Eyre-Walker v Swyrydan (Costs)
[2024] VSC 29
•13 February 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2023 01661
| DIANA EYRE-WALKER | First Plaintiff |
| VERA SWYRYDAN | Second Plaintiff |
| v | |
| VICTOR SWYRYDAN | Defendant |
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JUDGE: | GRAY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 6 February 2024 |
DATE OF JUDGMENT: | 13 February 2024 |
CASE MAY BE CITED AS: | Eyre-Walker v Swyrydan (Costs) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 29 |
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ADMINISTRATION AND PROBATE — COSTS — Application for removal of executor and related orders — Settlement as to substantive orders save as to costs — Defendant consenting to discharge from office of executor — Whether defendant’s costs of the proceeding not reasonably and properly incurred by him as executor — Whether defendant should pay plaintiffs’ costs — Apportionment — Application for indemnity costs — Administration and Probate Act 1958 s 34 — Supreme Court Act 1986 s 24 — Supreme Court (General Civil Procedure) Rules 2015 rr 63.02, 63.04, 63.26.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr G McCormick | Goldsmiths Lawyers |
| For the Defendant | Ms R Grayson Morison | Eales & Mackenzie |
HIS HONOUR:
I am required to determine costs following the substantive settlement of a dispute just before the commencement of a trial between siblings appointed as executors of their mother’s estate. Two of the executors sought the removal of the third from office, claiming that he had a conflict of interest arising from his occupation of an estate property and that he was delaying or preventing the administration of the estate. He has now consented to an order that he be discharged. On 7 February 2024, I made an order to that effect and certain related orders. I reserved my decision as to his costs and the plaintiffs’ costs of the proceeding.
Applicable law and principles
Under s 24(1) of the Supreme Court Act 1986, the Court has a broad discretion as to the question of costs in a proceeding before it. That discretion must be exercised judicially, by reference to the factors raised by the case.[1] In ReBogdanov, McMillan J said that the ‘central principle’ is ‘to make an order that is fair and just between the parties in the circumstances of each case’, and summarised the applicable principles, being that usually a successful party in litigation is entitled to a costs order in its favour, and there is a discretion to award non-standard costs where the proceeding exhibits a special feature or unusual circumstance.[2]
[1]Eg Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 (Oshlack), [40]–[45] (Gaudron and Gummow JJ), see also [65] (McHugh J, although dissenting in the result).
[2]Re Bogdanov; Atkins v Drummond (No 3) [2020] VSC 425, [10] (Re Bogdanov).
The principal claim in this proceeding was made under s 34(1) of the Administration and Probate Act 1958 (Act). Section 34(1) confers power on the Court to order the discharge or removal from office of an executor, including where the executor desires to be discharged (sub-s (1)(b)), or the executor is unfit to act or incapable of acting in that office (sub-s (1)(c)). It also provides that the Court may make ‘such order as to costs as it thinks fit’. Unfitness as a ground for removal can arise from a conflict of interest and breach or neglect of duty, including unwarranted delay.[3] It is the welfare of the beneficiaries and the protection of their interests in the estate that is the paramount consideration in exercising the discretion.[4]
[3]Monty Financial Services Ltd and Anor v Delmo [1996] 1 VR 65 (Ashley J); Fysh v Coote [2000] VSCA 150, [20]–[21] (Ormiston JA); Dimos v Skaftouros (2004) 9 VR 584; Jortikka v Haukka [2023] VSC 20, [41]–[42] (Daly AsJ) (Jortikka).
[4]Dimos v Skaftouros (2004) 9 VR 584, [13] (Winneke P).
Whether occupation by an executor of an estate property without paying rent gives rise to a conflict of interest depends on a range of circumstances, including permission from co-executors, whether the intention is to keep the property safe or improve its value for eventual sale, and whether the occupation has gone beyond a reasonably justifiable period.[5]
[5]See Fysh v Coote [2000] VSCA 150, [23].
The principles for a determination of costs of litigation in the absence of adjudication of the substantive claims are well established, but not necessarily easy to apply. McMillan J dealt with such issues in a case involving executor removal in Re Howden.[6] It will rarely, if ever, be appropriate to determine the outcome of a hypothetical trial, but the court may consider whether the applicant acted reasonably in commencing the proceeding and the defendant acted reasonably in response to it, and in some cases the court may consider any conduct of the defendant that precipitated the litigation.[7] There may be circumstances in which it is possible for the court to award costs on the basis of a view about the outcome. For example, Burchett J, in One.Tel Ltd v Commissioner of Taxation,[8] referred to cases in which one party, after litigating for some time, effectively ‘surrenders to the other’. And in a famous passage from Lai Qin,[9] McHugh J referred to this possibility as well, saying: ‘… in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried’.[10] However, McHugh J went on to say:[11]
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings.
[6]Re Howden; Howden v Rackstraw [2020] VSC 315 (Re Howden).
[7]Re Howden, [37], [41]; Asta Developments (Aust) Pty Ltd v Amasya Enterprises Pty Ltd [2016] VSCA 186, [18], [24]–[25] (Whelan and Ferguson JJA); Re Minenko; Minenko v Raines [2019] VSC 644, [16] (Moore J); Re Bovill; Bovill v Bovill [2017] VSC 697, [38] (McMillan J).
[8](2000) 101 FCR 548, [6] (One.Tel).
[9]Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 (Lai Qin).
[10]Lai Qin, 625, quoted by McMillan J in Re Howden at [42].
[11]Ibid.
A person who incurs costs by reason of them suing or being sued as trustee will generally be entitled to their costs out of the fund held by them as trustee,[12] and this will be true of a person suing or being sued as executor and trustee of an estate. However, if those costs are shown to be improperly incurred, the executor or trustee may be deprived of their indemnity.[13] This may involve consideration of the reasonableness of the trustee’s actions.[14]
[12]See r 63.26 of the Rules.
[13]Re Bogdanov [22].
[14]Nolan v Collie (2003) 7 VR 287, [44]–[53] (Ormiston JA).
Order 63 of the Supreme Court (General Civil Procedure) Rules 2015 (Rules) governs the exercise of the Court’s general discretion conferred by s 24(1).[15] It is open to the Court to make a costs order in relation to a particular part of a proceeding, fixing a proportion of total costs attributable to that part of the proceeding.[16]
[15]Rule 63.02.
[16]Rule 63.04.
Relevant facts
Anastasia and Michael Swyrydan were married until 1986, when Michael Swyrydan died. They had four children: Zenowy Swyrydan; the defendant, Victor Swyrydan; and the plaintiffs, Diana Eyre-Walker and Vera Swyrydan. Anastasia Swyrydan (the Deceased) died in early 2019.
The Deceased left a will dated 26 August 2010. The will is in simple terms, appointing her four children as executors and trustees of her estate, requiring them to sell her estate’s assets and hold them on trust pending distribution, and leaving the proceeds after meeting the estate’s liabilities and expenses to the four children as beneficiaries of the estate in equal shares. Zenowy Swyrydan died on 30 November 2019, and it appears his daughter inherits his share of the estate.
I set out my understanding of the facts only for the purpose of applying the principles set out in the preceding section of these reasons. The parties filed a number of relevant affidavits on which I rely for this account of the facts.[17] As the trial did not proceed, there was no cross-examination on any of the affidavits.
[17]Excluding affidavits of service: an affidavit of Diana Eyre-Walker sworn 13 April 2023 and filed 24 April 2023, and exhibit DEW1 thereto (Ms Eyre-Walker’s First Affidavit); an affidavit of Vera Swyrydan affirmed 18 April 2023 and filed 24 April 2023, explaining the status of an asset not forming part of the estate; an affidavit of Dicky Abraham of Goldsmiths Lawyers sworn 1 June 2023 and bundle exhibit DA1 thereto; an affidavit of Gary David Goldsmith of Goldsmith Lawyers sworn 13 July 2023 and bundle exhibit GG1 thereto; another affidavit of Gary David Goldsmith sworn 22 August 2023 and bundle exhibit GG2 thereto; an affidavit of Victor Swyrydan affirmed 28 September 2023 and exhibit VJS1 thereto (Mr Swyrydan’s Affidavit); another affidavit of Diana Eyre-Walker sworn 17 November 2023 and exhibit DEW2 thereto (Ms Eyre-Walker’s Reply Affidavit); an affidavit of David Eyre-Walker affirmed 17 November 2023 and exhibit DAEW1 thereto, giving an account of his report to an executors’ meeting (Mr Eyre-Walker’s affidavit); another affidavit of Vera Swyrydan affirmed 20 November 2023; and an affidavit of Patrick Smith of Patrick Smith Lawyers, affirmed 19 January 2024 and filed 20 January 2024, and bundle exhibit PS1 thereto (Mr Smith’s Affidavit).
The Deceased’s estate included four properties: a block of flats in Grandview Avenue, Maribyrnong (Maribyrnong property) and three properties in rural areas (Eganstown property, Smythesdale property, and Heskin property). Her personal estate principally consisted of: an aged care bond and corporate bonds that were realised and distributed to the beneficiaries in 2019 and early 2020; an amount of cash received from bank accounts at the Commonwealth Bank of Australia and some proceeds from sale of a small parcel of Telstra shares, some of which remains held on trust by the executors; and a parcel of Westpac shares valued at over $200,000 which has not yet been realised, and which I refer to further below.
The Deceased lived for many years in the Maribyrnong property, and the defendant has lived all his life in that property, with the exception of a period when he was in the Army.
Probate was granted to all four children on 17 July 2019. The inventory supporting the application for probate showed the value of the Eganstown property as being $1.76 million. As I explain further below, this was as a result of a mistaken transposition of values of three of the four properties.
The Eganstown property was sold in February 2020 for $225,000. The proceeds were received into trust in May 2020 and distributed to the three surviving children and to the estate of Zenowy Swyrydan. The other three properties remain unsold.
There were five meetings of the executors. I accept the notes taken by Ms Eyre-Walker of these meetings as accurate.
The first meeting of the executors took place on 25 August 2019. Amongst other things, it was agreed that Ms Eyre-Walker would visit the Eganstown property with a view to selling the property, including sounding out real estate agents, and that Ms Eyre-Walker would drive the defendant to the Smythesdale property, in which he had a particular interest as one he might wish to buy. It was also agreed that Ms Eyre-Walker and her husband, David Eyre-Walker, would keep abreast of the share market with a view to eventually selling the Telstra and Westpac shares.
The second meeting of executors took place on 16 September 2019. Amongst other things, it was noted that the four executors wanted the shares sold ‘asap’ at the right price, and Ms Eyre-Walker should take ‘total responsibility’ for action to sell the Eganstown property. David Eyre-Walker ‘gave a report back on the real estate agent we preferred (after much investigation)’ and the tracking of Westpac and Telstra shares.
The third meeting of executors took place on 18 November 2019, although Zenowy Swyrydan was absent and his daughter attended instead. Amongst other things, it was agreed or noted that the Telstra shares were to be sold now, and the Westpac shares would be kept as one batch and sold when the price neared $30. A parenthetical note appears in the note at this point, ‘Check with Patrick that papers are ready and shares can be sold when instructed’. Patrick Smith of Patrick Smith Lawyers was, and still is, the solicitor retained by the executors for the administration of the Deceased’s estate. A further note at the end of the meeting states ‘everyone has decided that the shares were too low’. The meeting also addressed the three rural properties. The Maribyrnong property was to be retained until either ‘at least Autumn 2020 (and while housing market continues to rise)’. The words ‘least Autumn 2020’ are struck out in the notes, so I infer that the outcome of the meeting was that the property be retained while the housing market continued to rise, without there being any presumption that the sale might be in the first half of 2020. With reference to the property at ‘Romsey’ (which I infer was a reference to the Hesket property), the meeting decided to retain it ‘until at least Autumn 2020 — before being considered for selling’. As to the Eganstown property, the executors would keep it ‘on market and be flexible regarding selling price and accept any reasonable offer’. There were also agreed actions relating to the Smythesdale property, including a trip during which the defendant would show the Eyre-Walkers the exact location of the property, and the Eyre-Walkers would get a valuation.
There was no mention of the Maribyrnong property in the notes of the first three meetings. Over the relevant period, ending nearly a year after the Deceased’s death, all executors would have been aware that the defendant remained in residence there.
The fourth meeting of the executors took place on 24 February 2020. It was noted that it was the ‘wrong time’ to sell the Maribyrnong property. It was noted that it had been agreed that Ms Eyre-Walker would sell the Eganstown property, that she had engaged an agent, that the agent had received an offer of $225,000 before Christmas and that ‘We had agreed the sales contract (but Victor has refused to sign) so far’. The note records ‘We need a strategy going forward’. It is then noted that the defendant arrived, and Mr Eyre-Walker ran through the previous details for his benefit. Mr Eyre-Walker asked the defendant ‘what his problem was in signing’. The notes record that the defendant then said that ‘he didn’t see the properties’. The next line of the meeting is the last note of the meeting and it merely states that ‘V ran through just how busy he’s been’.
The last executors’ meeting, being the fifth meeting, was held more than a year later, on 3 May 2021. Four matters were discussed and agreed. First, as to the Hesket property, it was noted that a formal valuation be sought, that the property remain in the family, and that an offer be made to Zenowy Swyrydan’s daughter to ‘buy her out’. An email shortly after the meeting stated that it had been agreed that the property be divided three ways, one quarter to the defendant, one quarter to Vera Swyrydan, and half to Ms Eyre-Walker, it being agreed that Ms Eyre-Walker would buy the quarter belonging to the estate of Zenowy Swyrydan. Secondly, as to the Smythesdale property, it was agreed that a valuation be sought, and ‘Outcome of sale to be divided equally between the four beneficiaries’. Thirdly, as to the Westpac shares, it was agreed ‘to sell all shares but not under $25 per share’. Fourthly, as to the Telstra shares, it was agreed to sell them and to retain the proceeds ‘in trust to run the estate (this has been done)’. Ms Eyre-Walker sent an email to Mr Smith on 5 May 2021 giving more details about these agreed outcomes.
Mr Smith deposed that he was retained to obtain probate in January 2019, and that he has continued to act in respect of the estate to date. Mr Smith referred to the preparation of the application for probate. He could not say how the error occurred in the values of the properties in the inventory. Mr Smith deposed that all four executors ‘in due course attended on various dates in July 2019 to sign and swear the documents required for the grant of probate’. He said ‘in the case of Victor this was not without difficulty’. He referred to a meeting he had with the defendant on 11 June 2019 to discuss the signing of the probate application, at which the defendant expressed concerns that he felt under pressure and that things were happening too quickly. The defendant, according to Mr Smith, referred to the risk of becoming homeless, given that he was living in the former family home. Mr Smith told the defendant that there was no chance of this. In the end, it appears that the defendant signed his affidavit on 21 June 2019, and that this was done in the presence of Mr Smith.
It therefore appears that the concerns the defendant had expressed on 11 June 2019 were addressed by 21 June 2019, and he co-operated in the application for probate. Mr Smith also deposed to the defendant, along with the other executors, signing all necessary transfer documents to facilitate the transfer of the four properties from the name of the deceased to those of the executors by 30 September 2019. In short, it does not seem that the defendant was unreasonable or caused any real delay.
Mr Smith deposed to a series of dealings between himself and the defendant from late 2019 to June 2021. The first of these was a letter dated 19 December 2019 from the defendant complaining of what was occurring in the meetings of executors. The letter uses some strong language and shows signs of agitation. Mr Smith deposed that he recalls telling the defendant that he represented the estate, could not be involved in any dispute between executors, and that Victor should seek independent legal advice. Mr Smith next referred to the contract for sale of the Eganstown property, which was signed by the purchaser on 19 December 2019. Mr Smith stated that the plaintiffs signed the contract as vendors on 22 and 23 January 2020, but the defendant did not sign until 28 February 2020. I note that this was very soon after the fourth meeting of the executors, on 24 February 2020, where the executors had queried the defendant about the delay. Evidently, the defendant was appropriately responsive at this time.
Mr Smith referred to a phone call from the defendant on 18 July 2020, in which he expressed an understanding that the proceeds of the estate had to be distributed within two years of the deceased’s death and in which he asked about a possible extension as he was worried about selling the Maribyrnong house that soon. He mentioned COVID and its effect on values. Mr Smith said he would look into the extension. Mr Smith took the two-year time limit to be a reference to a possible capital gains tax liability.[18] As I outline below, the defendant had raised an important point. It appears that eventually this led Mr Smith to obtain advice, although about a year later. In short, it appears that it was the defendant who raised the issue of CGT, and he did so in a timely manner.
[18]I assume that this issue related to s 118-195 of the Income Tax Assessment Act 1997 (Cth).
Mr Smith referred to a phone call from the defendant on or about 2 November 2020, during which the defendant enquired as to insurance and water rates on the Maribyrnong property. Mr Smith responded by a letter on the same day, advising that only the building insurance and not contents insurance was being paid by the estate, and the water rates were likewise not being paid by the estate as the other executors had deemed these matters to be the defendant’s responsibility. In short, the defendant appears to have taken the initiative to raise these outgoings with Mr Smith, and Mr Smith’s response shows the plaintiffs had already turned their mind to allocation of the outgoings on the Maribyrnong property.
As Mr Smith deposed, on 28 February 2020, after the defendant signed the agreement for the sale of the Eganstown property, the sale was finalised on or about 29 May 2020. Mr Smith also deposed that the defendant facilitated survivorship transfers following the death of Zenowy Swyrydan, and these survivorship transfers were finalised on or about 2 June 2021. Mr Smith deposed that ‘Since the survivorship transfers on or about 2 June 2021 Victor has not agreed to the transfer or sale of any of the remaining three estate properties’.
Mr Smith deposed that, after the May 2021 meeting and the email from Ms Eyre-Walker on 5 May 2021, he sold the parcel of Telstra shares and received the proceeds into trust. There is no reference in Mr Smith’s affidavit to any instructions to sell the Westpac shares and no indication that there was any particular obstacle to him being able to execute any instructions to sell those shares. Ms Eyre-Walker’s Reply Affidavit exhibits an email from her to the defendant on 5 July 2021 referring to a conversation between the two of them on 29 June 2021 about selling the Westpac shares, and noting that it was necessary to sell the shares to facilitate the proposal discussed at the 3 May 2021 meeting for Ms Eyre-Walker to offer to Zenowy Swyrydan’s daughter to purchase her quarter of the Hesket property. The email stated that Mr Smith reported that the defendant had ‘still not signed the Westpac share documentation’, and asked the defendant to contact Mr Smith to do so. It can perhaps be inferred that the defendant did not contact Mr Smith to do so, but on the other hand, there is no evidence that Mr Smith sent the documentation to the defendant at the time. Based on the available affidavit material, it appears that this was not done until March 2022.
My impression is that all concerned could have done more to progress the sale of the Westpac shares, and the issue of attribution of the cause of the delay is somewhat obscure, at least until March 2022. As I explain below, by that time it seems that there had been a breakdown in relations between the siblings and a level of disengagement by the defendant from the administration of the estate.
Were there any attempts to reconvene meetings of the executors after May 2021? Ms Eyre-Walker deposed that the plaintiffs and Mr Smith attempted to organise meetings, but without giving details. Mr Smith deposed that he was asked by the defendant to arrange an informal mediation between the executors, and he did so by email on 2 August 2021, fixing a mediation for 17 August 2021. However, Mr Smith stated that a mediation did not occur on that date as it became apparent to him that he should obtain advice about CGT implications of estate property being held beyond the two-year period. That advice was received on 13 December 2021. Mr Smith deposed ‘By this stage my attempts to phone Victor or email him were failing as he did not return phone calls or answer emails’. Mr Smith deposed that, despite this, he scheduled an informal mediation for 19 January 2022, but the defendant declined to attend. In his affidavit, the defendant stated that he declined to attend the mediation because the other executors refused to include certain business on the agenda for the mediation.
By early 2022, it appears that the relations between the plaintiffs and defendant had become antagonistic. Communications between them appear to have been conducted through correspondence between Mr Smith (in effect conveying the plaintiffs’ instructions) and the defendant. The defendant’s responses to Mr Smith’s letters reveal a degree of agitation, and contain passages that are difficult to follow. They also contain allegations against the plaintiffs that seem most unlikely to have any foundation.
On 29 April 2022, Mr Smith sent a letter to the defendant which was referred to quite extensively by both parties. The letter, inter alia, referred to a meeting of the plaintiffs, Mr Eyre-Walker and Mr Smith in January 2022, and stated that it had been discussed that it was apparent from the defendant’s ‘past behaviour’ that he did ‘not wish to distribute the assets of the estate to the beneficiaries’ or did ‘not wish to do so in a timely manner’, referred to the possibility of the defendant having a conflict of interest in residing at the Maribyrnong property — the estate’s largest asset, and raised the prospect of the defendant being removed as an executor. The letter conveyed a proposal from the plaintiffs offering the defendant a life tenancy in the Maribyrnong property on certain conditions.
The defendant responded by a letter dated 16 May 2022. This letter contains passages that are difficult to follow, unrelated to the administration of the estate, and some strong language. It has some disturbing contents. It states the defendant’s belief that the Eganstown property was sold at a discount. The defendant’s counsel made cogent submissions that there could well be reasons for the defendant having responded to Mr Smith’s letter of April 2022 in strong terms. Ms Grayson Morison submitted that the defendant would have been surprised to receive a letter from a solicitor acting on behalf of all the executors raising the prospect of his removal from office as an executor.
After a request from Mr Smith for a further response, the defendant sent responses in similar terms by letters dated 11 July 2022 and 13 July 2022. A further letter from Mr Smith of 15 July 2022 included a suggestion in writing for the defendant to seek independent legal advice. The plaintiffs’ offer to the defendant involving a life tenancy at the Maribyrnong property was formally withdrawn by final letter from Mr Smith dated 26 August 2022 which foreshadowed that the plaintiffs intended to commence a proceeding to remove him from his office as an executor, and that Mr Smith would not be acting for any parties in that proceeding.
Mr Smith’s affidavit concludes: ‘I’ve had no contact with Victor since the incidences recorded above … The current position of the estate is that no further assets have been realised and it now has insufficient funds to pay rates, land tax and other outgoings.’ Mr Smith exhibited emails from his office to the executors reporting on these matters in September and November 2023.
On 25 November 2022, the solicitors retained by the plaintiffs in this proceeding, Goldsmiths, sent a letter to the defendant seeking his consent to being discharged from his office as an executor by this Court pursuant to s 34(1)(b) of the Administration and Probate Act 1958, failing which they indicated they would seek an order for removal under s 34(1)(c). The letter contended that the defendant had a conflict of interest and duty that prevented him from the proper administration of the estate, stating ‘You wish to retain [the Maribyrnong property] for yourself and are not prepared to administer the will’.
By response on 1 December 2022, the defendant stated ‘Under NO circumstances do I give you my consent to remove me as an executor’, and requested a family meeting.
Mr Goldsmith deposed that there had been some delays in the progression of this proceeding in the court due to the defendant having initially been unrepresented for some time, and then due to a change in legal representation. The defendant sought extensions of time for filing his evidence from mid-2023, claiming that this was due to ill health. The defendant’s affidavit was ultimately filed and served in late September 2023, about three months late.
In Ms Eyre-Walker’s First Affidavit she deposed that ‘administration of the Estate has been fraught with difficulties caused by [the defendant’s] refusal to engage in the administration, his making of allegations as to thefts, property damage etc and as to intervention orders (there has never been one taken out by [the plaintiffs]), and his refusal to sign and/or delay in signing documents that would enable all the assets of the asset to be realised and distributed’. Ms Eyre-Walker’s First Affidavit concludes:
Since the sale of the Telstra shares in mid-2021, there has been no further sales of the assets of the Estate. If Victor is not removed as executor, then it is my and my sister’s belief that the remaining assets will not be sold simply because Victor refuses to engage in the administration and will not sign anything that would allow a sale to occur.
The defendant’s affidavit, affirmed 28 September 2023, responded to Ms Eyre-Walker’s First Affidavit in some detail.
As to the Maribyrnong property, the defendant deposed that it had not been rented out since the 1970s, was not in good repair as a result of previous tenants, and could not be rented out at this time. He had used apartments in the property to store his belongings, and the plaintiffs had not previously asked him to remove those belongings. They had not asked him to pay rent while he had been living in the property, nor the rates. He had never denied them access. During the meeting of 18 November 2019, they agreed to keep the property while the housing market conditions continued to rise. Until receipt of the court documents in this proceeding, he had never been asked to vacate the property. The executors had never discussed at the executors’ meetings any plan to rent the Maribyrnong property out.
As to the Eganstown property, the defendant deposed that he was concerned that the plaintiffs were asserting that the value of the estate assets had changed dramatically without providing evidence in support. He noted the assertion made by Ms Eyre-Walker that the property values listed in the inventory involved a mistake in transposition of figures between properties. He deposed that
In circumstances where the plaintiffs assert that the values of the estate properties have changed significantly, I remain concerned about the plaintiffs’ ability to act in the best interests of all beneficiaries as to the sale of the estate properties.
In the end, council rates notes for the four properties in the estate issued in the financial year 2018-2019 were produced as exhibits to Ms Eyre-Walker’s Reply Affidavit, and these demonstrate that the value given for the Eganstown property was simply a mistakenly transposed reference to the Maribyrnong property’s value. However, the rates notices could easily have been provided to the defendant in a timelier fashion, to demonstrate this.
In response to Ms Eyre-Walker’s reference to other assets of the estate not having been sold, the defendant deposed that the reason that the assets of the estate remain unsold was because the plaintiffs and he had reached previous agreements to retain certain assets. He referred to matters in the notes kept by Ms Eyre-Walker of the meetings of executors, addressed above. He deposed that he had not received a valuation for the Hesket property or for the Smythesdale property.
As to the Westpac shares, he annexed a share price history for the shares from May 2021 to September 2023, noting that there had been more than one occasion in 2021 following the 3 May 2021 meeting during which the share price was greater than $25 per share. He deposed:
Despite this occurring, I did not receive any forms for my execution as to the Westpac shares until 25 March 2022 under cover of a letter from Patrick Smith.
As already mentioned in paragraph 29 above, my impression is that the defendant did not unreasonably delay the sale of the Westpac shares until about early 2022, by which time he had disengaged from the administration of the estate.
As to Ms Eyre-Walker’s assertion that the lack of any executors’ meetings following 3 May 2021 was attributable to the defendant, he deposed:
I say that I was agreeable to attend meetings however when I proposed an agenda for the meeting, Patrick Smith would not allow agenda items to be discussed. As I was concerned that we were not proposing to discuss all issues, I did not feel that the meeting would be of any use.
As to the sale of the Eganstown property, the defendant said he consented to the sale of the property in circumstances where he felt he had no option other than to consent. He deposed to his concerns about the price at which and the circumstances in which the Eganstown property was sold. It is clear from his account of his concerns that one of the issues on his mind was that the inventory had stated that the property was valued at $1.76 million, a topic I have just addressed. Even if the property was valued lower than that, the defendant believed that a discount had been provided. He deposed that Ms Eyre-Walker had contacted him saying that the purchaser had been given a discount of $25,000. He deposed to his concerns that it may have been undersold. The reasons for this concern were, he deposed, that he believed insufficient enquiries were made to engage the most competitive and suitable agent, the property was not put to auction, and the defendant was not consulted or included in the sale process. I note that Mr Eyre-Walker’s affidavit in the proceeding addressed these issues.
As to the proposal that was made to the defendant in Mr Smith’s letter dated 29 April 2022, offering the defendant a life tenancy in the Maribyrnong property, he deposed that he did not accept the offer as, being a layperson, he did not understand the terms of the offer. In particular, the reference to ‘tenants in common’ confused him and he mistakenly considered that the proposal had something to do with renting. During the period the offer was open, he was under great personal and financial strain. He felt that he was unable to consider the offer and seek independent legal advice until he had more information, such as more documentation concerning the Eganstown property. He wanted to satisfy himself of concerns about the sale of the Eganstown property before considering the offer, given that the offer was conditional on the immediate sale of the Smythesdale property. He also had concerns, which were later resolved, about whether he had received all distributions. He was concerned at that time that the offer ‘was being made, not as a genuine attempt to resolve the Estate, but as a way of silencing me’.
As to the proposals in the correspondence from Patrick Smith on 29 April 2022 and 15 July 2022 that the defendant renounce his office as executor, the defendant acknowledged that he had refused to do so. However, he denied that it was his conduct that had led to failures to sell estate assets. He referred to what he regarded as:
… a clear agreement to keep the Maribyrnong property and the Hesket property, a clear agreement to obtain a valuation for the Smythesdale property prior to it being placed on the market and a clear agreement not to sell the Westpac shares for [not] less than $25 per share. To date, the plaintiffs have not adhered to these agreements and the first I learned that they wished to sell all Estate assets was via these proceedings.
The defendant conceded that his conduct to date ‘may be viewed as somewhat challenging’, but he gave reasons for his hesitation about finalising the estate, namely a lack of independent legal advice, reliance on the advice of Patrick Smith, concerns surrounding Ms Eyre-Walker’s sale of the Eganstown property, and the plaintiffs’ assertions as to changing values of the estate properties. He deposed his belief that the sale of the Eganstown property has never been properly addressed to his satisfaction. He proposed a further mediation on 22 July 2022, but the request was refused. His affidavit concludes by expressing his agreement that the assets of the estate should be sold but stating that he needed a sufficient time to provide vacant possession of the Maribyrnong property given the fact that he has never lived anywhere else, and given his age, financial circumstances and poor health.
Parties’ submissions on costs
The plaintiffs’ originating motion sought an order that the defendant personally pay to the plaintiffs the plaintiffs’ costs of and incidental to this application on an indemnity basis without right of indemnity from the estate.
In the defendant’s written submissions, it is submitted that as an executor and trustee, the defendant is entitled to indemnification from the estate of the deceased pursuant to r 63.26 of the Rules, and that the plaintiffs have not discharged their onus in alleging that his costs are unreasonable or improperly incurred.
The submissions elaborated as follows:
Victor has acted in good faith seeking to raise questions about the administration of the estate, including the powers of non-executors to make decisions and questioning the true market value of the Eganstown property in circumstances where it was listed in the inventory of assets and liabilities for over $1.5 million more than it was sold for. Victor appropriately sought independent legal advice to properly understand his legal rights: it was entirely proper and reasonable for him to do so in circumstances where the estate’s lawyer did not give him that advice and there is no basis to deny him his indemnity as to costs as an executor of the deceased’s estate.
At the hearing, counsel for the plaintiffs, Mr McCormick, referred to competing minutes of proposed consent orders prepared by the parties and provided to the Court shortly before the commencement of the hearing. The principal matter of contention that remained between the parties boiled down to the question of costs.
The parties agreed that the defendant would be discharged as an executor and would provide vacant possession of the Maribyrnong property in six months’ time. Agreement was ultimately also reached on orders providing for him to deliver up any relevant property and documents of the estate.
Other claims in the originating motion were not included in the consent orders proposed by the parties. In particular, there were no orders reflecting claims for occupation rent of the Maribyrnong property, and for the defendant to personally bear various outgoings on the estate properties from the date of the deceased’s death, and any CGT and land tax imposed on trust assets. The claim for vacant possession of the Maribyrnong property within 30 days set out in the originating motion was substantially modified to vacant possession within 6 months.
Mr McCormick posed three questions: who should bear the plaintiffs’ costs, should there be an indemnity for the defendant’s costs to be borne by the estate, and what form of costs should be ordered, standard or indemnity? Mr McCormick submitted that the defendant should bear the plaintiffs’ costs of the proceeding personally, and on an indemnity basis. Mr McCormick also submitted that the defendant should have no indemnity from the estate for his own costs. Mr McCormick submitted that the defendant’s total conduct was such that he was substantially responsible for the need for the proceeding. It followed that the defendant’s costs in defending the proceeding were not reasonably and properly incurred, and he should be disentitled from recovering those costs pursuant to any indemnity from the estate’s assets. For similar reasons, it was appropriate that the defendant should bear the plaintiffs’ costs of the proceeding, to be met out of the defendant’s share of the estate.
Mr McCormick also submitted, and there was no dispute, that the value of the estate was such that the costs of the proceeding could amply be met out of the defendant’s share.
Mr McCormick submitted that the defendant had only agreed to his discharge from the role of executor at the last minute, at approximately 1pm on the day before the hearing.
Ms Grayson Morison submitted that this was not unreasonable that the offer to agree to discharge the defendant had been delayed. The defendant had not had independent legal advice during the administration of the estate. Ms Grayson Morison submitted that it was a ‘curious’ feature of the case that Mr Smith, being jointly retained by all the executors, had sent correspondence to the defendant foreshadowing the removal of the defendant from his role as an executor. Although the executors had jointly retained Mr Smith, he became the means by which the plaintiffs communicated to the defendant. Ms Grayson Morison submitted that the defendant had not been able to obtain the legal advice he needed from Mr Smith.
Ms Grayson Morison’s submissions carefully avoided making any criticism of Mr Smith. Mr Smith was in a very challenging position. Out of an abundance of caution, in any event, I wish to make it clear that I have given Ms Grayson Morison’s submissions weight in considering the defendant’s state of mind and reasons for his actions, without reaching any view that Mr Smith did anything untoward.
Ms Grayson Morison referred to Re Howden, a case that had some factual similarities with the present case. She also emphasised that she was not contending that the plaintiffs should be deprived of indemnity from the assets of the estate for their legal costs in this proceeding. In this sense, Ms Grayson Morison acknowledged that the executors had acted properly and reasonably in commencing this proceeding, or that at least the defendant was not attempting to prove otherwise. In my view, Ms Grayson Morison was correct in accepting that the plaintiffs could look to the estate for indemnification.
In reply, Mr McCormick relied on an aspect of McMillan J’s judgment in ReHowden,[19] where McMillan J referred to the failure of the defendant to carry out her executorial duties in a timely or efficient manner.
[19]Howden, [61].
It is noteworthy that, although the failure of the executor in ReHowden to carry out her duties in a timely or efficient manner led to McMillan J denying her any indemnity from the assets of the estate, the mere fact that the executor had been untimely and inefficient did not lead her Honour to order that the executor should pay the plaintiff’s costs of the application to remove her. This was so even though, as I read her Honour’s judgment, her Honour accepted that the defendant’s failure to carry out her executorial duties in a timely or efficient manner ‘no doubt precipitated the litigation’.[20] Her Honour noted in this regard that–
While the plaintiff did have some cause for concern with the delays on the part of the defendant, it cannot be said that the plaintiff was left with no recourse but to take the step of issuing the proceeding. The early resolution of the substantive application demonstrates that the parties might have been able to resolve the issue without commencing the proceeding …[21]
[20]Howden, [61].
[21]Howden, [63].
Her Honour also noted that while the defendant’s explanation for the delay was provided at a late time, it was ‘somewhat reasonable, in the circumstances’.[22] It is also noteworthy that the defendant conceded that she should be discharged early in the proceeding.
[22]Ibid.
Conclusions
Applying the principles identified by McMillan J in ReHowden and in Re Bogdanov, I turn first to the question of whether the defendant should be entitled to an indemnity from the assets of the estate in respect of his own legal costs of and incidental to this proceeding.
On my analysis of the evidence summarised above, as in the case of ReHowden, the defendant’s conduct, and particularly his disengagement from the administration of the estate from early 2022, was the substantial reason for the need for the commencement of this proceeding.
As the defendant himself has fairly acknowledged, his communications with the other executors and Mr Smith were at times confusing. He deposed that he needed independent legal advice, but has not adequately explained why he did not seek it. Mr Smith had (in December 2019 and July 2022) suggested that the defendant should do this very thing. Even if I am to accept that the need for independent legal advice was a contributor to the defendant’s disengagement from the administration of the estate and confusing correspondence, the fact remains that he should have obtained independent legal advice much earlier, and he has not explained the delay.
By the time this proceeding was commenced, in April 2023, the stalemate reached between the defendant and the other executors was such that the commencement of the proceeding was amply justified. Without the commencement of such a proceeding by the plaintiffs, it is difficult to see what would have spurred the defendant to obtain independent legal advice on such issues as whether he should agree to be discharged as an executor, and allow the sale of the remaining trust assets, and on what terms he should vacate the Maribyrnong property.
For these reasons, the need for a proceeding is attributable to the defendant’s own conduct and, in particular, his failure to obtain timely independent legal advice.
I therefore disallow his application to be indemnified for his legal costs of this proceeding out of the assets of the estate. I am satisfied that the plaintiffs have established that those legal costs cannot be regarded as costs reasonably and properly incurred by him in his role as an executor. He will have to bear them out of his share of the distribution of the estate.
I turn to the plaintiffs’ application for the defendant to pay their costs of the proceeding out of his share of the estate, and to do so on an indemnity basis.
The alternative to orders requiring the defendant to pay the plaintiffs’ costs will be that the plaintiffs’ costs be met from the estate as a whole, as it is uncontroversial that they are entitled to an indemnity from the estate as a whole for their commencement and conduct of the proceeding. Although the title of the proceeding does not say so, I am satisfied that the proceeding was brought by them in their capacities as executors and trustees of the estate.
In determining this issue, I take into account the fact that, as outlined above, it was the defendant’s conduct, and his failure to obtain timely independent legal advice even after it became apparent that he should do so, that precipitated the litigation and in particular the application for his removal as an executor. On the other hand, I take into account the fact that the originating motion included a number of claims that have ultimately not resulted in any orders. I will address each of the key claims in turn.
Firstly, the claim for occupation rent. The originating motion included a claim for occupation rent to be paid by the defendant for his occupation of that property since the death of the Deceased. I doubt whether this claim had reasonable prospects. The plaintiffs never demanded rent from the defendant for his occupation of the Maribyrnong property, and acquiesced in his continued occupation of it pending a later decision on sale once the property market was favourable.
It is significant that there was no reference to the Maribyrnong property in the executors’ meetings held over the first year after the Deceased’s death, and that the only reference to it in the meeting in February 2020 noted that it was the wrong time to sell it. The plaintiffs must have known all along that the defendant resided there. Mr Smith’s November 2020 letter shows that the defendant’s continued residence in the Maribyrnong property was with the other executors’ consent, or at least their acquiescence, on condition that the defendant was responsible for the water rates, as well as any contents insurance he wished to have. There is no evidence of a request, still less a demand, for rent, and nothing resembling a suggestion to vacate. The property was not in a fit state to rent out, and the executors as a whole had decided to wait for the market to rise before selling it. The defendant was not acting unreasonably in continuing to live there.
Secondly, the claim included in the originating motion for the defendant to bear any CGT liability arising on various trust assets. In Jortikka, Daly AsJ considered the effect of the CGT grace period. As Daly AsJ pointed out:[23]
… no capital gains tax is payable unless there has in fact been a capital gain. … To the extent that the increase in value was attributable to changing market conditions, then the estate has in fact benefited from the delay in the sale of the property. In those circumstances, it seems to me to be unfair to make Ms Haukka solely liable for any capital gains tax payable by the estate.
[23]Jortikka, [68].
For the same reasons, it is to be doubted that the CGT claim in the originating motion could have succeeded in this case.
Thirdly, claims that the defendant should personally bear various outgoings and land tax have not resulted in any orders. Arguments in relation to these claims might have had greater prospects and been more finely balanced, although it is most unlikely that any would have been reasonably attributable to the defendant from as far back as the date of the Deceased’s death. A close analysis of factors contributing to delay would have been required before reaching any conclusions about if, and from when, any liability for any of them could have been allocated to the defendant.
In the end, the plaintiffs have been successful in obtaining orders by consent that the defendant cease to be an executor, and consequential orders about property and documents. They were not successful in obtaining an order for occupation rent, or orders for the assumption by the defendant of estate liabilities for insurance and other outgoings on estate properties from the death of the deceased (or at all), or for any land tax or capital gains tax and outgoings of the other properties. Both the plaintiffs and the defendant had a measure of success on the question of delivery of vacant possession of the Maribyrnong property: agreement was reached that this should occur, but in 6 months’ time, not in 30 days as sought in the originating motion.
In all the circumstances, I am satisfied that the plaintiffs should not receive the benefit of an order that the defendant pay all their costs. They should only receive a costs order against the defendant for that part of the proceeding relating to his removal from office as an executor. There were no submissions about apportionment of the plaintiffs’ costs. However, this is the most appropriate means of determining the question of the plaintiffs’ costs. I have decided to fix the proportion of the plaintiffs’ total costs relating to the removal of the defendant as an executor at 50% of their total costs, and to order that the defendant be personally responsible for payment of that proportion of the plaintiffs’ costs. They may be deducted by the plaintiffs from the defendant’s share of the estate.
As to the plaintiffs’ claim for costs to be ordered on an indemnity basis, I disallow that claim. An award of indemnity costs may in some circumstances be regarded as a mark of the Court’s disapproval of some aspect of the losing party’s behaviour. In this case, the defendant has (albeit somewhat belatedly) made appropriate concessions, saving the parties some expense, and also saving the Court from what would have been a larger expenditure of time and resources. The defendant is to be commended for having made the concessions he did. It is far from clear to me that any greater level of concessions could reasonably have been expected from him. For these reasons, I am not persuaded that this would be an appropriate case for an order for assessment of the plaintiffs’ costs on an indemnity basis. The standard basis will apply.
I will order that the defendant pay 50% of the plaintiffs’ costs of this proceeding, and to the extent that the plaintiffs have incurred costs of this proceeding additional to the costs covered by that order, they be borne by the estate.
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