Hodge v De Pasquale [No 2]
[2014] VSC 444
•16 September 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROBATE LIST
S CI 2014 00052
| NORINA HODGE | Plaintiff |
| v | |
| ROSA DE PASQUALE (who is sued in her capacity as the executor of the will of GIUSEPPE DE PASQUALE, deceased) | First Defendant |
| - and - | |
| PIA DE PASQUALE (in the will of the deceased known as Principia De Pasquale) | Second Defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | Written submissions filed 5, 8 September 2014 |
DATE OF JUDGMENT: | 16 September 2014 |
CASE MAY BE CITED AS: | Hodge v De Pasquale [No 2] |
MEDIUM NEUTRAL CITATION: | [2014] VSC 444 |
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Practice and Procedure — Costs — Whether usual order as to costs should be ordered — Whether trustee entitled to an indemnity — Whether indemnity costs should be ordered — Whether a Bullock order or a Sanderson order appropriate — Bullock v London General Omnibus Company (1907) 1 KB 264 — Sanderson v Blyth Theatre Company (1903) 2 KB 533
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APPEARANCES: | Counsel | Solicitors |
| No parties appeared, written submissions filed by e-mail: | ||
| For the Plaintiff | Mr S Newton | Scomparin & Bernardi |
| For the First Defendant | Mr J Isles | Rush & Failla |
| For the Second Defendant | Mr P Pascoe | Charles Morgan & Associates |
HER HONOUR:
In this matter the second defendant (‘Pia’) sought further provision from the estate of the deceased, and the executor, the first defendant (‘Rosa’), settled that claim on behalf of the estate without the approval of the Court, and without the consent of the plaintiff (‘Norina’), a beneficiary whose entitlement under the will was substantially reduced by the settlement. Norina then sought orders that Pia repay the settlement sum into the estate, or, in the alternative, Rosa reimburse the estate for the settlement sum.
On 29 August 2014, I determined that Rosa acted beyond her power as executor and trustee in paying the settlement sum to Pia, that Pia is not liable to repay that sum to the estate, and that Rosa is personally liable to reimburse the estate for that sum, and is not entitled to be indemnified from the trust for that sum.[1] The facts of this case are set out in my reasons for decision.[2]
[1]Hodge v De Pasquale [2014] VSC 413 (29 August 2014) [126].
[2]Ibid [2]–[20].
At the delivery of judgment, I asked the parties to file written submissions in respect of the costs of the application in the event that they could not agree on costs. Rosa and Pia filed submissions by e-mail on 5 September 2014, and Norina filed submissions by e-mail on 8 September 2014. In summary, those submissions seek the following:
(a)Norina seeks an order that Rosa pay her costs of and incidental to the proceeding, from her share in the estate, on a standard basis, and should receive no indemnity from the estate in relation to her costs. Norina also seeks an order that Pia’s costs be paid by Rosa, or, in the alternative, that Norina be entitled to be indemnified for Pia’s costs from Rosa.
(b)Rosa seeks an order that each party bear their own costs, or, in the alternative, that costs be borne by the estate. In the event that the Court were to order that Rosa pay Norina’s costs, Rosa seeks an order that she be entitled to an indemnity from the estate in respect of those costs. Rosa opposes an order that she pay Pia’s costs or indemnify Norina for payment of Rosa’s costs.
(c)Pia seeks an order for costs against Norina on an indemnity basis, and neither resisted nor consented to any orders that Norina be entitled to be indemnified by Rosa for that order.
For the reasons that follow, I have determined that:
(a)Rosa:
(i)should pay Norina’s costs of and incidental to the proceeding on a standard basis, and
(ii)is not entitled to be indemnified from the estate for that amount;
(b)Norina should pay Pia’s costs of and incidental to the proceeding on a standard basis; and
(c)Norina is to be indemnified by Rosa for payment of Pia’s costs incurred up to and including 14 February 2014, but not thereafter, and Rosa is not entitled to be indemnified from the estate for that amount.
Should Rosa pay Norina’s costs?
The costs of and incidental to civil proceedings, including the administration of estates and trusts, is in the discretion of the Court,[3] a discretion that must be exercised judicially and in accordance with established principles.[4] The usual order as to costs is that the unsuccessful party bears the liability for the costs of the unsuccessful litigation,[5] to indemnify the successful party in respect of a liability for fees necessarily and reasonably incurred, and not to punish the losing party.[6]
[3]Supreme Court Act 1986, s 24(1).
[4]Mitchison v Bullock (1886) 12 VLR 512, 520; McCauley v McCauley (1910) 10 CLR 434, 455; Copping v ANZ McCaughan (1995) 63 SASR 523, 527.
[5]Oshlack v Richmond River Council (1998) 193 CLR 72, 97.
[6]Latoudis v Casey (1990) 170 CLR 534, 566–7
Rosa submitted that, where a plaintiff fails to raise an obvious and deadly point, the Court may decline to award costs in their favour.[7] Rosa submitted that Norina’s success stemmed from:
(a)Norina’s failure to attend the mediation; and
(b)Norina’s failure to raise the argument that the executor could not settle the matter without her consent until after the settlement had concluded.
[7]Green v Schneiller [2003] NSWSC 202 (3 April 2003) [32]; G E Dal Pont, Law of Costs (LexisNexis Butterworths, 2009) 294.
Rosa further submitted that, were Norina to be awarded costs, that would amount to a costs windfall rather than an indemnification, because by entering into the settlement and purchasing for the estate a release from Pia’s Part IV claim, the estate avoided the expense of defending that claim, an expense that would have been borne by Norina’s share in the estate.
Norina opposed Rosa’s submissions, noting that those submissions ask the Court to ignore the fundamental finding in the decision that Rosa acted beyond power in entering the settlement. Rather than the litigation being the fault of Norina for failing to inform Rosa as to her duties as trustee, Norina submitted that the litigation was the fault of Rosa for failing in her duties as trustee and insisting upon defending the litigation instead of reimbursing the estate for her wrong.
Norina submitted that the speculative argument as to what might have happened in respect of Pia’s Part IV proceeding should not be taken into account, as Norina might equally argue that, had the matter not settled and gone to trial, Pia would have lost and had costs ordered against her.
I accept the submissions of Norina and reject the submissions of Rosa on this issue. It is not the duty of beneficiaries to advise trustees on how to administer the estate. Norina raised what was described as ‘the decisive argument’ when it became apparent that Rosa would not reimburse the estate for the lost fund, and it was necessary to resort to litigation. That was the appropriate course of action. Further, Norina will not receive a ‘windfall’ by being repaid her costs. Those costs are costs she has expended in defending her entitlement, and she is entitled to be reimbursed for those costs for the usual reason. Rosa failed to establish at trial that the estate purchased a benefit in settling the Part IV claim,[8] and cannot establish it now.
[8]Hodge v De Pasquale [2014] VSC 413 (29 August 2014) [124]–[125].
Is Rosa entitled to an indemnity?
Unless the Court otherwise orders, the rules provide that a party sued as trustee is entitled to their costs out of the trust fund.[9]
[9]Supreme Court (General Civil Procedure) Rules 2005, r 63.26.
Rosa submitted that, as she had procured a release in respect of Pia’s Part IV claim by her actions, she should be entitled to an indemnity from the estate in respect of the cost orders made against her. As I have already noted, this is in effect a submission that was rejected at trial. Rosa relied on the decision of Drummond v Drummond,[10] where Austin J stated:
[10][1999] NSWSC 923 (10 September 1999).
In Miller v Cameron, Latham CJ explained that
as a rule, a trustee is allowed his costs out of the trust estate if his conduct has been honest, even though it may have been mistaken.
In Re Weall, Kekewich J spoke of the
tenderness which the Court is anxious to exhibit towards trustees honestly exercising discretion in discharge of their duties, often difficult and still more often thankless.
In Re Jones the same judge said that
a man who fulfils the difficult duties of an administrator, executor or trustee is, in common sense and common justice, entitled to be recouped to the very last penny everything that he has expended properly — that is to say, without impropriety — in his character of administrator, executor or trustee.
Thus it is normally the case that an executor who commences or defends an action in the capacity of executor is entitled to be indemnified out of the estate for the costs incurred in doing so, even if the litigation is unsuccessful, the executor’s conduct is found to have been mistaken, and the other party in the litigation is held to be entitled to an order for costs.[11]
[11]Ibid [43] (citations omitted); see also Re Steiner (No 2) [2013] VSC 357 (23 July 2013) [19].
Rosa submitted that, as she acted honestly and on legal advice, her conduct fell within the kind of conduct that ought to be protected. In particular, she noted that she acted upon legal advice that the settlement of the claim was within power, a view ‘held by probate practitioners’ and that the settlement in question ‘did not involve an alteration of the beneficial interests’. That submission was not accurate. As I held, the generally accepted practice of practitioners in this area was to seek a Court order to give effect to such a settlement,[12] and the settlement plainly involved an alteration of beneficial interests.[13]
[12]Hodge v De Pasquale [2014] VSC 413 (29 August 2014) [61]–[66].
[13]Ibid [69]–[77]
Norina submitted that, as any order for costs from the estate, if payable from the residue, would in effect be borne by Norina, and as she has succeeded in her claim, this would plainly be unjust.
I accept Norina’s submission on this point. Rosa acted in breach of her duties as trustee in paying the settlement sum, and should not be indemnified from the estate for defending her actions in doing so. Norina’s submissions on this point ignore the reality of the decision, and seek to re-litigate the issues of law in dispute between the parties. Although the title to the proceeding names Rosa as acting in her capacity as executor,[14] relief was sought against her personally. This litigation was not between Norina and the estate, litigation for which an executor is entitled to be indemnified as a matter of course, but between Norina and Rosa for her conduct as the executrix of the estate. As a general proposition, beneficiaries should not be forced to litigate to defend their interests under a trust, and if they successfully do so it is inappropriate that they in effect pay the costs of their own proceeding by indemnifying the defendant trustee from their share of the estate.
[14]Properly, the title should be amended to read ‘executrix’.
Should Norina pay Pia’s costs on an indemnity basis?
The usual order for costs, primarily for historical reasons, has never been that a successful litigant is entitled to be indemnified for their legal costs, but rather that they be paid a proportion of their costs assessed on a standardised scale. The authorities are clear that special reasons or circumstances must be shown before costs will be awarded on an indemnity basis.[15]
[15]Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397; Colgate Palmolive v Cussons Pty Ltd (1993) 46 FCR 225, 233; PCRZ Investments Pty Ltd v National Golf Holdings Ltd [2002] VSCA 24 (14 March 2002) [35]–[36]; Masha Nominees Pty Ltd v Mobil Oil Australia Pty Ltd (No 2) [2006] VSC 56 (28 February 2006) [11]; Thomopoulos v Faulks (No 2) [2006] VSC 286 (1 August 2006) [5]–[7]; Macedon Ranges Shire Council v Thompson [2009] VSCA 209 (24 September 2009) [13]–[15]; Chen v Chan (No 2) [2009] VSCA 233 (8 October 2009) [10]; Love v State of Victoria & Roads Corporation (No 2) [2009] VSC 531 (30 November 2009).
Pia relied on the decision of Sheppard J in Colgate Palmolive v Cussons Pty Ltd,[16] where his Honour listed some of the circumstances that have justified an award of indemnity costs, a category of cases that remains open:
It is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud; the fact that the proceedings were commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions; an imprudent refusal of an offer to compromise and an award of costs on an indemnity basis against a contemnor. Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.[17]
[16](1993) 46 FCR 225.
[17]IbId 233.
Pia submitted that Norina’s claim against Pia, a claim that was rejected on the evidence, was made in wilful disregard of known facts and involved making allegations which ought never to have been made. There was no evidence to found an allegation that Pia knew or ought to have known that Norina had not given her consent to the execution of the terms of settlement, and Norina’s case asserted that Pia must have been aware solely because Norina was not physically present at the mediation.
Pia also submitted that Norina was on notice that the claim was without foundation by referring to two letters from Pia’s solicitor to Norina’s solicitor, both of which indicate Pia’s intention to seek indemnity costs if the application against her was pursued.
Norina submitted that, although Pia referred to a number of established categories of cases in which indemnity costs have been ordered, this case does not fall into any of those established categories. Norina’s knowledge of the mediation and the circumstances leading to the execution of the terms of settlement were minimal when the proceeding commenced, and the issue would necessarily need to be investigated, so it could not be said that Norina wilfully disregarded known facts.
Norina submitted that the two letters referred to by Pia are irrelevant to the question of indemnity costs. The first letter, dated 15 January 2014, simply asserts that Pia would be seeking an indemnity costs order without explaining why that would be the case. The second letter, dated 10 February 2014, asserts that the claim is without basis and has no prospects of success, and threatens an application for an indemnity costs order, without explaining why that is the case. Norina submitted that they contain only bald assertions written in terrorem and should be ignored.
I reject the submissions of Pia that the two letters referred to are relevant. It is unconstructive, and unhelpful to the resolution of disputes, when solicitors write threatening letters asserting an entitlement to costs without explaining their client’s position and the reasons for that assertion. Nothing contained in those letters put Norina on notice that the claim against Pia would fail.
I am not satisfied that this case falls into the established categories, nor am I satisfied that the particular circumstances warrant an indemnity costs order. The claim was not brought with ‘wilful disregard of known facts’, but rather it was a claim brought in the absence of known facts. Norina did not know and could not know what occurred at the mediation, and whether Pia had knowledge of Norina’s claim on the settlement sum sufficient to create a liability to return that payment. Ultimately, Norina failed to establish that Pia had that knowledge, and so lost the claim and will be liable to pay costs (subject to considering whether that order should be cast upon Rosa) but that is not a reason that costs should be on an indemnity basis.
Is Norina entitled to be indemnified for Pia’s costs?
A Bullock order,[18] or the similar but distinct order, a Sanderson order,[19] is an order that a plaintiff who has been unsuccessful against one defendant but successful against the other be entitled to be indemnified by the unsuccessful defendant for paying the costs of the successful defendant. To be entitled to a Bullock order, Norina must show that the suing of the successful defendant was reasonable, and the conduct of the unsuccessful defendant has been such as to make it fair to impose some liability on her for the costs of the successful defendant.[20]
[18]Bullock v London General Omnibus Company (1907) 1 KB 264.
[19]Sanderson v Blyth Theatre Company (1903) 2 KB 533.
[20]Steppke v National Capital Development Commission (1978) 21 ACTR 23, 30–31 cited with approval in Gould v Vaggelas (1985) 157 CLR 215, 230 (Gibbs CJ) and Roads and Traffic Authority of NSW v Dederer [2007] HCA 42 (30 August 2007) [180] (Kirby J).
Rosa submitted that Norina’s joinder of Pia was not reasonable. The only basis of the joinder of Pia was that she was the recipient of the settlement money, and Norina failed to assert any facts that would entitle her to repay the money as between Norina and Pia, on the basis of Barnes v Addy[21] liability or otherwise. Norina referred to the decision of Berrigan Shire Council v Ballerine,[22] where Nettle JA said:
In short an order will not ordinarily be made unless:
(a) the plaintiff’s claims against the two defendants are interdependent or essentially alternative claims; and
(b) it is reasonable for the plaintiff to have joined the successful defendant and the conduct of the unsuccessful defendant has been such as to make the order just.[23]
[21](1874) LR 9 Ch App 244.
[22](2006) VSCA 65 (23 March 2006).
[23]Ibid [41].
Rosa further submitted that in order to obtain a Bullock order, Norina ‘needs to show that Rosa in some way induced Norina to join Pia’. Rosa relied on Gould v Vaggelas,[24] where Gibbs CJ stated:
In my respectful opinion, however, the mere fact that the joinder of two defendants was reasonable does not mean that the unsuccessful defendant should be ordered to pay, directly or indirectly, the costs of the successful defendant. Obviously a judge should make a Bullock order only if he considers it just that the costs of the successful defendant should be borne by the unsuccessful defendant, and, if nothing that the unsuccessful defendant has said or done has led the plaintiff to sue the other defendant, who ultimately was held not to be liable, it is difficult to see any reason why the unsuccessful defendant should be required to pay for the plaintiff’s error or overcaution.[25]
[24](1985) 157 CLR 215.
[25]Ibid 230 (emphasis added).
I do not accept that the passage quoted establishes that a plaintiff must be ‘induced’ into suing the successful defendant by the unsuccessful defendant before a Bullock order will be available. The passage quoted says that if there is ‘nothing that the unsuccessful defendant has said or done’ that has led to Norina suing the successful defendant, then a Bullock order will not follow. That is consistent with the other authorities on this type of order, in that there the conduct of the unsuccessful defendant must be such as to make it fair to impose some liability on her for the costs of the successful defendant. Inducement is but one example of the type of conduct that would make such an order fair.
Norina submitted that it was appropriate in the circumstances that the proceeding be commenced against both the first and second defendants. Pia needed to be joined, it was said, because she was a party to the very terms of settlement to be impugned and would obviously wish to put argument on the issue of whether Rosa was entitled to execute them. The joinder was also necessary because the issues at trial included whether Rosa would be entitled to be indemnified from either Pia or the estate for her conduct, issues in which Pia had an inherent interest.
Norina’s primary submission was that the Court should make a Sanderson order that Rosa pay Pia’s costs. In the alternative, Norina submitted that, if the Court considers that Pia’s costs should be borne by Norina, then Norina should be entitled to a Bullock order to be indemnified for those costs in full against Rosa. However, the plaintiff urged that because this latter course would lead to the same result as the former course there is no point in adopting the latter course.
In my view, Rosa’s conduct is such that it is fair, in the circumstances, that the costs of Pia should be cast upon Rosa. As I found at trial, Rosa acted inappropriately in settling the claim without seeking Norina’s consent or a court order. Rosa failed to inform Norina of the circumstances of the mediation, and left Norina almost entirely in the dark as to how it was that a substantial portion of her entitlement under the will had passed to Pia. The real issues in dispute related to conduct that occurred between the two defendants, the detail of which Norina did not and could not know. If Rosa could escape liability, it would most likely be because recourse could be had to recapture the trust funds from Pia. In those circumstances, it was inevitable that Pia would be joined.
However, I consider that Norina acted reasonably only in pursuing the claim until 14 February 2014, and not thereafter. All of the affidavit material relied upon by each of the parties was filed at or prior to that date. That affidavit material was not sufficient to fix Pia with knowledge such that she would be liable to repay the settlement sum. Unless Norina sought to adduce further evidence (which she did not) or cross-examine the first and second defendants as to their evidence (which she did not), Norina could not establish a claim against Pia at trial. For that reason, I consider that Norina was not reasonable in pursuing the claim after that date, and the costs thereafter cannot be cast upon Rosa.
I note that Norina submitted that, because of the issues raised as to whether Rosa would be entitled to be indemnified from Pia, it was inevitable that Pia would be joined. I consider that submission, like those of Rosa, to be speculative. If Norina had discontinued her claim against Pia, it may well be that Rosa would have joined Pia, but that is not in fact what occurred and not a reason that Rosa should be fixed with Pia’s costs after the point at which it was no longer reasonable to pursue that claim.
Finally, I would not accept Norina’s urging that the order be in the form of a Sanderson order rather than a Bullock order. The usual order for costs is that costs follow the event, and I am not satisfied that the usual order should be departed from save as I have already indicated. It may, in the end, be of no consequence, but if that is the case then it should not be a concern.
The remaining orders
The parties agreed the following form of orders reflecting my earlier judgment, which I shall make:
1.The first defendant, in her personal capacity, pay to the estate of Giuseppe De Pasquale, deceased (‘the estate’), the sum of $250,000 (‘the said sum’).
2.The first defendant not be entitled to be indemnified from the estate in respect of the payment of the said sum.
The orders consequent upon my ruling contained herein are:
3.The first defendant:
(a)pay the plaintiff’s costs of and incidental to the proceeding on a standard basis, and
(b)not be entitled to be indemnified from the estate for that amount.
4.The plaintiff pay the second defendant’s costs of and incidental to the proceeding on a standard basis.
5.The first defendant:
(a)indemnify the plaintiff for payment of the second defendant’s costs of and incidental to the proceeding incurred up to and including 14 February 2014, but not thereafter, and
(b)not be entitled to be indemnified from the estate for that amount.
6.The proceeding be otherwise dismissed.
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