Bovaird v Frost

[2009] NSWSC 917

CITATION:	Bovaird v Frost [2009] NSWSC 917
HEARING DATE(S):	6 July 2009; submissions 13 August 2009
JUDGMENT DATE :	4 September 2009
JURISDICTION:	Equity Division Expedition List
JUDGMENT OF:	Brereton J
DECISION:	In proceedings 2211/04: order that the proceedings be dismissed and order that the first and second defendants in their capacity as executors of the estate of Maxwell Walter Allen Frost pay the plaintiffs’ costs – In proceedings 3159/04: give judgment that the first and second defendants in their capacity as executors of the estate of Maxwell Walter Allen Frost pay the plaintiff the sum of $1; give judgment for the third defendant; order that the first and second defendants in their capacity as executors of the estate of Maxwell Walter Allen Frost pay the plaintiffs’ costs and order that the plaintiffs pay the third defendant’s costs – In proceedings 1923/06: give judgment that the first and second defendants in their capacity as executors of the estate of Maxwell Walter Allen Frost pay the plaintiff the sum of $1,239,110; give judgment for the third defendant; order that the first and second defendants in their capacity as executors of the estate of Maxwell Walter Allen Frost pay the plaintiffs’ costs and order that the plaintiffs pay the third defendant’s costs.
CATCHWORDS:	PROCEDURE – matters arising out of principal judgment – determination of amounts to be paid arising out of principal judgment – life expectancy of plaintiff – whether plaintiff should be permitted to reopen to tender most recent Australian Bureau of Statistics data – where court relied on evidence at hearing – held: court should adhere to position adopted at hearing – INTEREST – held: interest awarded in respect of part losses – interest not awarded in respect of ongoing loss about half of which was still in future – EXECUTORS – whether executor should be denied indemnity out of estate – where proceedings not unreasonable – where executor not acting in personal interest – held: executor entitled to have costs paid out of estate
LEGISLATION CITED:	(NSW) Uniform Civil Procedure Rules 2005 r 42.8, r 42.9, r 42.25
CATEGORY:	Consequential orders
CASES CITED:	Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220 Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247 Drummond v Drummond [1999] NSWSC 923 Evans v Evans [1985] 3 All ER 289 Gray v Guardian Trust Australia Ltd [2003] NSWSC 704 His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand v The Macedonian Orthodox Community Church St Petka Incorporated [2006] NSWCA 277 In The Will of Lanfear (1940) 57 WN (NSW) 181 Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42, (2008) 237 CLR 66, (2008) 82 ALJR 1425, (2008) 249 ALR 250 Mead v Watson (as liquidator for Hypec Electronics) [2005] NSWCA 133, (2005) 23 ACLC 718 Metropolitan Petar v Mitreski [2006] NSWSC 336 National Trustees Executors and Agency Co of Australiasia Ltd v Barnes (1941) 64 CLR 268, [1941] VLR 133, [1941] ALR 58 Plunkett v Bull [1915] HCA 14, (1915) 19 CLR 544 Re Dallaway (deceased) [1982] 1 WLR 756 Re Hall [1959] SR (NSW) 219 Vasiljev v Public Trustee [1974] 2 NSWLR 497
PARTIES:	2211/04 Monica Catherine Bovaird (plaintiff) Alan Maxwell Frost, (first defendant) Diana Catherine Fallon (second defendant) 3159/04 Leon Lewis MacGillivray Bovaird (plaintiff) Alan Maxwell Frost (first defendant) Diana Catherine Fallon (second defendant) AFM Developments Pty Ltd (third defendant) 1923/06 Monica Catherine Bovaird (plaintiff) Alan Maxwell Frost (first defendant) Diana Catherine Fallon (second defendant) AFM Developments Pty Ltd (third defendant)
FILE NUMBER(S):	SC 2211/04 ; 3159/04 ; 1923/06
COUNSEL:	Mr R Harper SC w Mr M Condon (plaintiffs) Mr N Cotman SC (defendants)
SOLICITORS:	Garland Hawthorn Brahe Solicitors (plaintiffs) MBP Legal (defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EXPEDITION LIST

BRERETON J

Friday, 4 September 2009

2211/04 Monica Catherine Bovaird v Alan Maxwell Frost, Estate of Maxwell Walter Allen Frost & anor
3159/04 Leon Lewis MacGillivray Bovaird v Alan Maxwell Frost & ors
1923/06 Monica Catherine Bovaird v Alan Maxwell Frost & ors

JUDGMENT

1 HIS HONOUR: On 30 April 2009 I gave judgment, concluding, relevantly as follows:

116 Max agreed with Leon and Monica at least to fund Monica’s retirement accommodation, at whatever level might reasonably be required from time to time, and all the expenses associated with her care at that accommodation, and to provide to Leon an interest free unsecured loan of $880,000 for a term of 10 years, to fund the redevelopment of Cecil Street. However, there was no intention that Max be bound to enhance Monica’s estate with capital, whether in the form of an asset in a retirement unit or otherwise. The parties intended by this agreement to create binding and enforceable legal relations. Although defences of unconscionability, undue influence and under the Contracts Review Act were pleaded, they were properly not pressed.

117 AFM was not and did not become a party to the contract, and the case against it must fail.

118 For breach of the accommodation term, Monica is entitled to damages against Max’s estate in the sum of $541,268 (being the care fees, and interest and retention in respect of the accommodation bond, incurred at Terrey Hills Nursing Home to January 2009, and thereafter capitalised for her life expectancy of 3.25%, and the cost of raising a loan to provide the accommodation bond; I do not allow damages in respect of the outstanding and ongoing fees due in respect of Lindfield Manor, nor for gratuitous care, nor for medical expenses over and above those provided as part of the aged care facility). For breach of the redevelopment loan term, Monica is entitled to damages against Max’s estate in the sum of $590,379 (being the cost of a substitute loan on commercial terms at then prevailing interest rates of about 6.5%, for a term of ten years on a loan of $880,000 and borrowing costs).

119 Leon is entitled to nominal damages only for breach of the redevelopment loan term.

120 There should be judgment for AFM on all claims against it.

121 From 3 August 2002 until his death on 26 November 2002, Monica was at least partly dependent upon Max – for provision of the accommodation she occupied at Lindfield Manor, including payment of the associated outgoings. It follows that Monica is an eligible person in category (d). The facts of dependency as at the date of Max’s death, and that Monica had arranged her affairs on the basis of a promise made by Max to support her for the rest of her life, constitute factors warranting the making of Monica’s application under the Act. Particularly having regard to Max’s promise, relied upon as it was by Monica in leaving Cecil Street, he had an obligation to make provision for her aged care accommodation for the rest of her life. In the light of the scope of the actual dependency at the date of Max’s death, and his promise, adequate provision for Monica’s proper maintenance involved provision of the ongoing costs of her aged care accommodation.

122 Had the matter fallen for consideration only under the Family Provision Act, the order I would have made for provision out of Max’s estate would have involved a legacy in the sum of $235,000 (approximately equivalent to the total charges incurred to January 2009 in respect of care and accommodation at Terrey Hills Nursing Home, less the benefit conferred on her of her interest in the Lindfield Manor unit), and an indexed annuity of $6,250 per month (to cover those fees for the remainder of her life). But as the award of damages Monica will receive on her contract claim considerably exceeds the value of such an order, in which light she will not have been left with inadequate provision, no further order is necessary or appropriate.

123 I will afford the parties an opportunity to make submissions as to arithmetic, interest and form. Subject to any such submissions, I would propose to make orders as follows:

A. In proceedings 2211/04:

(1) Order that the proceedings be dismissed.

B. In proceedings 3159/04:

(1) Give judgment that the first and second defendants pay the plaintiff the sum of $1;

(2) Give judgment for the third defendant.

C. In proceedings 1923/06:

(1) Give judgment that the first and second defendants in their capacity as executors of the estate of Maxwell Walter Allen Frost pay the plaintiff the sum of $1,131,647;

(2) Give judgment for the third defendant.

124 I will also make directions for submissions on the question of costs.

2 I directed that the plaintiff bring in short minutes to give effect to my conclusions, and made directions for the exchange of written submissions in respect of costs and interest. Those submissions raise the following issues for determination:

· Finalisation of the judgment sums, including interest;
· Costs;
· Executors’ indemnity; and
· Disposal of the Family Provision proceedings.

The judgment sum and interest

3 The amount allowed in the principal judgment for future monthly aged care fees was based on the evidence of Dr Ogle, contained in her affidavit of 27 January 2009, to the effect that Monica had an “average life expectancy” of 4.6 years from September 2007, though she could live for as long as six to seven years (at [72]). From September 2007, a period of 4.6 years ran to about May 2012, or 3.25 years from the date of hearing in February 2009. For Monica, it is now submitted that the Australian Bureau of Statistics has published two further revised life expectancy tables, the effect of which is that as at the hearing in February 2009, her life expectancy was 45 months or 3.75 years, and that the judgment should be varied to take account of this.

4 This case was not one in which the Court was asked to take notice of the Australian Life Tables. Evidence as to life expectancy was adduced, in an endeavour, albeit unsuccessful, to persuade the Court to adopt a life expectancy greater than average for a women of Monica’s age. The Court’s decision was based, not on consultation of the Australian Life Tables, but on what Dr Ogle said in a very recent affidavit was Monica’s “average life expectancy”. If it were to be submitted that, by the time of the hearing, Monica’s “average life expectancy” had increased, the time to adduce evidence of that was at the hearing. Forensic decisions, such as whether to call a witness to give evidence that Monica had a less than average life expectancy, might have been made on the basis of the evidence such as it was at the hearing. It would be inappropriate now to depart from the position that prevailed at the hearing. I will therefore not vary the amount provisionally allowed for future monthly aged care fees, of $214,637.

5 In the principal judgment it was recorded, correctly, that the daily amount for on-going interest and retention charges was $69.15 (at [70]). However, for the purposes of calculating the plaintiffs’ loss, that amount was, incorrectly, treated as a weekly instead of a daily amount (at [73]); the weekly equivalent is $484.05. On behalf of Monica, it is submitted that correction of that calculation results in the proper allowance for the interest and retention charge in respect of the accommodation bond being $89,795, not the $11,133 referred to in the judgment. However, that calculation uses a multiplier of 185 for 3.75 years based on the suggested increased life expectancy; for the reasons already advanced, the appropriate life expectancy remains 3.25 years, for which the 3% multiplier is 161 (judgment, [73]), producing an amount of $77,932.05.

6 Monica claims interest on so much of the past aged care costs as have been paid to date. Although the defendants submit that this includes a claim for interest “on moneys not paid but incurred and in respect of which interest has not been charged”, this is not apparent; to the extent that the monthly fees have been paid by Monica from her own resources, they have been payments out of her pocket in respect of which she is, on ordinary principles, entitled to interest. This applies in respect of payments made to date, in respect of charges incurred up to the date of hearing, since provision has been made in respect of post-hearing charges under the head of “future care charges”. Of the amount of $308,826 incurred up to January 2009 (judgment, [77]), Monica has paid a total of $254,763 at times and in instalments specified in a schedule to her counsel’s submissions, with which no issue has been taken. Application to those payments of interest at the rates prescribed by the rules of court for interest on unpaid judgment debts produces $38,653.72 as at 6 July 2009, and $40,663.90 at the date of judgment, which will be included in the judgment.

7 Accordingly, the damages to which Monica is entitled for breach of the accommodation care term are $648,730.90, made up as follows:

· Interest on accommodation bond (above, [5]) – $77,932;

· Future monthly aged care fees (above, [4]) – $214,637

· Monthly aged care fees to January 2009 (judgment, [77]) – $308,826;

· Mortgage costs (judgment, [76]) – $6,672;

· Interest on aged care costs paid (above, [6]) – $40,663.90.

8 Monica also claims interest on the proposed award of $590,379 in respect of breach of the redevelopment loan term. This is calculated from 1 April 2004, on the basis that the loan would have been completed at that date. However, this overlooks that the award of damages is itself in respect of interest – namely, the difference between the interest that would have been payable on a hypothetical commercial loan and the “interest free” promised loan – in circumstances where interest would have been payable on the hypothetical commercial loan not in a lump sum at the outset on (say) 1 April 2004, but progressively over the ten-year term. If the loss was to be assessed as at 1 April 2004, the amount would have to be discounted for acceleration. At the date of hearing, more than half the loss was still in the future. Theoretically, interest should be allowed on the past component, and the future component should be discounted, but the date of judgment is so close to the midpoint that the convenient course is to treat one as offsetting the other. I will therefore neither allow interest on, nor discount, this component.

9 Accordingly, there will be judgment for Monica for the sum of $1,239,110, comprised as follows:

· Accommodation Care term – $648,731;

· Redevelopment Loan term – $590,379.

Costs generally

10 Monica succeeded on her contractual claim against the estate, both on the accommodation care term, and on the redevelopment loan term. She did not succeed on her Family Provision Act claim, but only because she succeeded on the contractual claim; the Family Provision Act claim was appropriately brought as an alternative claim, in circumstances where her entitlement to relief on the contractual basis was in dispute.

11 Although the estate argues that costs could have been avoided had Monica acceded to its suggestion that only her family provision claim and contractual claim in respect of the accommodation care term be first heard – with the redevelopment loan term case, then mounted by Leon not Monica, to be heard separately at a later stage – the court acceded to Monica’s position that the claims should be heard together, and there is no reason for departing from the view that that was an appropriate course. The evidence on the contractual accommodation care term case and on the redevelopment loan term case significantly overlapped, and there is no reason now to revisit the view that the cases were appropriately heard together. Monica’s successful insistence that they be heard together is no reason for depriving her of the costs order to which she is prima facie entitled, namely that the unsuccessful estate pay her costs.

12 The estate submitted that there was hardly anything in issue on Monica’s family provision claim and contractual accommodation care term claim. I disagree: at least, intention to create legally binding relations, eligibility, and “circumstances warranting” were in issue. At least formally, Monica was put to proof of all aspects of her claims. There is no reason on this account to depart from the ordinary order to which Monica would be entitled.

13 However, a very considerable amount of time, effort and cost was expended and delay occasioned by the preparation of a damages claim, initially by Leon but subsequently adopted by Monica, based on the feasibility and prospective profitability of the proposed redevelopment of Cecil Street, which ultimately proved irrelevant, the proper measure of damages being the difference between the cost of the promised loan, and the cost of a commercial loan of similar amount. Although the plaintiffs submit that the ultimate assessment of damages on the basis of the differential cost of a commercial loan turned on the fact that the development could proceed, I disagree; although I accepted that the development was feasible, proof that the development was feasible was not an essential integer in proof of the case for damages that succeeded at trial. In my view it would not be fair to require the estate to pay the costs associated with the unsuccessful claim for damages in respect of the redevelopment loan term, based on the forecast profitability of a redevelopment. The costs attributable to that issue should be excluded from those that the estate must otherwise pay Monica.

14 Leon succeeded on his contract claim against the estate, but only to the extent of nominal damages, because the contract, and in particular the redevelopment loan, was for the ultimate benefit of Monica, not Leon, and Monica was allowed full compensation for the loss of the promised benefit. Leon was, as I found, Monica’s agent for relevant purposes. Leon’s separate case was quite unnecessary, if not misconceived. On the other hand, it added very little in costs to the case advanced on behalf of Monica herself, who ultimately adopted and augmented the arguments and evidence initially advanced on behalf of Leon as the cases were refined. Leon’s costs were incurred in pursuit of Monica’s interests, and had Leon’s not incurred them, they would have been incurred by Monica. Leon’s costs should be treated as Monica’s costs.

15 Monica however failed on her contractual claims against AFM; AFM totally succeeded. For Monica it was submitted that, AFM being a vehicle used by the deceased to make provision for certain of those who had claims on him, in circumstances where the estate would itself be insufficient to meet its obligations to Monica, as a matter of discretion no costs order should be made in favour of AFM, as it would have the practical effect of reducing the benefit to Monica of the judgment in her favour for the benefit of those for whom Max made provision indirectly through AFM at Monica’s expense.

16 The case against AFM was not a strong one. But it was an important aspect of Monica’s case, because (although the position might have been different at an earlier stage) at least by the time of the trial she could only recover the totality of her claim if she succeeded against AFM as well as against the estate, the estate having been reduced to a point that it would be insufficient to satisfy the whole of her claim. On behalf of Monica it is submitted that AFM’s defence incurred no additional costs (beyond the preparation and filing of its defence), and that the estate funded the defence. There is no evidence that plainly establishes that to be so. In my assessment, the involvement of AFM as a defendant added considerably to the overall cost and scale of the litigation. If, indeed, the estate has funded the conduct of the defence on behalf of all parties and AFM has no liability in respect of defence costs, then AFM may not be in a position to recover costs under a costs order in its favour; but, to the extent that AFM has incurred any costs or liability for costs, it as a successful defendant is entitled to be indemnified in respect of them.

17 In my view Monica must bear the burden of her unsuccessful insistence on the prosecution of a weak case against AFM. Monica must pay AFM’s costs. Leon also failed against AFM. Like Monica and for the same reasons, Leon must pay AFM’s costs.

Indemnity costs?

18 On behalf of Monica, it was submitted that the costs payable to her should be assessed on an indemnity basis, by reason of what is said to be the unreasonable conduct of the estate in defending her claim. In particular, it was submitted that the executors knew of Max’s promises and obligation to support Monica, yet unreasonably put her to proof of her case, and that the unreasonableness of the defence is illustrated by the fact that while many of her witnesses were initially required for cross-examination, their evidence was ultimately not the subject of challenge. However, while the executors had some knowledge that Max had formed an intention to make provision for Monica, insofar as that knowledge was derived from Max the evidence does not establish that he conveyed any binding commitment to do so, and insofar as any promise was conveyed the source was Leon, whose assertions the defendants were entitled to have subjected to close scrutiny.

19 The argument that the defence was unreasonable overlooks, first, that the primary duty of an executor in these circumstances is to defend the estate and uphold the will [In The Will of Lanfear (1940) 57 WN (NSW) 181; Re Hall [1959] SR (NSW) 219, 226; Vasiljev v Public Trustee [1974] 2 NSWLR 497, 503-4]; secondly, that executors are entitled to have courts closely scrutinise claims made against the estate based on the evidence of the claimant of an arrangement said to have been made during life [Plunkett v Bull [1915] HCA 14, (1915) 19 CLR 544, 548-9]; and thirdly, that there were respectable arguments, although they were ultimately unsuccessful, that the arrangements were not intended to be contractual, or not sufficiently certain to be given contractual effect; and, in respect of the family provision claim, that Monica was not dependent upon the deceased so as to be an eligible person, or that there were not factors warranting the making of her application, or that having regard to her separate resources she had not been left with inadequate provision.

20 Moreover, it is a mistake to infer from the reasonable and economic conduct of a defence at trial, including the abandonment of issues once they have been refined and explored, that the defence has thitherto been conducted unreasonably. The plaintiffs criticise the defendants’ failure to cross-examine many of the plaintiffs’ witnesses at trial. To the contrary, in my view that involved a responsible conduct of the defence. Litigants should not be deterred by fear of an adverse costs order from making responsible decisions in the course of litigation to abandon or not press issues originally raised but later appearing unsustainable or insignificant.

21 Although, ultimately, my conclusions on the issues of intention to contract, eligibility, circumstances warranting and inadequacy of provision were adverse to the estate, those were legitimate and arguable issues to be raised by the estate. It is true that some defences that were ultimately unviable were pleaded – including the Contracts Review Act and unconscionability – but these were not pursued at trial, and did not materially increase the costs of the litigation.

22 Particular reliance is placed on an elaborate Notice to Admit Facts served on behalf of Monica in January 2008, which was almost entirely disputed. While the estate submits that it was made clear, at an early stage, that most aspects of Monica’s family provision and contractual support cases were not in issue, there was never any formal admission, and in light of the Notice Disputing Facts Monica plainly had to prove her case.

23 Save for the Notice to Admit Facts, I would be unpersuaded to make an indemnity costs order. However, the prima facie position [UCPR r 42.8 and r 42.9] is that the estate should pay on an indemnity basis the costs of proving the disputed facts. Some qualification of this is required by the circumstances that some of the disputed facts related to the misconceived case for damages assessed on the basis of the profitability of the contemplated redevelopment, and that others were irrelevant. But it remains difficult to understand how many of the disputed facts were put into, let alone left in, dispute.

Conclusion as to costs

24 In principle, then, the result is:

· The estate should pay Monica’s costs of her claims, excluding the costs attributable to the misconceived redevelopment profitability case, and with the costs attributable to proof of the disputed facts in the Notice to Admit payable on an indemnity basis.

· Leon’s costs should be seen as part of Monica’s costs for that purpose, since they were ultimately attributable to proof of the same claim.

· Leon and Monica should pay AFM’s costs.

25 Apportionment of costs between issues and identification of those costs that relate to the misconceived redevelopment profitability damages case would be a difficult exercise for an assessor, as will be attribution of costs to the proof of the disputed facts. In broad terms, the plaintiffs’ entitlement to indemnity costs in respect of the proof of disputed facts, is offset by the exclusion from the costs to which they are entitled of those attributable to the misconceived redevelopment profitability damages claim. The justice of the case will be met, and the work of the assessor facilitated, if an order is made simply that the estate pay Monica and Leon’s costs.

Should the executors be denied indemnity?

26 The plaintiffs further submit that the executors should be denied indemnity, both for their own costs, and for the costs payable by them to the plaintiffs, out of the estate, and should be left to bear those burdens themselves.

27 UCPR, r 42.25, provides as follows:

(1) Subject to subrule (2), a person who is or has been a party to any proceedings in the capacity of trustee or mortgagee is entitled to be paid his or her costs in the proceedings, in so far as they are not paid by any other person, out of the fund held by the trustee or out of the mortgaged property, as the case may be.
(2) The court may order that the person’s costs not be so paid if:
(a) the trustee or mortgagee has acted unreasonably, or
(b) in the case of a trustee, the trustee has in substance acted for his or her own benefit rather than for the benefit of the fund.

28 This rule in substance reflects the position at general law, as summarised by Austin J in Drummond v Drummond [1999] NSWSC 923:

[43] In Miller v Cameron (1936) 54 CLR 572, 578, Latham CJ explained that ‘as a rule, a trustee is allowed his costs out of the trust estate if his conduct has been honest, even though it may have been mistaken’. In Re Weall ; Andrews v Weall (1889) 42 Ch D 674, 677, Kekewich J spoke of the ‘tenderness which the Court is anxious to exhibit towards trustees honestly exercising discretion in discharge of their duties, often difficult and still more often thankless’. In Re Jones; Christmas v Jones [1897] 2 Ch 190, 197 the same judge said that ‘a man who fulfils the difficult duties of an administrator, executor or trustee is, in common sense and common justice, entitled to be recouped to the very last penny everything that he has expended properly – that is to say, without impropriety – in his character of administrator, executor or trustee ...’. Thus it is normally the case that an executor who commences or defends an action in the capacity of executor is entitled to be indemnified out of the estate for the costs incurred in doing so, even if the litigation is unsuccessful, the executor’s conduct is found to have been mistaken, and the other party in the litigation is held to be entitled to an order for costs.

[44] This exception to the normal rule that costs follow the event, which permits an executor to recover costs from the estate, is itself subject to some exceptions, as is plain from Latham CJ’s reference to honest conduct and Kekewich J’s reference to impropriety. There are two ‘sub-exceptions’ which are arguably relevant to the present case.

[45] The first is the sub-exception for ‘impropriety’. As Kekewich J made clear in Re Jones , cases of impropriety include an executor taking or defending proceedings in breach of trust, or conducting the proceedings in such a way that the Court, on a general view of the case, regards the executor’s conduct as ‘not honestly brought forward’ ([1897] 2 Ch 190, 198). Additionally, recourse to the estate may be denied to an executor ‘where the claim is of monstrous character, that is, one which no reasonable man could say ought to have been put forward’ (at 198). In Re Weall the trustees allowed a solicitor to deduct fees which were not properly chargeable to the life tenant from the rental income of the estate. Kekewich J observed that while mistakes or errors in judgment would not disentitle the trustees to an indemnity, the beneficiaries were entitled to expect ‘reasonable prudence’ of the trustees (42 Ch D at 678-679).

[47] Secondly, the rule which gives an executor the prima facie entitlement to be indemnified out of the estate for costs relates only the costs incurred in the administration and distribution of the estate. Such costs are to be distinguished from costs incurred by an executor in furtherance of a personal interest: Miller v Cameron (1936) 54 CLR at 578-579; Re Jones [1897] 2 Ch at 197-198; Plimsoll v Drake (No 2) (Supreme Court of Tasmania, Zeeman J, unreported, 8 June 1995). Executors who pursue personal interests in litigation are ‘not fighting for the estate any more than if they were not executors at all’: Skrimshire v Melbourne Benevolent Asylum (1894) 20 VLR 13, 18 per Madden CJ. An executor who prosecutes or defends proceedings in the capacity of, say, creditor or beneficiary of the estate rather than in the capacity as executor cannot expect to recoup the costs of litigation from the estate simply on the basis that he or she is also an executor. In Miller v Cameron Latham CJ took the view that a trustee who defended an action for his removal was thereby representing his own interests and not those of the trust estate. In Plimsoll v Drake Zeeman J reached a similar conclusion where a trustee unsuccessfully asserted the right to demand a release before distributing the trust estate to the beneficiaries.

29 In National Trustees Executors and Agency Co of Australiasia Ltd v Barnes (1941) 64 CLR 268, [1941] VLR 133, [1941] ALR 58 Williams J said at 278-279:

The main contention has been whether these costs are recoverable under the indemnity. The learned Chief Justice of the Supreme Court of Victoria decided that they were not because they were incurred by the trustees in defending themselves against a personal liability, and therefore on their own behalf, and not for the benefit of the trust. He considered the principle to be that the costs of trustees of defending such a suit are chargeable against the estate in all cases in which the defence is for the benefit of the estate. …
If it is necessary to show such a benefit, then the fact the trustees establish that they have administered properly would be sufficient, but I am satisfied that it is not necessary to do so. Such expressions as acting ‘for the benefit of,’ ‘with reference to,’ or ‘on behalf of’ the trust estate or in the discharge of his duty as a trustee, are used indiscriminately in the judgments, but they all mean the same thing, namely, that the question is whether the costs, charges and expenses are properly incurred by the trustee as an incident of his administration of the estate. If a trustee is sued by beneficiaries who complain of some act or omission by the trustee, he is entitled to defend his conduct as an incident of such administration (in Re Llewellin, Llewellin v Williams , (1887) LR 37 Ch Div 317 at 327. Even if he fails in the suit he may be allowed his costs out of the estate, but if he succeeds, as in this case, he is clearly entitled thereto.

30 This passage was approved and applied by Hamilton J in Metropolitan Petar v Mitreski [2006] NSWSC 336, [31], which in turn was approved by the Court of Appeal in His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand v The Macedonian Orthodox Community Church St Petka Incorporated [2006] NSWCA 277, [27].

31 The difficult position of executors was adverted to by Palmer J in Gray v Guardian Trust Australia Ltd [2003] NSWSC 704, [9]:

[9] Where executors or other personal representatives are involved, there are additional matters to consider. When confronted by beneficiaries who are urging them sue, personal representatives are in a difficult position. If they take proceedings, they may be held personally liable for costs if they are considered to have acted unreasonably; and if they do not, they may be held personally liable for having failed to pursue a good claim of the estate: JHG Sunnucks, JGR Martyn and N Caddick, Williams, Mortimer and Sunnucks on Executors, Administrators and Probate (Sweet & Maxwell, 2000), paragraph [60-10]. The Court will assists the personal representatives, upon application, to overcome their difficulty by giving advice and direction, thereby removing the risk that the Court may exercise its discretion to refuse recovery of costs out of the estate, provided that they followed the Court’s directions: RS Geddes, CJ Rowland and P Studdert, Wills, Probate and Administration Law in New South Wales (LBC, 1996), paragraph [92.10]. The form of advice and direction given by the Court is commonly referred to as a Re Beddoe order ( Re Beddoe [1893] 1Ch 547). Additionally if, in the circumstances, a personal representative is under a duty to litigate, the Court may give him or her and indemnity out of the assets of the estate for the costs of the litigation: Re Dallaway [1982] 1 WLR 756.

32 Cases such as Re Beddoe and the recent decision of the High Court in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42, (2008) 237 CLR 66, (2008) 82 ALJR 1425, (2008) 249 ALR 250, [70], demonstrate the desirability and prudence of trustees acting promptly to obtain judicial advice, lest it otherwise be suggested that they have been gambling with money that is not their own, but the absence of such advice does not reverse the prima facie position established by UCPR, r 42.25.

33 In Mead v Watson (as liquidator for Hypec Electronics) [2005] NSWCA 133, (2005) 23 ACLC 718, the Court of Appeal explained the circumstances in which a liquidator may be ordered to bear costs personally without recourse to the assets of the company analogously to that of a trustee by reference to Re Beddoe, emphasising (at [12]) that a trustee would be indemnified out of the trust estate in respect of costs, charges and expenses properly incurred for the benefit of the trust, for which purpose “properly” meant reasonably as well as honestly incurred, and that while trustees ought not be visited with personal loss on account of mere errors in judgment which fall short of negligence or unreasonableness, mere bona fides was not the test.

34 The plaintiffs submit that in the present case (1) their claim against the estate was overwhelming, (2) the costs of the defendants if paid from the estate would deprive the successful plaintiff of the fruits of the litigation, (3) the conduct of the defence was unreasonable, (4) there was no evidence to suggest that an order for costs against the defendants personally could not be met by them.

35 My reasons for declining to make an indemnity costs order are equally applicable to the argument that the executors acted unreasonably in defending the proceedings. The arguments that the claim was overwhelming and the conduct of the defendants unreasonable depends largely on the assertion that the defendants knew of Max’s promises and agreement to support Monica for the rest of her life and to provide the redevelopment loan; I have already explained that the information available to the executors in that regard was not such that they were disentitled to have the claim subjected to close scrutiny.

36 The plaintiffs further submitted that the only beneficiary of the estate was a charity which did not overtly participate in the proceedings and as to the attitude of which there was no evidence, and the defendants had no apparent interest in the proceedings except as executors yet made no attempt to seek Re Beddoe advice and chose to defend the proceedings despite knowing that there was substance in Monica’s case. It is of course entirely appropriate that the charitable beneficiary not participate in the proceedings; it was the role of the executor and not the beneficiary to conduct the defence. There is no reason to suppose that the defence of the proceedings was otherwise than in accordance with the wishes of the beneficiary; the defendants had no interest in defending the claim against the estate (as distinct from that against AFM), except for the benefit of the beneficiary. Insofar as they were defending the proceedings against the estate (as distinct from against AFM), they were plainly acting and acting only in the interests and for the benefit of the estate and not themselves.

37 Moreover, in my view, had the defendants sought Re Beddoe advice, the court – having regard to the duty of the executors to uphold the will, the circumstance that the claim was one which called for “close scrutiny”, and the arguability of the defences of contractual intent, uncertainty, eligibility, circumstances warranting and adequacy of provision – would have advised that they would be justified in defending the proceedings.

38 As to the circumstance that Monica will be deprived of fruits of her judgment if the executors are allowed recourse to the estate, in Re Dallaway (deceased) [1982] 1 WLR 756, Sir Robert Megarry directed that an executor was justified in defending a claim, but added (at 761-2):

In giving that direction, I propose to include a provision that, subject to any order made by the trial judge, the bank will be entitled to be indemnified out of the estate for all costs for which it is liable, even if the defence or counterclaim, or both, are unsuccessful. It seems to me to be necessary to make this provision subject to any order of the trial judge because although as matters stand the bank, on the material before me, is fully justified in defending and counterclaiming, it is possible that material may emerge subsequently which will make it unreasonable for the bank to continue to defend or counterclaim; and if, despite that, the bank continued with the litigation, no order that I make now ought to protect it in relation to subsequent costs. In view of this possibility I propose that my order should take effect only until further order, giving all parties liberty to apply, and authorising the master to consider and deal with any such application.

39 That was a case in which if the claimant succeeded there would be no fund from which the executor could otherwise indemnify itself. Similarly, in Evans v Evans [1985] 3 All ER 289, a beneficiary claimed the whole of the estate and the others wished the administrator to defend. At first instance orders similar to those in Re Dallaway were made, but they were overturned by the Court of Appeal, distinguishing Re Dallaway on several grounds. Nourse LJ said (at 293):

In my view, in a case where the beneficiaries are all adult and sui juris and can make up their own minds 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. I would not wish to curtail the discretion of the court in any future case but, as already indicated, those considerations might include the merits of the action. I emphasise that these remarks are directed only to cases where all the beneficiaries are adult and sui juris . The position might be entirely different if, for example, one of the beneficiaries was under age.

40 In Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220, Lightman J said (at 1225):

In a case where the dispute was between rival claimants to a beneficial interest in the subject matter of the trust, the duty of the trustee is to remain neutral and in the absence of any court direction to the contrary … offer to submit to the court’s directions, leaving it to the rivals to fight their battles.

41 With reference to these and other cases, Palmer J in Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247 summarised the position as follows:

Where a trustee seeks an order that it is justified in defending a claim against the trust estate by recourse to the trust assets for the costs of the litigation, the question will be whether it is more practical, and fairer, to leave the competing claimants to the beneficial interest in the trust estate to fight the litigation out amongst themselves, at their own risk as to costs and leaving the trustee as a necessary but inactive party in the proceedings, or whether it is more practical, and fairer, that the trustee be the active litigant with recourse to the trust fund for the costs of the litigation. What is ‘practical and fair’ will depend on the particular circumstances of each case and will include:


— whether the beneficiaries of the trust estate have a substantial financial interest in defending the claim;
— what are the financial means of the beneficiaries to fund the defence;
— the merits and strengths of the claim against the trust estate;
— the extent to which recourse to the trust estate for defence costs would deprive the successful claimant of the fruits of the litigation;
— if the trust is a charitable trust rather than a private trust, what, if any, are the considerations of public interest.

42 His Honour pointed out that in Re Dallaway, Evans and Alsop, the trusts had been private trusts, and the competitors for the trust estate identified beneficiaries on the one hand and a particular claimant on the other, whereas the case before his Honour was that of a charitable trust with no person a beneficiary and where no one was claiming or defending an order to augment or defend personal assets. The present circumstances are not dissimilar, since the competing interest in the estate was that of a charity, not of a person defending in order to augment or defend personal assets.

43 In those circumstances, the plaintiffs’ contention that there is no evidence that the defendants would be unable to meet an order for costs against them personally is irrelevant.

44 To sum up, then:

· The executors’ defence of the proceedings was not unreasonable;

· Insofar as they defended the proceedings on behalf of the estate (as distinct from on behalf of AFM), the executors were not acting in their personal interests;

· Had judicial advice been sought, it would probably have been that they were justified in defending the proceedings;

· Whatever might be the position if the competing interest was that of an individual beneficiary, in the present circumstances it was a charity and it was reasonable for the executors not to require it to fund the defence of its interest.

45 I am therefore not prepared to make an order under r 42.25 to the effect that the defendants not be entitled to their costs out of the estate.

Disposal of Family Provision claim

46 It was submitted on behalf of Monica that no order should be made in the family provision proceedings pending any appeal from my substantive judgment, on the basis that were an appeal from my findings on the contractual claim to succeed, then Monica might succeed on her family provision claim instead. If so, that can be raised by a conditional notice of cross-appeal or conditional notice of contention as appropriate in any appeal. I should dispose of the proceedings.

Conclusion

47 For the foregoing reasons I have reached the following conclusions.

48 In respect of Monica’s life expectancy, it would be inappropriate now to depart from the position that prevailed at the hearing.

49 The damages to which Monica is entitled for breach of the accommodation care term are $648,730.90, made up as follows:

· Interest on accommodation bond (above, [5]) – $77,932;

· Future monthly aged care fees (above, [4]) – $214,637

· Monthly aged care fees to January 2009 (judgment, [77]) – $308,826;

· Mortgage costs (judgment, [76]) – $6,672;

· Interest on aged care costs paid (above, [6]) – $40,663.90.

50 I will neither allow interest on, nor discount, the award for breach of the redevelopment loan term. Accordingly, there will be judgment for Monica for the sum of $1,239,110, comprised as follows:

· Accommodation Care term – $648,731;

· Redevelopment Loan term – $590,379.

51 The estate should pay Monica’s costs of her claims, excluding the costs attributable to the misconceived redevelopment profitability case, and with the costs attributable to proof of the disputed facts in the Notice to Admit payable on an indemnity basis. Leon’s costs should be seen as part of Monica’s costs for that purpose, since they were ultimately attributable to proof of the same claim. Leon and Monica should pay AFM’s costs. In broad terms, the plaintiffs’ entitlement to indemnity costs in respect of the proof of disputed facts, is offset by the exclusion from the costs to which they are entitled of those attributable to the misconceived redevelopment profitability damages claim, and the justice of the case will be met, and assessment facilitated, if an order is made simply that the estate pay Monica and Leon’s costs.

52 The executors’ defence of the proceedings was not unreasonable. Insofar as they defended the proceedings on behalf of the estate (as distinct from on behalf of AFM), the executors were not acting in their personal interests. Had judicial advice been sought, it would probably have been that they were justified in defending the proceedings. The beneficiary being a charity, it was reasonable for the executors not to require it to fund the defence of its interest. I am not prepared to make an order under r 42.25 to the effect that the defendants not be entitled to their costs out of the estate.

53 The Family Provision proceedings should be disposed of; the possibility of a successful appeal on the contract issues can be met by a conditional cross-appeal from the dismissal of the Family Provision claim.

54 My orders are:

A. In proceedings 2211/04:


(1) Order that the proceedings be dismissed.

(2) Order that the first and second defendants in their capacity as executors of the estate of Maxwell Walter Allen Frost pay the plaintiffs’ costs.

B. In proceedings 3159/04:

(1) Give judgment that the first and second defendants in their capacity as executors of the estate of Maxwell Walter Allen Frost pay the plaintiff the sum of $1.

(2) Give judgment for the third defendant.

(3) Order that the first and second defendants in their capacity as executors of the estate of Maxwell Walter Allen Frost pay the plaintiffs’ costs.

(4) Order that the plaintiffs pay the third defendant’s costs.

C. In proceedings 1923/06:

(1) Give judgment that the first and second defendants in their capacity as executors of the estate of Maxwell Walter Allen Frost pay the plaintiff the sum of $1,239,110;

(2) Give judgment for the third defendant;

(3) Order that the first and second defendants in their capacity as executors of the estate of Maxwell Walter Allen Frost pay the plaintiffs’ costs.

(4) Order that the plaintiffs pay the third defendant’s costs.

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