Chick v Grosfeld (No. 4)
[2013] NSWSC 509
•10 May 2013
Supreme Court
New South Wales
Medium Neutral Citation: Chick & Anor v Grosfeld (No. 4) [2013] NSWSC 509 Hearing dates: 1 February 2013 Decision date: 10 May 2013 Jurisdiction: Equity Division Before: White J Decision: Refer to para [34] of judgment.
Catchwords: PROCEDURE - costs - general rule costs follow the event - whether costs should be apportioned when plaintiff and defendant each successful on some issues - whether costs should be assessed on indemnity basis - application for costs out of the estate if costs not fully recoverable from former executor whose removal was subject of proceedings - whether executor entitled to costs out of the estate for unsuccessful defence of claim for his removal from office Legislation Cited: Legal Profession Act 2004 Cases Cited: Chick & Anor v Grosfeld [2012] NSWSC 1166
Chick & Anor v Grosfeld (No. 3) [2012] NSWSC 1536
Cretazzo v Lombardi (1975) 13 SASR 4
Bostik Australia Pty Ltd v Liddiard (No. 2) [2009] NSWCA 304
Mead v Watson [2005] NSWCA 133
NMFM Property Pty Ltd v Citibank Limited (No. 11) (2001) 109 FCR 77
Degmam Pty Ltd (in liq) v Wright (No. 2) [1983] 2 NSWLR 354
Permanent Trustee Co v Redman (1917) 17 SR (NSW) 353
National Trustees Executors & Agency Co of Australasia Limited v Barnes (1941) 64 CLR 268
Macedonian Orthodox Community Church St. Petka Inc v His Eminence Petar [2008] HCA 42; (2008) 237 CLR 66
Re Will of Skaftouros; Skaftouros v Dimos [2002] VSC 198
Williams v Williams [2004] QSC 269; [2004] 1 Qd R 105
Mavrideros v Mack (1998) 45 NSWLR 80
Re Biposo; Condon v Rodgers (1995) 13 ACLC 1,271
Fay v Moramba Services Pty Ltd [2010] NSWSC 725
Frost v Fallon [2011] NSWSC 591
Drummond v Drummond [1999] NSWSC 923Texts Cited: Jacobs' Law of Trusts in Australia, 7th ed Category: Costs Parties: Murray Chick (1st Plaintiff)
Kimberley Runia (2nd Plaintiff)
Johannes Theodorus Grosfeld (Defendant)Representation: Counsel:
M McAuley (Plaintiffs)
A Lakeman (Defendant)
C Zucker (NSW Trustee & Guardian)
Solicitors:
McAuley Hawach (Plaintiffs)
Angela Anthony & Associates (Defendant)
Zucker Legal
File Number(s): 2010/258874
Judgment
HIS HONOUR: This judgment deals with the remaining issues concerning costs. Three questions arise. First, what costs order, if any, should be made against Mr Grosfeld. Secondly, whether the plaintiffs should receive their costs out of the estate. Thirdly, whether Mr Grosfeld is entitled to be indemnified in respect of his own costs out of the estate, or whether he should be ordered to repay moneys drawn from the estate in payment of his costs and disbursements in the proceedings.
The background to these issues appears in Chick & Anor v Grosfeld [2012] NSWSC 1166 and Chick & Anor v Grosfeld (No. 3) [2012] NSWSC 1536. In the former judgment I concluded that the grant of probate to Mr Grosfeld should be revoked and that a grant of letters of administration with the will annexed should be made to the NSW Trustee and Guardian. In the latter judgment I concluded that Mr Grosfeld was only entitled to charge and be paid his hourly professional rate for work done in relation to the estate to the extent that an executor, not being an accountant, would have been justified in retaining an accountant to perform that work for the benefit of the estate at its expense.
Costs order between plaintiffs and defendant
As indicated in Chick & Anor v Grosfeld (No.3) (at [40]), counsel for Mr Grosfeld submitted that there should be no order as to the costs of the proceedings. The plaintiffs sought payment of their costs out of the estate on the indemnity basis and an order that Mr Grosfeld indemnify the estate in respect of such costs.
Mr Lakeman of counsel, for Mr Grosfeld, submitted that there should be no order as to the costs of the proceedings because in the first judgment I concluded that many of the grounds upon which the plaintiffs relied had either not been established or would not have justified the revocation of the grant (Chick & Anor v Grosfeld at [64]-[79]). Mr Lakeman submitted that these were distinct issues upon which Mr Grosfeld succeeded and his success on those issues justified a departure from the prima facie position that costs should follow the event.
Mr Lakeman submitted that the plaintiffs did not succeed on the grounds they had raised, but on grounds identified by the Court during the course of Mr Grosfeld's oral evidence. The latter submission is only partly true. One of the grounds upon which I concluded that the grant of probate should be revoked was the making of excessive charges by Mr Grosfeld for his own fees (at [43]-[63]). It is true that the other grounds upon which I concluded that the grant of probate should be revoked only emerged during Mr Grosfeld's oral evidence. But that is not a reason that favours Mr Grosfeld in the exercise of the costs discretion. For the reasons given in the first judgment, Mr Grosfeld's verified statement of account concealed the fact that he had transferred estate moneys to himself (albeit that the moneys were substantially repaid). The verified statement of account wrongly described the payments as being for the purposes of paying legal costs. I said (at [31]):
"The statement of receipts and disbursements concealed the fact that money had been withdrawn from the estate account to Mr Grosfeld's personal working account and then repaid. This concealment was achieved by wrongly describing the payments out as having been made for the purposes of paying legal costs of AJ Anthony."
I accept that issues upon which Mr Grosfeld succeeded were distinct. However, I do not accept that there should be a departure from the prima facie position that costs should follow the event. Had Mr Grosfeld's verified statement of receipts and disbursements depicted the true position, as it should have done, it would have been obvious that he had been guilty of a serious breach of his fiduciary obligations. Had a correct verified statement of receipts and disbursements been filed, the plaintiffs may well have not thought it necessary to advance all of the grounds on which they relied to seek his removal. The plaintiffs' grounds may have been narrowed because the stronger grounds for revoking the grant would have been apparent.
The mere fact that Mr Grosfeld succeeded on some issues, at least to the extent that I found that the matters established would not by themselves have justified his removal as executor, does not necessarily mean that costs should not follow the event. In Cretazzo v Lombardi (1975) 13 SASR 4 Jacobs J (at 16) emphasised that merely because a successful plaintiff was unsuccessful in relation to some issues did not necessarily mean that costs should be apportioned. (See also Bostik Australia Pty Ltd v Liddiard (No. 2) [2009] NSWCA 304 at [38]).
In my view, Mr Grosfeld should pay the plaintiffs' costs of the proceedings on the ordinary basis. I do not accept the plaintiffs' submission that the costs payable by Mr Grosfeld should be assessed on the indemnity basis. The plaintiffs' lack of success on a number of issues is one reason why they should not have their costs on the indemnity basis. Another is that whilst Mr Grosfeld's conduct that led to the revocation of the grant of probate was reprehensible, that was not conduct in which he engaged as litigant, as distinct from the conduct that was the subject of the litigation. In Mead v Watson [2005] NSWCA 133 the Court of Appeal (at [9]) approved the observations of Lindgren J in NMFM Property Pty Ltd v Citibank Limited (No. 11) (2001) 109 FCR 77 at 92 that it is the delinquent conduct of the party as litigant, rather than the party's conduct which is the subject matter of the litigation, that justifies an order for indemnity costs.
The plaintiffs' submissions in support of an order for indemnity costs were largely repetitious of their complaints about Mr Grosfeld's conduct as executor, only some of which had been accepted. This was not a case such as Degmam Pty Ltd (in liq) v Wright (No. 2) [1983] 2 NSWLR 354 where the unsuccessful party raised false and deliberately concocted defences, or grossly prolonged the litigation by multiplying allegation upon allegation and by prevarication (compare at 358).
I do not accept that an indemnity costs order should be made in this case on the ground that, properly advised, Mr Grosfeld ought to have appreciated that he had no real prospect of success. Proper advice as to his prospects of defence would have been based on the claim as particularised.
Nor do the offers for resolution of the proceedings provide a basis for an indemnity costs order. They contained no real element of compromise.
The appropriate order is that Mr Grosfeld pay the plaintiffs' costs on the ordinary basis.
Costs out of the estate
The plaintiffs are apprehensive that they may not recover their costs from Mr Grosfeld. They seek an order for the payment of their costs out of the estate. It was because of this claim that I deferred dealing with questions of costs until the NSW Trustee and Guardian was in a position to deal with the claim. It represented the interests of the other beneficiaries of the estate.
The NSW Trustee and Guardian accepted that the application for the removal of Mr Grosfeld was for the benefit of the estate. It did not dispute that it would be a proper exercise of the costs discretion for the plaintiffs to recover their costs out of the estate to the extent they were not recovered from Mr Grosfeld. The decision of Harvey J in Permanent Trustee Co v Redman (1917) 17 SR (NSW) 353 supports this position. There, one of the beneficiaries brought a number of applications for the benefit of the estate, including an application for removal of the trustee. Harvey J said (at 360):
"... there are, in my opinion, two requisites to justify the recovery from the fund of the amount expended in costs: first, that the expenditure should have resulted in benefit to the common property, secondly that the expenditure should have been reasonably incurred."
The beneficiary who expended costs in a number of proceedings that preserved the trust property for the benefit of all beneficiaries received her costs on the solicitor and client basis (but not on the solicitor and own client basis) not only in respect of proceedings for the preservation of the trust property, but also for her application for the removal of the trustee.
The plaintiffs' claim for the removal of Mr Grosfeld was brought in the interests of all beneficiaries. The plaintiffs exposed themselves to the risk of an adverse costs order if the suit was unsuccessful. If the claim had been unsuccessful, Mr Grosfeld would have been entitled to his costs on the indemnity basis out of the estate, but the burden of that order would almost certainly have fallen first on the plaintiffs' share of the estate (National Trustees Executors & Agency Co of Australasia Limited v Barnes (1941) 64 CLR 268). Having run the risk of an adverse costs order for the benefit of all of the beneficiaries, and having obtained an order for the benefit of all of the beneficiaries, it would not be just if the plaintiffs could not look to the estate for the recovery of those costs. Mr Grosfeld is the party primarily liable to pay the plaintiffs' costs. But to the extent the plaintiffs are unable to recover those costs from him, they should be entitled to recover them out of the estate. Such costs will be payable out of residue. I have previously found that the deceased's children and grandchildren are entitled to the residue of the estate (with the grandchildren's share being subject to the trusts of the Education Fund). Thus, the plaintiffs will in any event only recoup 80 per cent of any shortfall in the recovery of their costs as agreed or assessed. It would not be just if they were left wholly out of pocket, with the other beneficiaries being entitled to the benefit of their success.
In Permanent Trustee Co v Redman, the plaintiff recovered her costs on the solicitor and client basis out of a common fund. At the time of that decision there was a distinction between costs recoverable on a solicitor and client basis, on a solicitor and own client basis, and on a common fund basis. Those bases for the assessment of costs have been repealed. I have found that the plaintiffs are only entitled to their costs on the ordinary basis from Mr Grosfeld. I do not consider that the plaintiffs should be entitled to recover from the estate any additional costs that would be recoverable on an assessment on the indemnity basis. The abolition of all but two bases for the assessment of costs, coupled with the change of taxation of costs by a court official to the assessment of costs by a costs assessor, was intended to mean that a successful party should recover all reasonable costs. On an assessment of costs payable on the ordinary basis, the costs assessor is to allow those costs which were fair and reasonable for the work concerned, provided the work was reasonably carried out and was carried out in a reasonable manner (Legal Profession Act 2004, s 364(1)). If costs are assessed on the indemnity basis, all costs (other than those that appear to have been unreasonably incurred or appear to be of an unreasonable amount) are to be allowed (Uniform Civil Procedure Rules 2005, r 42.5(b)). The relevant difference is one of onus. There is no reason that the plaintiffs should not bear the onus of establishing that costs were incurred reasonably and were of a reasonable amount.
If costs were ordered to be paid out of the estate on the indemnity basis, it might also be arguable under r 42.5(a) that all of the costs, whether reasonable or unreasonable, should be allowed as none of the costs would have been incurred in breach of any duty owed by the plaintiffs. That would plainly be unsatisfactory.
For these reasons I will order that Mr Grosfeld pay the plaintiffs' costs of the proceedings on the ordinary basis. I will further order that to the extent the plaintiffs are unable to recover such costs from Mr Grosfeld, they be indemnified out of the estate in respect of any such shortfall.
Mr Grosfeld's right to be indemnified out of the estate in respect of his costs of defending the proceedings
The costs Mr Grosfeld incurred in defending the proceedings were paid to his solicitors and counsel from time to time as the proceedings progressed. On 23 February 2011, I made an order, until further order, restraining Mr Grosfeld from disbursing estate funds otherwise than in payment of reasonable legal costs and disbursements in connection with the proceedings, or in respect of other expenses reasonably incurred in respect of the administration of the estate, or liabilities of the estate (other than any liability for executor's fees or remuneration). It was not then argued that Mr Grosfeld should not be entitled to use estate funds in payment of reasonable legal costs and disbursements. There was no argument about this issue. The exclusion of payment of reasonable legal costs and disbursements from the injunction against the disbursement of estate funds did not imply an authority to use estate funds in payment of costs and disbursements in defending the claims against Mr Grosfeld personally for his removal as executor. Nor did Mr Lakeman for Mr Grosfeld contend to the contrary. Rather, Mr Lakeman submitted that Mr Grosfeld was entitled to be indemnified out of the estate for the legal costs he reasonably incurred in defending the attack made on him.
Mr Lakeman relied upon passages in Jacobs' Law of Trusts in Australia, 7th ed at [2104] and [2109] (pp 567, 571). There, the learned authors said, in relation to the trustee's right of indemnity out of trust assets:
"But what of defaults by the trustee dehors the transaction in respect of which he claims indemnity? The better view is that the right is not lost by any such breach of trust for so to deprive the trustee is, as Sir George Jessel MR put it, a violent exercise.
... Ordinarily, in litigation relating to the administration of trust property, unless a trustee has been guilty of some misconduct, the trustee is entitled as of right to costs out of the estate, or at least as between solicitor and client."
Mr Lakeman submitted that the allegations on which the plaintiffs did not succeed were the subject of and included in 11 volumes of court books of affidavits and submissions and involved matters relating to the administration of the estate which Mr Grosfeld as executor could reasonably be expected to defend as part of his administration of trust property. The allegations included that he had failed to comply with orders of the Court, that he had failed to comply with reasonable requests for information, that he had failed to pay the estate's debts, and that he had failed properly to defend the family provision proceedings. These allegations were not upheld. There were also allegations about the timing of the sale of the Abbotsford property and the transfer of the Lexus motor vehicle to one of the beneficiaries that did not succeed. I accept that Mr Grosfeld would have acted reasonably in defending those claims if those were the only claims against him. Mr Lakeman submitted that Mr Grosfeld's removal as executor was not due to the maladministration of the estate, but through the deficiencies in his accounting for the use of trust funds that emerged following cross-examination, whereas the vast majority of the preparation and some of the hearing time was spent on matters of administration on which the plaintiffs were unsuccessful and which Mr Grosfeld was reasonably entitled to defend. He submitted that in defending his actions in relation to the administration of the estate, Mr Grosfeld was acting not for his own benefit, but for the benefit of the estate. He was entitled, so it was submitted, to defend those actions and recoup himself from the estate the costs of doing so.
I do not think that the passages cited from Jacobs or the authorities cited in Jacobs in support of those passages assist Mr Grosfeld. The "transaction" in respect of which Mr Grosfeld claimed indemnity out of the trust estate was the defence of the claim that he be removed as executor. The question whether Mr Grosfeld was entitled to indemnify himself for the costs of defending himself against that claim is unaffected by any defaults unrelated to that claim. Mr Grosfeld was unsuccessful in defending the claim for his removal because I found that he was guilty of misconduct. The expenses for which he obtained indemnity out of the estate were not unrelated to that default.
Mr Lakeman's submission for Mr Grosfeld was in substance that he was entitled to defend himself against most of the allegations made about his administration of the estate and therefore was entitled to be indemnified out of the estate for the costs of doing so.
In Macedonian Orthodox Community Church St. Petka Inc v His Eminence Petar [2008] HCA 42; (2008) 237 CLR 66, Gummow A-CJ, Kirby, Hayne and Heydon JJ said (at [74]) that a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings. Mr Grosfeld did not seek such advice. Had he done so, and had he made disclosure of all material facts, as he would have been bound to do to obtain the benefit of the protection of judicial advice, he would not have been advised that he was entitled to use the estate's assets to defend the claim. That is, had Mr Grosfeld applied for judicial advice as to whether he was justified in defending the claim for his removal, and disclosed that he had used moneys of the estate for his own purposes and had concealed having done so in the form of his account, he would not have received judicial advice that he was justified in defending the proceedings, nor that he was justified in using the moneys of the estate to do so.
In Re Will of Skaftouros; Skaftouros v Dimos [2002] VSC 198, Mandie J held that it was improper for an executor to use the funds of the estate to defend a claim for his removal as executor, because it was for the Court to decide at the conclusion of the proceedings (or some other appropriate time) whether the executor was entitled to his costs out of the estate (at [206]-[211]). This decision was referred to with approval in Williams v Williams [2004] QSC 269; [2004] 1 Qd R 105 at [30]. In light of the High Court's decision in the Macedonian Church case, this proposition must be correct.
The authorities on the question whether a trustee, executor or other fiduciary is entitled to be indemnified out of the estate for costs incurred in the unsuccessful defence of a claim for his or her removal from office are not uniform. In Mavrideros v Mack (1998) 45 NSWLR 80, the Court of Appeal ordered that the executor whose removal was warranted repay the estate his costs of the proceedings and not deduct his costs until his accounts had been passed. In Re Biposo; Condon v Rodgers (1995) 13 ACLC 1,271 Young J removed the liquidators of a company on the ground that they did not appreciate the independence required for the discharge of their duties, but ordered that their costs be paid out of the company's assets.
In Fay v Moramba Services Pty Ltd [2010] NSWSC 725, the trustees of a testamentary trust successfully resisted a claim that they be removed. It was in that context that Brereton J said (at [4]):
"[4] ... Having been party to the proceedings in their capacity as trustees, the defendants are entitled to an indemnity from the trust fund for all of their costs (not just party/party costs) on an indemnity basis [UCPR, r 42.25; National Trustees Executors and Agency Co of Australasia v Barnes (1941) 64 CLR 268; Bovaird v Frost [2009] NSWSC 917, [26]-[45]; Drummond v Drummond [1999] NSWSC 923, [43]-[47]]. Although the view has been expressed that a trustee who defends an action for his removal thereby represents his or her own interests and not those of the trust estate [Miller v Cameron (1936) 54 CLR 572 at 578 (Latham CJ)], the predominant view is that if the costs are incurred as an incident of administration of the estate, the trustee is entitled to be indemnified in respect of them, and where trustees are sued by beneficiaries complaining of some act or omission, the trustee is entitled to defend his or her conduct as an incident of administration and to be indemnified in respect of the costs of so doing [Re Llewellin; Llewellin v Williams (1887) 37 Ch D 317 at 327; National Trustees Executors and Agency Co of Australasia v Barnes, 278-9]. It follows that to the extent that the defendants do not recover full indemnification of their costs from the plaintiffs, they are entitled to be indemnified by the trust estate. Here, the defendants were sued in their capacity as trustees of the testamentary trust, and are therefore entitled to be indemnified from the assets of that trust."
The authorities were referred to by Ward J (as her Honour then was) in Frost v Fallon [2011] NSWSC 591 on an application for judicial advice. Her Honour said (at [66] and [67]):
"[66] There is certainly authority to support the proposition that if costs of the litigation are incurred as an incident of the administration of an estate, the trustee is entitled to be indemnified in respect of them, even where trustees are sued by beneficiaries complaining of some act or omission. In Fay v Moramba Services Pty Ltd [2010] NSWSC 725, Brereton J at [4] held that the trustee is entitled to defend his or her conduct as an incident of administration and to be indemnified in respect of the costs of so doing. While there is authority to the contrary, that a trustee who defends an action for his/her removal thereby represents his/her own interests and not those of the trust estate, and therefore should not be indemnified out of trust assets as the defence of such proceedings is not part of the proper administration of the trust (see, for example, Miller v Cameron (1936) 54 CLR 572 per Latham CJ at [578]), the predominant view seems to be that expressed by Brereton J in Fay v Moramba (above) (see National Trustees v Barnes at [278]-[279]; Arena Management Pty Ltd (rec & mgr apptd) v Campbell St Theatre Pty Ltd [2011] NSWCA 128; Kation Pty Ltd v Lamru Pty Ltd; Lewis v Nortex Pty Ltd (In Liq) [2009] NSWCA 145 at [213] per Hodgson JA). It has, of course, also been held that a lack of reasonableness in defending proceedings may disentitle a trustee to his or her costs (Drummond v Drummond [1999] NSWSC 923 at [44]-[47] per Austin J).
[67] Insofar as the present application is concerned, Brereton J in the very proceedings the subject of appeal noted that it was both desirable and prudent for a trustee promptly to obtain judicial advice as to possible proceedings, 'lest it otherwise be suggested that they have been gambling with money that is not their own' (Bovaird v Frost [2009] NSWSC 917 at [32] per Brereton J). Therefore, the conduct of the executors in seeking advice as to whether to prosecute the appeal now on foot in the Full Federal Court cannot be criticised."
In Drummond v Drummond [1999] NSWSC 923, Austin J found that the executor was not entitled to be indemnified out of the estate for his costs of defending a claim brought by beneficiaries of the estate on the ground that he had acted obstructively, unreasonably and in disregard of his clear duty as executor (at [46]) and in substance was defending his own interests rather than representing those of the trust estate (at [47]-[48]).
Mr Grosfeld was entitled to be indemnified out of the estate only in respect of costs properly incurred. The costs he deducted from the estate for defending the claim for his removal were not properly incurred by him in acting as executor for the following reasons. First, there was a challenge to the quantum of his executorial charges. He claimed to be entitled to charge a fee of $250 per hour plus GST for carrying out executorial work. He had a personal financial interest in remaining as executor. Secondly, he had been guilty of using the estate funds for his own private purposes and then concealing that conduct by the making of false statements in the verified account as to the identity of the payee of moneys and the purposes for which they were paid. Thirdly, he did not seek judicial advice as to whether or not he would be justified in defending the proceedings for his removal.
It follows that Mr Grosfeld did not act properly in using the moneys of the estate to defend his own position. The fact that the plaintiffs made allegations Mr Grosfeld was entitled to resist loses its significance when one adds the fact that he had been guilty of misconduct that he concealed which warranted his removal. I conclude that he did not act properly or reasonably in using the estate funds to defend the claim for his removal. I will order that Mr Grosfeld repay the estate the moneys paid out of the estate for his costs of defending the proceedings.
It should be clear that this order will relate only to moneys paid from the estate in defence of these proceedings. It does not affect Mr Grosfeld's entitlement to an indemnity in respect of costs properly incurred in the family provision proceedings, nor Mrs Fitzpatrick's proceedings, nor the probate proceedings brought by Jennifer Brown and Ian Chick, nor otherwise in relation to the administration of the estate.
Orders
For these reasons I make the following declaration and orders:
1. Order that the defendant pay the plaintiffs' costs of the proceedings on the ordinary basis.
2. Order that the plaintiffs be indemnified out of the estate of the late Barry Chick if and to the extent that they are unable to recover the costs payable pursuant to order 1 from the defendant, being such costs as might be assessed, or might be agreed with the defendant and the NSW Trustee and Guardian.
3. Declare that the defendant was not entitled to be indemnified out of the estate of the late Barry Chick in respect of the costs and expenses incurred by him in defending these proceedings.
4. Order that the defendant repay to the NSW Trustee and Guardian for the benefit of the estate of the late Barry Chick all moneys paid to him or on his direction out of the said estate for his costs and expenses of these proceedings.
5. Order that the exhibits and the court book be dealt with in accordance with the practice note.
Decision last updated: 10 May 2013
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