Judicial advice application – Principal issues truly dispute between beneficiaries –Trustee’s costs of proceeding – Trustee’s right of indemnity – Hopkins v Edwards [2020] VSC 560 and Ruschinek v Teirnan [2016] VSC 197 applied – Costs on indemnity basis including orders that a share be paid from the unsuccessful beneficiaries’ share of the assets of the trust.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T P Mitchell | Gilbert + Tobin |
| For the First and Second Defendants | Mr A L Ounapuu | Dimos Lawyers |
| For the Third to Fifth Defendants | Mr D McAloon | Strongman & Crouch |
| For the Sixth Defendant | No appearance |
HIS HONOUR:
Introduction
I delivered reasons for judgment in this proceeding on 31 March 2023: Australian Executor Trustees Limited v Lokit Investments Pty Ltd & Ors [2023] VSC 141 (the Reasons). In the absence of agreement between the parties, it is necessary to determine the costs of this proceeding. For convenience, defined terms in the Reasons have the same meaning here.
Given the issue for determination is the costs of the proceeding, I have determined to issue short reasons for judgment consistent with the decision of the Court of Appeal in Luxemore Pty Ltd v Hydedale Pty Ltd (2008) 20 VR 481.
There were a number of issues which required determination or judicial advice in respect of AET’s administration of three trusts, being the YM Trust, the Amore Trust and the FRG Trust. These were as follows:
(1) the A.1 issue i.e. whether the former trustee of the YM Trust and third defendant, YMPL, is liable to repay on demand to Lokit (the first defendant) the Third Lokit Loan in the sum of $1,076,749. This claim was contested as between the Frank Parties (i.e. Lokit and the second defendant, Lynn) and the George parties (i.e. the third to fifth defendants, YMPL, George and Han);
(2) the A.2 issue (closely related to the A.1 issue) i.e. if YMPL is liable to repay the Third Lokit Loan on demand, whether YMPL is entitled to an indemnity for that loan from the YM Trust;
(3) the B.3 issue, where AET sought judicial advice regarding the accounts of the YM Trust in relation to the Third Lokit Loan and the subsequent treatment in the accounts of the Artimax Loan; and
(4) the vesting issue, where AET sought judicial advice to the effect that it is justified in vesting each of the three trusts and distributing their net assets to the respective beneficiaries. This was consented to by the relevant parties to this proceeding who include beneficiaries of the three trusts.
In the Reasons, I concluded that:
(1) as to the A.1 issue, YMPL is not liable to repay the Third Lokit Loan upon demand as it is statute-barred. As a result, it was not necessary to determine the A.2 issue;
(2) as to the B.3 issue, AET is justified in making entries in the financial accounts of the YM Trust to record that the Third Lokit Loan (and the related Artimax Loan) are not payable from trust assets; and
(3) as to the vesting issue, AET is justified in vesting the three trusts and distributing the net assets to the respective beneficiaries in accordance with the terms of each trust.
Submissions
AET, the Frank parties and the George parties each filed submissions on costs. In summary, AET sought:
(1) its costs of this proceeding out of the assets of the trust (which I presumed to mean the three trusts on a full indemnity basis);
(2) that the Frank parties pay the costs of the George parties of this proceeding, including reserve costs on a standard basis to be taxed in default of agreement; and
(3) that the Frank parties pay their own costs of this proceeding without any indemnity from the assets of the three trusts.
In summary, the George parties submitted that:
(1) insofar as AET’s costs were incurred prior to the filing the AOM, AET be indemnified for its costs from the assets of the three trusts;
(2) insofar as AET’s costs were incurred in the period following the filing of the AOM i.e. after 18 October 2022, AET be indemnified for its costs from the share of the assets of the three trusts that would otherwise be distributed to the Frank parties;
(3) the Frank parties pay the George parties’ costs of this proceeding following their joinder, such costs to be taxed on a standard basis in default of agreement; and
(4) the Frank parties bear their own costs of this proceeding.
In summary, the Frank parties:
(1) did not dispute that AET should be paid its costs on an indemnity basis from the assets of the three trusts;
(2) submitted that AET should pay the costs of the Frank parties on a standard basis from the assets of the YM Trust or, alternatively, the Frank parties bear their own costs; and
(3) disputed that the Frank parties should be ordered to pay the George parties’ cost of the proceeding.
Most relevantly, the George parties submitted that the A.1 issue was decided in this proceeding inter partes: otherwise it would have required a proceeding to be issued by the Frank parties seeking repayment of the Third Lokit Loan against YMPL which would have exposed Lokit to a costs order in favour of YMPL against Lokit. That result should not be avoided because the proceeding was originally commenced as a judicial advice application.
The George parties further submitted that the effect of ordering that AET be indemnified for its costs from the three trusts was that the George parties would be paying two thirds of those costs (based upon the foreshadowed distribution on the vesting of the trusts). They referred to the decision of Bongiorno JA in Ruschinek v Teirnan [2016] VSC 197, [39]–[46] (Ruschinek v Tiernan) in which the Court ordered the defendant trustee be indemnified as to his costs of the proceeding from the plaintiff’s share of the estate assets rather than from the share of other beneficiaries.
Alternatively, the George parties submitted that, if the determination of the A.1 issue was truly a trust dispute, it fell within the third class of dispute described in Re Buckton [1907] 2 Ch 406, namely, a beneficiaries dispute in which a beneficiary brings a hostile claim against the trustee or another beneficiary. This is in a context where Lokit’s claim was adverse to those of the other beneficiaries and, if successful, would have had the effect of materially reducing the trust funds.
The Frank parties submitted that they assumed a ‘contradictor role’ and that, absent their participation, the Court would not have had the benefit of any submissions or evidence in response to AET’s and the George Parties’ submissions. They submitted that the costs of all parties should be treated as incurred for the benefit of the trusts and accordingly paid out of the trusts.
I note that no party sought to file responsive submissions, and, in light of the costs to date in this proceeding, I did not invite them.
Consideration
Before addressing the relevant principles, it is appropriate that I make some findings in relation to the nature of this proceeding.
First, as is evident, the A.1, A.2 and B.3 issues related only to the YM Trust while the vesting issue related to each of the three trusts.
Second, the originating motion in this proceeding originally sought judicial advice on all these issues. The Frank parties were joined as defendants on 31 August 2022 and the George parties were joined as defendants on 29 September 2022. The originating motion was amended on 18 October 2022 to give effect to the joinder and raise issues A.1 and A.2 as issues inter partes.
Third, as noted in the Reasons at paragraph [68], the A.1 issue was the principal issue for determination. Most of the evidence and submissions filed related to this issue and it occupied most of the oral argument at the hearing. Based on my review of the evidence, the submissions and the trial, I consider that the A.1 issue comprised approximately 90% of the time and costs associated with this proceeding.
Fourth, from the time of their joinder, the George parties submitted that YMPL was not liable to repay the Third Lokit Loan upon demand as it is statute-barred and was the subject of an Anshun estoppel. The Frank parties contended that YMPL was liable to repay the Third Lokit Loan upon demand. This issue between them was truly adversarial, being a dispute between the beneficiaries of the YM Trust over its liabilities and assets. From 18 October 2022, AET adopted for the most part a neutral position, assisting the Court with the relevant facts and law. However, the basis of the original application for judicial advice was that, in light of demand by Lokit, AET had formed the view that the Third Lokit Loan was not repayable.
Fifth, for the most part, the other issues were not in dispute, indeed the Frank parties and the George parties agreed on the vesting issue.
Sixth, the vesting issue has some relevance. Consistent with my comments above, the principal issue in the proceeding was a fight between the beneficiaries of the YM Trust as to whether the Third Lokit Loan should be repaid prior to the distribution of the assets of that trust on its vesting. This is in circumstances where (as described in the Reasons) there has been a long, complex and expensive proceeding between the Frank faction and the George faction.
Seventh, as set out in the Reasons, the George parties were successful and the Frank parties were unsuccessful on the A.1 issue with the result that it was unnecessary to decide the A.2 issue.
In respect to the powers of the court as to costs and the ability to apportion them, I refer to my decision summarising the relevant principles in Euromark Limited v Smash Enterprises Pty Ltd [2021] VSC 292, [85]-[90]. In summary, the court has the power to apportion costs in an appropriate case and should undertake that apportionment in a broad–brush and pragmatic way, based on impression and evaluation rather than arithmetic precision.
I considered some of these issues, including the right of a trustee to indemnity, in my decision in Hopkins v Edwards [2020] VSC 456 (Hopkins v Edwards).[1] Relevantly, I noted that disputes involving a trustee are sometimes really disputes between the beneficiaries of the trust as to the assets or liabilities of the trust. For the reasons set out above, that is certainly true in this case in respect of A.1 issue (and the related A.2 and B.3 issues). I refer to my fourth and sixth points above.
[1]See [235]–[244].
As to the costs of the proceeding, first, I consider it appropriate to apportion the costs of this proceeding in light of the matters set out above, in particular the number of different issues relating to different trusts.
As to the costs of the parties other than AET, first, I have concluded that the Frank parties are liable to pay 90% of the costs of the George parties on a standard basis to be taxed in default of agreement. The 90% figure represents my conclusion as to the time and expense relating to the A.1 issue (and the related A.2 and B.3 issues) on which the Frank parties were unsuccessful. I have undertaken this assessment in a broad- brush and pragmatic way, based on my impression and evaluation of the issues in the proceeding.
Second, I have concluded that there should be no other order as to costs as between the Frank parties and the George parties in respect of the issues raised in the balance of the proceeding. This is in light of the fact that before me there was no real dispute about these matters.
Third, there should be no right of indemnity from the assets of any of the three trusts in relation to the costs of the Frank parties or the George parties.
As to the costs of AET, first, I consider that AET is entitled to the costs of the proceeding on an indemnity basis. Second, I consider those costs should be allocated based on the issues in the proceeding, but taking into account the change in the nature of the principal issue in the proceeding from 18 October 2022 i.e. 90% as to the A.1 (and related A.2 and B.3 issues) and 10% as to the other issues. As the A.1, A.2 and B.3 issues only related to the YM Trust, I can see no basis on which costs in relation to these issues should be borne by all three trusts. By contrast, the other issues related to all three trusts.
Further, in light of the nature of the A.1 issue (and related issues), I am concerned that the effect of any order for indemnity from the assets of the YM Trust might visit the costs of AET in respect of those issues on the George parties who are to receive two thirds of the assets of the YM Trust on vesting. As a consequence, consistent with Ruschinek v Tiernan, I consider that AET is entitled to 90% of its costs on an indemnity basis:
(1) up to 18 October 2022 from the YM trust; and
(2) from 18 October 2022 from the Frank parties’ share of the YM Trust.
and from all three trusts in equal proportion as to the remaining 10%.
On 28 April 2023, I informed the parties of my preliminary views as to the costs of this proceeding and invited submissions as to the appropriate form of order. AET and the George parties made submissions while the Frank parties did not.
In summary, I expressed my preliminary view that approximately 90% of the costs related to A.1 issue (and related A.2 and B.3 issues) and 10% related to the other issues. As to the issue of indemnity, I expressed my preliminary view that:
(1) AET is entitled to its costs of this proceeding;
(2) 10% of the costs of AET of this proceeding should be paid on an indemnity basis from the three trusts in equal portion; and
(2) as to the other 90% of the costs of AET in the proceeding:
(a) up until 18 October 2022, AET is entitled to its costs on an indemnity basis from the YM Trust; and
(b) from 18 October 2022, AET is entitled to its indemnity costs from the Frank parties’ share the assets of the YM Trust.
AET submitted a proposed form of order that it considered should be made in respect of its costs on an indemnity basis and for an indemnity from the relevant trust. The George parties submitted that the order should not be made on an indemnity basis, rather, the order should be that AET be indemnified for its costs (being its actual costs calculated on an hourly basis) of the proceeding without the need for taxation and its associated costs. AET adopted this amendment. The Frank parties did not make any further submissions in regard to the form of order.
In my view, it is appropriate that I order the costs of AET on an indemnity basis to be indemnified from the relevant trusts. This is particularly so in circumstances where I have no evidence of AET’s actual costs or the hourly fees charged. This is in a context where a trustee has no absolute right to an indemnity for costs incurred. I refer again to my reasons in Hopkins v Edwards.
As a result, I will order:
1. the plaintiff is entitled to its costs of the proceeding on an indemnity basis (to be taxed in default of agreement) and be indemnified for such costs as follows:
(a)for those costs incurred before 18 October 2022:
(i) 3% be paid from the Amore Trust;
(ii) 3% be paid from the FRG Investments Trust; and
(iii) 93% be paid from the Ying Mui Trust;
(b) for those costs incurred on or after 18 October 2022:
(i) 3% be paid from the Amore Trust;
(ii) 3% be paid from the FRG Investments Trust;
(iii) 3% be paid from the Ying Mui Trust; and
(iv) 90% be paid from the Frank Faction’s share of the assets of the Ying Mui Trust, as the term ‘Frank Faction’ is explained in Ying Mui Pty Ltd v Ords v Hoh and Ors [2017] VSC 29, [21]–[26].
I will also order that 90% of the costs of the George parties be paid by the Frank parties on a standard basis to be taxed in default of agreement and there be no other order as to the costs of this proceeding.
SCHEDULE OF PARTIES
S ECI 2022 01783
| BETWEEN: | |
| AUSTRALIAN EXECUTOR TRUSTEES LIMITED as trustee of THE YING MUI TRUST, THE AMORE TRUST and THE FRG INVESTMENTS TRUST | Plaintiff |
| - and - | |
| LOKIT INVESTMENTS PTY LTD (ACN 006 855 741) | First Defendant |
| LYNN YOOK LIEN HOH in her capacity as executor of the estate of the late FRANK KIANG NGAN HOH | Second Defendant |
| YING MUI PTY LTD (ACN 002 992 449) | Third Defendant |
| KIANG PO HOH (GEORGE HOH) | Fourth Defendant |
| HAN KEYET HOH | Fifth Defendant |
| AMORE CORPORATION PTY LTD (ACN 097 964 175) | Sixth Defendant |
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