Daicos v Daicos (No 2)
[2018] VSC 693
•14 November 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S CI 2017 01057
IN THE MATTER of the trusts established pursuant to clauses 3 and 4 of the will of Alexandra Daicos, deceased
-and-
IN THE MATTER of rr 54.02(a)(i), (a)(iii), (b)(iii), (c)(ii) of the Supreme Court (General Civil Procedure) Rules 2015
B E T W E E N:
| SHAMIMA DAICOS | Plaintiff |
| v | |
| PHILLIP DAICOS (who is sued as the trustee of the will and estate of Alexandra Daicos, deceased) | First defendant |
| -and- | |
| AHMED DAICOS | Second defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 14 November 2018 |
CASE MAY BE CITED AS: | Daicos v Daicos & Anor (No 2) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 693 |
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COSTS — Where plaintiff sought orders and declarations as to construction of will — Proceeding not adjudicated on the merits — Where parties sought costs orders against the other — Whether conduct of the parties was reasonable in pursuing or defending proceeding — No point of principle.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D J Sanders | Hicks Oakley Chessell Williams Pty Ltd |
| For the First Defendant | Ms C Sparke QC | Whiting Lawyers |
| For the Second Defendant | Mr A P Dickenson | Robinson Gill Lawyers |
HER HONOUR:
Introduction
Alexandra Daicos (‘the deceased’) died on 31 July 2010, leaving a will dated 1 April 2010 (‘the will’).
The deceased was survived by her four children, Philip Daicos (‘the first defendant’), Ahmed Daicos, formerly known as George Daicos (‘the second defendant’), Helen Komora and Jeanette Daicos.
Shamima Daicos (‘the plaintiff’) married the second defendant in July 1993. They have two daughters, Khadija Daicos and Raqayah Daicos.
Probate of the will was granted to the first defendant on 4 October 2010. The estate of the deceased includes a property at 66 Freeman Street, in North Fitzroy (‘the Fitzroy house’) and the will contains the following clauses concerning it:
3. I GIVE DEVISE AND BEQUEATH my property situate and known as 66 Freeman Street, North Fitzroy or any other property purchased by me in substitution thereof to my Trustee UPON TRUST:
a. To permit my son GEORGE DAICOS to live in the property
(“the house”) during his lifetime. My son must pay building insurance (as assessed by my Trustees) water and sewerage usage charges payable in respect of the house and shall keep the house in a reasonable state of repair. If my Trustees decide that because of illness, infirmity or other good reason it is in the best interest of my son to do so,
my Trustees may sell the house and may purchase another residence (“the new residence”) out of the proceeds of the sale of the house and shall hold the new residence upon the same trusts as those upon which the house was held including the power of sale and purchase.
Any surplus arising for the sale of the house and the purchase of the new residence shall be added to the fund set out or described in Clause 4 hereof. After his death, the house or any substitute property shall (subject to the following sub-clause) be sold and the net proceeds be added to the fund established under Clause 4 hereof.b. IN THE EVENT that my son is living in a bona fide domestic relationship with SHAMINA [sic] DAICOS at the time of his death, then she shall have the same rights to my house under the above
sub-clause (but not the right to require the purchase of a substitute property) AND SHE MUST PAY BUILDING INSURANCE AS ASSESSED BY MY TRUSTEES AND THE COUNCIL RATES ASSESSED IN RESPECT OF THE PROPERTY AND WATER AND SEWERAGE USAGE CHARGES PAYABLE IN RESPECT OF THE PROPERTY until she has in the opinion of my Trustees ceased to reside permanently in the house OR THE CHARGES SHE IS REQUIRED TO PAY OR ANY OF THEM ARE OUTSTANDING FOR MORE THAN 90 DAYS, whereupon the house shall be sold and the net proceeds added to the fund established under Clause 4.c. All fees costs and charges including taxes assessed on or payable by my estate in respect of any transaction (whether on income account or capital account or both) which arise directly or indirectly as a consequence of this Clause 3 shall be paid out of sale proceeds or the fund established under Clause 4.
4. I DIRECT MY TRUSTEES:
a. to set up a fund (“the George Daicos fund”), to consist of:
i. other part or parts of my estate directed to the fund under any other clause of this my Will;
ii. the net proceeds of any property transaction as described in or anticipated by Clause 3 of this my Will; and
iii. any income or capital added to or accumulated in the fund from time to time;
b. to invest the fund as authorised by law and this Will;
c. to pay costs of administering the fund including taxes on income and capital account from the income of the fund;
d. to pay those costs relating to any property to which Clause 3 applies and which are not paid as required by that Clause;
e. to pay so much of the income and capital therefrom as in my Trustee’s sole discretion necessary for maintenance and support of the said GEORGE DAICOS to or for the benefit of GEORGE DAICOS provided that my Trustee shall not in any year of income be obliged to make any payment to or for the benefit of my said son GEORGE DAICOS;
f. upon the death of my son GEORGE DAICOS, hereof to pay all or part of the income and capital of the fund to such of KHADIJA DAICOS and RAQAYAH DAICOS as survive me and attain the age of thirty-seven (37) years as tenants in common in equal shares;
g. in the event that no person is entitled under sub-clause (f), the fund shall be held for PHILLIP DAICOS, HELEN KOMORA and JEANETTE DAICOS as tenants in common in equal shares.”
The plaintiff and the second defendant lived in the Fitzroy house from October 1991 until their separation in June 2012, when the second defendant moved out of the house. After the separation, the plaintiff and the two children continued to live in the Fitzroy house.
On 28 May 2014, the plaintiff requested the first defendant to meet the costs of certain maintenance works on the Fitzroy house from the George Daicos fund, pursuant to clause 4(d) of the will, including the cost of repairs to a collapsed entry hall ceiling, bathroom renovations, ceiling replacements for two bedrooms and repairs to the lounge room ceiling and walls. By letter dated 24 August 2015, the plaintiff provided the first defendant with quotes relating to bathroom renovations, bedroom ceiling repairs and lounge room ceiling and wall repairs.
On 26 August 2015, the first defendant indicated that he did not believe he could draw on the George Daicos fund for the cost of non-essential aesthetic improvements to the Fitzroy house and informed the plaintiff that he was only prepared to authorise, on receipt of appropriate quotes, the cost of repair work.
From this date to 9 May 2016, the plaintiff obtained further quotes and the parties exchanged correspondence but were unable to reach agreement as to the character of the proposed repairs or the obligation of the estate to meet the costs of those repairs.
Application of the plaintiff
By originating motion filed 24 March 2017, the plaintiff sought declarations as to certain rights conferred by clauses 3 and 4 of the will. In particular, she sought determination of her right to reside at the Fitzroy house, the obligations of the first defendant to meet the costs of certain repairs to the Fitzroy house from the George Daicos fund and that the first defendant pay all such costs that are required to be paid by him pursuant to clause 4(d) of the will in relation to the Fitzroy house, that are not required, by clause 3 of the will, to be paid by the second defendant.
The plaintiff contended that the will, properly interpreted:
(a) permits the second defendant, the plaintiff and their children to live in the Fitzroy house during the lifetime of the second defendant and requires the second defendant to pay the building insurance on the house as assessed by the trustee, to pay water and sewerage usage charges and to keep the house in a reasonable state of repair: clause 3(a);
(b) permits the plaintiff to live in the Fitzroy house under certain conditions, in the event the second defendant predeceases the plaintiff and the plaintiff was still then in a genuine domestic relationship: clause 3(b);
(c) directs the first defendant as trustee of the estate to establish the George Daicos fund: clause 4(a); and
(d) directs the first defendant as trustee of the estate to pay the costs relating to any property to which clause 3 applies and which are not paid as required by that clause: clause 4(d).
Procedural History
On 8 November 2017, the first defendant filed an application for summary dismissal of the proceeding, contending that the plaintiff did not have standing to make the application. The basis of this contention was that the will does not confer any rights on the plaintiff in relation to the Fitzroy house and that she has no beneficial entitlement under the will during the lifetime of the second defendant.
By summons filed 10 November 2017, the plaintiff sought leave to file an amended originating motion that included a declaration as to the standing of the plaintiff to bring the proceeding and an order enjoining the first defendant from doing any acts or commencing a proceeding to take possession of the Fitzroy house.
On 27 November 2017, orders were made for the hearing of the summary dismissal application and leave was granted to the plaintiff to file her amended originating motion, which included the addition of the second defendant as a party.
The summary dismissal application was heard on 11 December 2017. The Court determined that the plaintiff had standing and refused the application of the first defendant for summary dismissal. On 1 February 2018, orders were made that the first defendant pay the costs of the plaintiff of and incidental to the summons filed on 8 November 2017, reserving the issue of which part of the estate should bear those costs, that is, either the George Daicos fund or the residue of the estate.
On 21 February 2018, orders were made for the plaintiff to file a further amended originating motion to refer to the second defendant as Ahmed Daicos, for the parties to attend a mediation by 20 April 2018 and for pre-trial directions on 4 May 2018. The directions hearing was adjourned to 25 May 2018 and, on that date, the proceeding was adjourned to 22 June 2018 as a result of the following developments between the parties:
(a) the proposed application by the second defendant for declaratory relief in respect of his right to exclusive occupation of the Fitzroy house;
(b) an agreement between the parties whereby the first defendant would arrange for certain repairs works to be conducted on the Fitzroy house and for reimbursement to the plaintiff of her costs in arranging repairs to the collapsed entry hall ceiling; and
(c) an application made by the plaintiff in the Federal Circuit Court for an exclusive occupancy order to enable her to remain in the Fitzroy house pending the determination of adjustment proceedings between her and the second defendant.
Subsequently, the parties submitted consent orders dismissing the proceeding, with the question of the costs to be determined on the papers.
Costs orders sought by the parties
The plaintiff seeks the following orders:
(a) the costs of the plaintiff ordered on 1 February 2018 be paid from the estate of the deceased, alternatively, the George Daicos fund;
(b) her remaining costs of and incidental to the proceeding, inclusive of reserved costs, be paid from the estate of the deceased, alternatively, the George Daicos fund, on an indemnity basis, alternatively, on the standard basis;
(c) the costs of the first defendant of and incidental to the proceeding, inclusive of reserved costs, be paid from the estate of the deceased, alternatively, the George Daicos fund, on an indemnity basis.
The first defendant seeks orders that:
(a) the plaintiff pay her own costs, alternatively, the costs of the plaintiff should be borne by the George Daicos fund, rather than the estate;
(b) The costs of the first defendant be paid from the George Daicos fund, on a trustee basis;[1] and
(c) The costs of the second defendant be paid from the George Daicos fund.
[1]In the affidavit of David Edward Whiting sworn 13 July 2018, the first defendant sought orders that the plaintiff pay the costs of the first defendant of and incidental to the proceeding, to be taxed on the standard basis in default of agreement, however, these orders were not pursued in the written submissions of the first defendant.
The second defendant seeks orders that:
(a) the costs ordered on 1 February 2018 be paid from the estate, not the George Daicos fund; and
(b) otherwise the plaintiff pay her own costs of the proceeding.
Applicable principles
Costs are at the discretion of the Court, unless as otherwise provided by an Act or the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’).[2] This general discretion must be exercised in accordance with Order 63 of the Rules.[3] The prima facie position in respect of costs in litigation is for standard costs to be ordered by the Court, with the Court having the discretion to award costs other than on the standard basis.
[2]Supreme Court Act 1986, s 24.
[3]Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) [2012] VSC 399 (14 September 2012) [11]. See also Coombes v Ward (No 2) [2002] VSC 84 (27 March 2002).
The ‘usual order as to costs’ is that ‘costs follow the event’ and a successful party in litigation is prima facie entitled to an award of costs in its favour. [4] The relevant ‘event’ is success in the action or on particular issues.[5] The unsuccessful party bears the liability for the costs of the unsuccessful litigation.[6] The central principle is to make an order that is fair and just between the parties in the circumstance of each case.[7]
[4]Oshlack v Richmond River Council (1998) 193 CLR 72, 97 (McHugh J).
[5]Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622, 624–5 (McHugh J); ASTA Developments Pty Ltd v Amasya Enterprises Pty Ltd [2016] VSCA 186 (3 August 2016) [25].
[6]Oshlack v Richmond River Council (1998) 193 CLR 72, 97 (McHugh J).
[7]Earnshaw v Loy (No 2) [1959] VR 252, 253. See G E Dal Pont, Law on Costs (Lexis Nexis, 3rd ed, 2013) [6.15].
The power to order costs is usually exercised after a hearing on the merits. Success in the action or on particular issues is the factor that controls the exercise of the discretion in most cases. Where a proceeding is undetermined and has not been resolved by contest before a court in a hearing on the merits, the Court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. The Court may exercise its discretion to make costs orders either where a defendant has consented to a grant of final relief or if there is consensus as to the outcome of the proceeding. In certain circumstances, a costs order can be made if it can be determined that one or other party would almost certainly have succeeded in the proceeding, or if one or other party has acted unreasonably in pursuing or defending the proceeding.[8]
[8]Lai Qin (1997) 186 CLR 622, 624; Seng Hpa v Walker [2017] VSC 320 (8 June 2017) [77]–[81].
Pursuant to s 36(2) of the Trustee Act 1958, trustees may reimburse themselves, or pay or discharge out of the trust premises, all expenses incurred in or about the execution of the trusts or powers. A trustee is entitled as of right to indemnity out of the trust for expenses properly incurred, that is, all costs except to the extent that they are of an unreasonable amount or have been unreasonably incurred. The concept of proper expenditure excludes conduct demonstrating want of prudence or diligence.[9] Expenses and liabilities that are improperly incurred, such as acting beyond power, in bad faith or in the exercise of power ‘with an absence of care and diligence that a person of ordinary prudence should exercise’ are not caught by the right of indemnity and shall be borne by the trustee personally.[10]
[9]Nolan v Collie (2003) 7 VR 287, 303–10. See also Dimos v Skaftouros (2004) 9 VR 584, 617 (Dodds-Streeton AJA), citing National Trustees Executors & Agency Company of Australasia Ltd v Barnes (1941) 64 CLR 268.
[10]Re O’Donogue [1998] 1 NZLR 116, 121; Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) (2001) 188 ALR 566, 606; Nolan v Collie (2003) 7 VR 287.
Where the executor or trustee seeks advice and directions from the Court, the executor or trustee will generally be indemnified from the estate of the deceased.[11] This is also usually case where an application is brought by a beneficiary, provided it concerns some difficulty of construction or administration that justifies an application by the trustee.[12]
[11]Wales v Wales [2015] VSCA 345 (16 December 2015), 41–42; Supreme Court (General Civil Procedure) Rules 2015, r 63.26.
[12]Australian Incentive Plan Pty Ltd v Babcock and Brown International Pty Ltd (No 2) [2011] VSC 43 (22 February 2011) [20]; Re Buckton [1907] 2 Ch 406; Elders Trustee and Executor Co Ltd v Eastoe [1963] WAR 36.
Consideration
The costs of the plaintiff
The plaintiff lived in the Fitzroy house initially with the consent of the second defendant. Shortly before the summary dismissal application was heard on 1 December 2017, the plaintiff added the second defendant to the proceeding. The second defendant then opposed the plaintiff living in the Fitzroy house. After determination of the standing of the plaintiff to issue the proceeding and the refusal of the summary dismissal application, the determination of the proper construction of clauses 3 and 4 of the will were still to be determined.[13] These issues concerned the proper administration of the estate, including the George Daicos fund.
[13]Daicos v Daicos & Anor [2018] VSC 18 (1 February 2018) [55], [74].
Substantially different views were adopted by the plaintiff and the first defendant as to the construction issues. The plaintiff made several requests for repairs to be conducted to the Fitzroy house prior to issuing her proceeding. In view of the state of repair of the Fitzroy house, it was potentially dangerous for the plaintiff and her children to continue living there. The prolonged refusal of the first defendant to undertake basic repairs to the Fitzroy house meant that the plaintiff was justified in issuing the proceeding. It was unlikely that the parties would have reached agreement without the proceeding being issued.
It was only after the plaintiff commenced the proceeding and was successful in resisting the summary judgment application of the first defendant that agreement was reached in respect of the costs of certain repairs to the Fitzroy house. Even though the parties disagree as to the nature and scale of the costs claimed by the plaintiff, the costs of repairing the collapsed ceiling plainly fall within the category of an expense to prevent waste of a trust asset. The cost of repairing this damage was not reimbursed to the plaintiff until the proceeding was on foot. This is indicative that the proceeding was, at least in part, productive of the decision of the first defendant to meet some of the costs claimed by the plaintiff.
The first defendant contends that the reason for the sudden decision to perform the various repairs and works to the Fitzroy house was to avoid waste. However, the sequence of events shows that this work would not have been done without the plaintiff issuing her proceeding. If the first defendant were truly acting in accordance with his obligation as trustee to prevent waste of the Fitzroy house as a trust asset, he would have undertaken this work well before the issue of the proceeding. Considering the background of the requests of the plaintiff for the repairs to the Fitzroy house, the first defendant’s refusal to undertake those repairs, the outcome of the summary dismissal application and the resolution finally reached between the parties, the plaintiff acted reasonably in commencing and pursuing the proceeding. On balance, the plaintiff was successful in the proceeding and should be paid her costs of and incidental to the proceeding, in addition to the costs already awarded as a result of the summary dismissal application.
Standard or indemnity costs
The questions that formed the basis of the proceeding were questions of construction relating to the will of the deceased. It would have been appropriate for the first defendant as trustee and executor of the estate to seek direction from the Court to resolve these questions of construction. As the plaintiff took this initiative, it is appropriate that she be entitled to recover her costs on an indemnity basis.
The costs of the defendants
The proceeding concerned questions as to the proper construction of the will of the deceased. As it was reasonable for the plaintiff to pursue the relief sought in the proceeding, it was also appropriate for the first defendant as trustee and the second defendant as the beneficiary with a significant interest in both the Fitzroy house and George Daicos fund to make submissions and participate in the proceeding. Accordingly, the defendants should also recover their costs of the proceeding on an indemnity basis.
Costs from the George Daicos fund or the residuary estate
The remaining issue is whether the parties should recover their costs from the residue of the estate or from the George Daicos fund, including the costs arising from the application for summary dismissal.
The plaintiff and second defendant both submit that the costs should be borne by the estate on the basis that the proceeding concerned issues and rights touching on the Fitzroy house, an estate asset that is not part of the George Daicos fund.
The first defendant submits that the proceeding touches solely on a portion of the estate held for the benefit of the second defendant and, as such, the residue of the estate should not bear the burden of the costs. He also submits that the circumstances of this case are at least analogous to situations contemplated by r 63.21 of the Rules which states that ‘the costs of an inquiry to ascertain the person entitled to any legacy, money, share or other property shall be paid out of the property’[14] and r 63.26 which states that ‘a party who … is sued as trustee … shall be entitled to the costs of the proceeding out of the fund’.[15] The first defendant submits that the proceeding concerned an application regarding the entitlement of the plaintiff to the benefit of the George Daicos fund and the first defendant was, in substance, sued as the trustee of the George Daicos fund as opposed to the general estate. Therefore, any order for costs should be confined to the George Daicos fund as it was established to meet the costs of any property to which clause 3 of the will applies and this ought to include the costs of this proceeding.
[14]Supreme Court (General Civil Procedure) Rules 2015, r 63.21.
[15]Ibid r 63.26.
The application of the plaintiff is not analogous to the circumstances covered by rr 63.21 and 63.26 in relation to the George Daicos fund as the questions posed in the application are such that it was appropriate to issue the proceeding against the first defendant as trustee of the estate of the deceased, not merely as trustee of the George Daicos fund. The application of the plaintiff concerned the effect of clauses 3 and 4 of the will, in particular, the rights conferred on the plaintiff in respect of her entitlement to occupy the Fitzroy house and whether the George Daicos fund should meet the costs of certain repairs to it.
Accordingly, the costs of the parties, including the reserved costs ordered on 1 February 2018, should be paid from the estate of the deceased and not from the George Daicos fund.
Orders
The following orders are made:
(a) the costs of the plaintiff of and incidental to the application of the first defendant for summary judgment filed 8 November 2017 be paid from the estate of the deceased, assessed on the standard basis;
(b) the costs of the plaintiff of and incidental to the proceeding, including any reserved costs, other than the costs awarded by the Honourable Associate Justice Ierodiaconou referred to above, be paid from the estate of the deceased on an indemnity basis;
(c) the costs of the first defendant of and incidental to the proceeding, including any reserved costs, be paid from the estate of the deceased on an indemnity basis;
(d) the costs of the second defendant of and incidental to the proceeding, including any reserved costs, be paid from the estate of the deceased on an indemnity basis; and
(e) the proceeding be otherwise dismissed.
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