In the Estate Of John David Nash (No 3)

[2023] SASC 81

SUPREME COURT OF SOUTH AUSTRALIA

(Testamentary Causes Jurisdiction)

IN THE ESTATE OF JOHN DAVID NASH (No 3)

[2023] SASC 81

Judgment of the Honourable Justice Stanley  

24 May 2023

SUCCESSION - PROBATE AND LETTERS OF ADMINISTRATION - COSTS - WHERE LITIGATION CAUSED BY TESTATOR, EXECUTOR OR INTERESTED PERSONS

This is an application by the applicant for an order that the respondent pay her costs of proceedings on an indemnity basis.

The applicant successfully applied for an order passing over the respondent as executor of her late grandfather’s will. She submits that good reason exists to depart from the usual costs order that costs be paid on a party/party basis, and that an order that the respondent personally pay her costs on an indemnity basis should be made by reason of the dereliction of his duties as executor and his conduct in defending the proceedings.

The respondent submits that no costs order should be made against him, and that he was entitled to a Re Beddoe order.

Held:

The respondent is to pay the applicant’s costs of the proceedings seeking an order that he be passed over as executor of the deceased’s estate, to be agreed or taxed on an indemnity basis.

Administration and Probate Act 1919 (SA) s 69, referred to.
Fielder v Burgess [2014] SASC 98; Harrison v Nandicorp Pty Ltd [2021] FCA 1603; Holt v Bunney (No. 2) [2020] SASCFC 120; Macedonian Orthodox Community Church St Petka Inc. v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; Miller v Cameron (1936) 54 CLR 572; Moloney v Hayward & Ors (No. 2) [2023] SASC 36; National Trustees Executors and Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268; Nobarani v Mariconte (No. 2) [2018] HCA 49; O’Keeffe v Hayes Knight GTO Pty Ltd [2005] FCA 389; Pope v Pope & Ors [2001] SASC 26; Re Atkinson (Deceased) [1971] VR 612; Re Beddoe [1893] 1 Ch 547; Re IOOF Australia Trustees Ltd & The Trustee Act (1999) 205 LSJS 98; Re Molnar (No. 2) [2016] SASC 159; Re Ponikvar (No. 2) [2016] SASC 166; Roche v Roche (No. 2) [2017] SASC 75; Tschirn v Australian Executor Trustees Ltd [2016] SASC 149, considered.

IN THE ESTATE OF JOHN DAVID NASH (No 3)
[2023] SASC 81

Testamentary causes jurisdiction

STANLEY J:

Introduction

1. In this matter the applicant, Jade Sheree Bromilow, the principal beneficiary under the will of her late grandfather, John David Nash (Deceased), successfully applied for an order passing over the respondent as executor of the will.[1]  She now applies to the Court for an order that the respondent pay her costs of the proceedings on an indemnity basis. 

   [1] [2023] SASC 31.

   Submissions

2. The applicant submits that she is entitled to an order for costs on the usual basis that costs follow the event.[2]  The applicant submits that having succeeded in her application for an order passing over the respondent as executor of the deceased’s estate she is entitled to an order for costs in her favour.  In addition, the applicant seeks an order that the award of costs be on an indemnity basis paid personally by the respondent rather than from the estate.  She puts this submission on the basis that good reason exists to depart from the usual costs order that costs be paid on a party/party basis.  The applicant submits that an order that the respondent pay her costs on an indemnity basis should be made by reason of the dereliction of his duties as executor and his conduct in defending the proceedings. 

   [2]     Moloney v Hayward & Ors (No. 2) [2023] SASC 36 at [36].

3. This submission is founded on two matters.  First, the findings made by the Court that were central to making the order for passing over the respondent as executor.  Those findings were that the respondent failed to discharge properly his duties as executor by failing to pay estate debts resulting in loss and damage to the applicant as beneficiary, and by failing to properly address his conflict of interest which saw him prefer his own interests over his duties as executor, resulting in loss to the estate.  Second, is the delay and resulting additional costs she incurred due to the respondent’s conduct of the trial. 

   Principles applicable to costs

4. In determining the application for costs the Court is exercising a discretion.  As the authorities demonstrate, the discretion is unfettered except to the extent that it must be exercised judicially i.e., on grounds connected to the litigation.[3] 

   [3]     Holt v Bunney (No. 2) [2020] SASCFC 120 at [9].

5. For the reasons identified in a succession of decisions, parties to probate litigation can no longer expect that costs will automatically come out of the estate.[4] 

   [4]     Fielder v Burgess [2014] SASC 98; Re Ponikvar (No. 2) [2016] SASC 166; Re Molnar (No. 2) [2016] SASC 159; Roche v Roche (No. 2) [2017] SASC 75.

   Consideration

6. In this case I am satisfied that the order sought should be made and the respondent should pay the applicant’s costs on an indemnity basis. 

7. In my view the crucial consideration in this matter is that, absent the making of such a costs order, the applicant’s costs can only be met either from her own pocket or out of the estate.  In either case her interests will be adversely affected in circumstances where the need for the application she successfully sought lies not in her fault, but the fault of the respondent.  It is his default in the execution of his executorial duties that has caused loss and damage to the estate for the reasons set out in the principal judgment.[5] 

   [5] [2023] SASC 31.

8. In addition, the respondent’s conduct of the proceedings occasioned delay and incurred further legal costs.  That conduct relevantly was the failure to subpoena witnesses in advance of the trial who he wished to call to give evidence, namely, Mr Barnwell and Ms Jaggard from the Corporation of the City of Marion (the Marion Council), and an application to adduce further evidence by way of an audio recording of discussions between the respondent and those officers of the Marion Council.  His conduct in relation to both of these matters resulted in adjournments of the proceedings and further costs.  In respect of the foreshadowed application to adduce evidence of audio recordings, when the matter resumed hearing, the respondent abandoned the foreshadowed application.  The applicant’s counsel submits that additional costs were incurred by her client in preparing for this application.  I accept that was so.

9. I find that the trial was unduly prolonged and the costs incurred by the applicant unnecessarily increased as a result of the respondent’s conduct in defending the proceedings. 

10. In these circumstances it would be unfair and contrary to principle for the applicant to be burdened with paying her own costs or having the estate, of which she is the principal beneficiary, burdened with a costs order which will ultimately reduce her inheritance. 

11. The respondent submits that I should not make any costs order against him.  He submits that he was entitled to a Re Beddoe order.[6]  I do not accept that submission.  In part it involves a misunderstanding on the part of the respondent in relation to two matters.   

    [6] [1893] 1 Ch 547; Re Atkinson (Deceased) [1971] VR 612 at 616; Re IOOF Australia Trustees Ltd & The Trustee Act (1999) 205 LSJS 98 at 99 per Debelle J.

12. He submits he sought such an order pre-trial but his application was ignored by me.  I take the respondent to mean that in advance of the trial, he sought an order that he should be reimbursed his costs and those of the applicant from the estate, if there be an adverse order, whatever the outcome of the litigation.  The respondent is mistaken in suggesting I did not deal with the application for a Re Beddoe order. 

13. On 23 February 2022, before the trial commenced, the applicant filed an affidavit in the proceedings.  It sought a suite of orders, including that the application to pass over him as executor be dismissed and that he be personally indemnified by the estate for all and any costs whatsoever.  That latter order embraced not only these proceedings but other proceedings between himself and the Marion Council. 

14. On 1 March 2022 the respondent sought a number of those orders set out in his affidavit of 23 February 2022.  At that stage a mediation of the proceedings was pending.  I refused to make the order sought for indemnification by the estate of the respondent’s costs[7] on the basis that, if the matter did not resolve at mediation, I could not decide whether the respondent was entitled to indemnification in respect of any costs order made against him on the application to pass over him as executor, because that application necessarily concerned an attack on his conduct as executor.  It would have been inappropriate to have granted the relief he sought in respect of costs until it became clear whether there was any basis for a finding of default on his part which justified the bringing of the application for passing over. 

    [7]     T 6.16-19 1 March 2022.

15. The statutory basis for the making of such an order is found in s 69 of the Administration and Probate Act 1919 (SA) (the Act). Integral to the making of a Re Beddoe order is advice and direction by the Court that it is appropriate for an executor, administrator or trustee to take proceedings or to defend proceedings.  

16. The Court’s power to give executors and trustees advice and direction in the administration of an estate or trust was considered by the High Court in Macedonian Orthodox Community Church St Petka Inc. v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand.[8]   

    [8] (2008) 237 CLR 66.

17. In making such an application an executor, administrator or trustee must put all of the facts in respect of the litigation to the Court, and it is advisable to submit counsel’s opinion on the merits of the proposed action or defence.  Beneficiaries of the estate are joined as parties to the application and can be heard in respect of it.  A court is not bound to investigate the evidence before it in order to make a finding as to whether the proceedings will be successful or otherwise.[9]  The Court has merely to determine whether the proceedings should be taken or defended.  However, the Court should investigate the matter sufficiently to determine whether the proceedings or their defence would be fruitless.[10] 

    [9]     Re Atkinson (Deceased) [1971] VR 612 at 616.

    [10]   Re Atkinson (Deceased) [1971] VR 612 at 616.

18. The principles applicable to the making of a ReBeddoe order were considered by Doyle J in Tschirn v Australian Executor Trustees Ltd[11] where he said that the role of the Court, in determining what judicial advice should be given in the best interests of the estate, is not to undertake an investigation of the evidence with a view to determining whether the proceedings will succeed, or otherwise to make any fine or detailed assessment of the merits.  However, it is appropriate that the matter should be sufficiently investigated to determine whether or not the proceedings [or their defence] would be fruitless.  In that respect there are a number of relevant considerations in determining whether to give the judicial advice sought by an executor or trustee.  They include matters which fall under the headings of the merits of the proceedings; the nature of the proceedings; the likely cost of the proceedings; the likely benefit and burden of the proceedings; and the alternative options open to an executor or trustee and the residuary beneficiaries standing to benefit from the proceedings.[12]  If the executor or trustee fails to obtain the advice of the Court the executor or trustee is at risk of being personally liable to pay the costs.[13] 

    [11] [2016] SASC 149 at [61]-[62].

    [12] [2016] SASC 149 at [73].

    [13]   Re IOOF Australia Trustees Ltd & The Trustee Act (1999) 205 LSJS 98 at 99.

19. In this case it is abundantly clear from the findings I have made that a Re Beddoe order should not have been made in favour of the respondent, for the reasons set out in the principal judgment, either in March 2022 or at any time prior to trial. The respondent’s conduct in this matter involved preferring his own interests over his duty as executor properly to administer the estate. He failed to pay estate debts. In doing so he acted in breach of his duty as executor. As a result, he reduced the value of the estate. He did so without ever applying to the Court pursuant to s 69 of the Act for advice and direction.

20. In March 2022 the Court was not in a position to decide the respondent’s application in circumstances where there was no application pursuant to s 69 of the Act for advice and direction, counsel’s opinion had not been obtained and an investigation had not been conducted sufficient to determine whether or not the application to pass over, or the defence of that application, would be fruitless.

21. It is now apparent that the very reasons which justified the Court making an order passing him over as executor justified refusing to make a Re Beddoe order in the respondent’s favour. 

22. The application for a Re Beddoe order was not renewed subsequent to the mediation or the commencement of the trial on 5 October 2022.

23. In now seeking a Re Beddoe order, the respondent misunderstands the nature and basis for such an order.  A Re Beddoe order is sought in anticipation of costs to be incurred by an executor or trustee in the administration of the estate, and especially in prosecuting or defending litigation involving the estate or trust.  It is pre-emptive and protective.  It protects the executor or trustee from an adverse costs order at the conclusion of the proceedings or the administration of the estate or trust.  It protects the beneficiaries from the risk of an executor or trustee failing to act in the interests of the administration of the estate or trust due to the risk that in doing so the executor or trustee will later be exposed to an adverse personal costs order.  Accordingly, a Re Beddoe order will not be made after the event. 

24. However, the inappropriateness of seeking a Re Beddoe order at this time does not mean that the respondent is not entitled to an order that he should be indemnified out of the estate in respect of any costs order.  In Nobarani v Mariconte (No. 2)[14] the High Court said that the general rule concerning executors, like that concerning trustees, is that costs properly and reasonably incurred by the executor in connection with the administration of an estate are payable from the estate.  These costs can include litigation expenses.  Relevantly, an example of recoverable litigation expenses is where an executor is unsuccessful in reasonably defending an action brought by legatees.[15] 

    [14] [2018] HCA 49 at [2].

    [15]   National Trustees Executors and Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268 at 274, 277 and 279.

25. I treat the application the respondent made for a Re Beddoe order as amounting to an application for an order that he be indemnified out of the estate for any costs order the Court makes in favour of the applicant.  The issue is whether he is entitled to such an order.  In my view he is not. 

26. In Pope v Pope & Ors[16] Bleby J, with whom Doyle CJ and Duggan J agreed, considered the principles relevant to making such an order on an appeal from a Judge of this Court who ordered costs personally against a trustee who was found to have acted in breach of duty as trustee.  Bleby J recognised the existence of a trustee’s usual right to indemnity out of the trust estate in most cases where the trustee is acting in the administration of the estate, particularly in taking or defending legal proceedings for the protection of the trust estate.  However, Bleby J, applying the High Court’s reasoning in Miller v Cameron,[17] said that the indemnity only applies where the trustee has not acted unreasonably or improperly.  A trustee’s entitlement to indemnity for costs depends very much on the conduct of the trustee. 

    [16] [2001] SASC 26.

    [17] (1936) 54 CLR 572.

27. In Miller v Cameron[18] a trustee was removed by the Court in the exercise of its discretion where he was found to have acted in his own interests rather than the interests of the beneficiaries of the trust.  Latham CJ rejected the submission that in the absence of evidence of misconduct of the trustee, the trustee was entitled to have his costs paid out of the trust estate.  Latham CJ said that as a rule, a trustee is allowed his costs out of the trust estate if his conduct has been honest, even if it may have been mistaken.  In the ordinary case, a trustee brings or contests legal proceedings on behalf of the trust and not on his own behalf.  He is often a necessary party to proceedings where he ought to be present even though he may do no more than submit to the judgment of the Court.  But even in the absence of misconduct, the Court, in exercising its discretion as to costs, can refuse to make an order indemnifying the trustee where the trustee prosecutes or defends an action in his own interests and not those of the trust estate.  Latham CJ held that in a case where the trustee has failed to demonstrate that his interests coincide with the interests of the trust estate it is quite proper that he should not only be denied an indemnity from the trust estate for his costs but that he should pay the costs of those who had to take action because of his failure to protect their interests.[19]  See also Harrison v Nandicorp Pty Ltd[20] and O’Keeffe v Hayes Knight GTO Pty Ltd.[21]

    [18] (1936) 54 CLR 572.

    [19]   Miller v Cameron (1936) 54 CLR 572 at 578-579.

    [20] [2021] FCA 1603 at [22]-[33].

    [21] [2005] FCA 389 at [9]-[17].

28. For the same reasons that I declined to make a Re Beddoe order, I refuse to order that the respondent be indemnified out of the estate for the order that he pay the applicant’s costs of the proceedings on an indemnity basis.  The respondent has not acted reasonably.  He has preferred his own interests over those of the applicant.  As set out in the principal judgment his conduct in the performance of his executorial duties caused loss and damage to the estate, and his conduct of the proceedings occasioned delay and further legal costs.  For these reasons he is disentitled from the usual order for indemnification from the estate. 

29. Finally, I should add that, unsurprisingly, the respondent has made no application for an order for costs in his favour. 

    Conclusion

30. I would order that the respondent pay the applicant’s costs of the proceedings seeking an order that he be passed over as executor of the deceased’s estate, to be agreed or taxed on an indemnity basis.