Jackson v James
[2023] VSC 100
•6 March 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2021 04110
| CHRISTOPHER GERARD JACKSON (who sues as the executor of the Will and Estate of Felicity Irene Beale) | Plaintiff |
| v | |
| JENNIFER SUSAN JAMES and DAVID JOHN JAMES (who are sued as Trustees of the Jennifer James Testamentary Trust, and personally) | Defendants |
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JUDGE: | Moore J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | Written submissions filed on 25 and 31 January 2023 |
DATE OF JUDGMENT: | 6 March 2023 |
CASE MAY BE CITED AS: | Jackson v James & Anor |
MEDIUM NEUTRAL CITATION: | [2023] VSC 100 |
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COSTS – Executors and trustees – Indemnification – Where executor sought passing of administration account – Whether executor’s costs should be paid out of estate – Where no determination on the merits – Supreme Court Act 1986, s 24 – Trustee Act 1958, s 36 – Supreme Court (General Civil Procedure) Rules 2015, r 63.26 – Wales v Wales [2015] VSCA 345.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Kathy Wilson Legal | |
| For the Defendants | Gadens |
HIS HONOUR:
Background
On 19 August 2016, Felicity Irene Beale (the deceased) passed away, leaving a will dated 31 July 2016 (the will) and a codicil dated 7 August 2016. She was survived by her husband, Julian Beale, and her daughters Deborah Beale and Jennifer James.
The deceased’s will appointed the partner of one of her daughters, Christopher Jackson (the plaintiff), the husband of her other daughter, David James (the second defendant) and her accountant, Peter Clark, as executors.
The deceased’s will contained provisions directing that, following the payments of debts, expenses and specific gifts, and the establishment of a testamentary trust for the deceased’s husband, the residuary estate be divided as follows:
(a) As to 50%, to establish the Deborah Beale Testamentary Trust, of which her daughter Deborah Beale is the primary beneficiary and appointor, and the plaintiff and Deborah Beale are the trustees; and
(b) As to 50%, to establish the Jennifer James Testamentary Trust, of which her daughter Jennifer James (the first defendant) is the primary beneficiary and appointor, and the first and second defendants are trustees.
On 17 October 2016, the plaintiff obtained a Grant of Probate, with leave reserved to the second defendant and Mr Clark.
The inventory of assets and liabilities filed with the plaintiff’s application for probate listed the gross value of the estate at approximately $8,266,000, comprised of bank accounts, shares, jewellery, motor vehicles, traveller’s cheques, and a sliver of vacant land in Slovenia, with liabilities of approximately $20,000.
During the course of the administration, the defendants raised numerous issues concerning the administration of the estate by the plaintiff, predominantly relating to the production of documents in relation to or containing a perceived connection with the estate. Much of this correspondence has been exhibited to affidavits filed in this proceeding.[1]
[1]Examples of the documents requested by the defendants include any documents demonstrating the whereabouts of a mobile phone owned by the deceased, an accounting of every item collected from the deceased’s post office box, an inventory of any papers destroyed by the plaintiff since the deceased’s death, copies of historical credit card statements of the deceased, copies of cheque stubs, correspondence with the National Australia Bank regarding a non-existent safety deposit box, copies of home insurance policies, copies of bank statements showing the payment of phone bills, correspondence between the deceased and her superannuation fund, any texts or social media messages sent by the deceased, copies of the deceased’s medical records, any draft or executed Power of Attorney documents, correspondence between the deceased and third parties, any information pertaining to the deceased’s binding death benefit nomination and any codicil, draft codicil or document created in relation to its preparation.
The plaintiff engaged accountants to prepare a formal administration account. An administration account was forwarded in draft form to the defendants on or about 24 September 2019.
The administration account was the subject of a significant amount of further correspondence concerning disputed items in the account and their respective values, as well as the provision of further information to the defendants.
On or about March 2021, the defendants engaged lawyers, who reiterated the defendants’ requests for any and all documents pertaining to the estate, and the deceased’s affairs prior to her death, as well as the defendants’ disagreement with the administration account.
On 4 November 2021, the plaintiff issued this proceeding seeking that, pursuant to s 28 of the Administration and Probate Act 1958 and r 6.03 of the Supreme Court (Administration and Probate) Rules 2014, the Court pass his accounts of his administration of the estate.
By minute of consent dated 3 November 2022, the parties agreed to the Court making an order that the plaintiff’s administration account be passed, and providing for a timetable for any application as to costs. Orders to that effect were made on 4 November 2022.
On 9 December 2022, the plaintiff filed a document titled ‘application in relation to costs’, seeking orders that:
(a) the plaintiff’s costs be borne by the estate, in accordance with the standard scale; and
(b) the defendants’ costs be borne by them personally.
By response filed on 20 January 2023, the defendants deny that the plaintiff’s document referred to in paragraph [12] above constitutes an application, and in any event, oppose any such application.
The plaintiff then filed submissions on 25 January 2023 and the defendants filed submissions on 31 January 2023, clarifying their position that they did not seek their own costs, but objected to the plaintiff’s being paid from the estate.
Accordingly, the only remaining controversy before the Court is whether the plaintiff ought to pay his own costs or be indemnified from the estate.
Plaintiff’s submissions
The plaintiff submitted that he is entitled to the relief sought as he has ‘succeeded’ in his application that the Court pass the plaintiff’s accounts of his administration of the estate.
The application commenced by the plaintiff was necessitated by the defendants repeated and ‘never-ending’ inquiries, notwithstanding the plaintiff’s responsiveness and provision of documents throughout the administration. In the plaintiff’s submissions, he notes his assistance and documentation provided in answering the defendants’ questions, including a draft final administration account that was prepared and sent to the defendants on 24 September 2019.
In April 2021, the plaintiff through his solicitors informed the solicitors for the defendants that their 3 March 2021 letter would be treated as ‘final, definitive and comprehensive’ and that ‘any further requests for information would be dismissed’. The plaintiff also provided a box of documents to the defendants on 15 July 2021.
The plaintiff noted that, despite these communications, several insignificant matters remained the subject of continuing correspondence between the parties.
On 4 November 2021, the plaintiff issued this proceeding to achieve finality and be relieved of his duty to continue answering the defendants’ requests for information.
A final administration account up to 28 February 2022 was then prepared by the plaintiff. The verifying affidavit and supporting documents was 469 pages long. It was said by the plaintiff that this final administration account contained no additional substantive information that had not been previously supplied to the defendants.
The consent orders made some nine months after the final administration account made the following ‘insignificant’ adjustments, at the request of the defendants:
(a) amending the reference in the accounts to the testamentary trusts rather than the individuals;
(b) amending the date of the ASIC transfer of 1 share to each testamentary trust by 25 days to the date signed rather than the date processed by ASIC;
(c) amending the value of the in specie transfer of Aznanob shares[2] (an adjustment that was noted by the plaintiff to have ‘zero net impact on the value of the estate distribution’);
[2]Being shares held in Aznanob Pty Ltd (‘Azanob’).
(d) removal of the word ‘surgery’ describing a payment from the deceased to the first defendant in the days prior to her death;
(e) removal of the word ‘final’ in relation to Aznanob repaying a loan to the deceased’s estate (which was, according to the plaintiff, indeed final); and
(f) requesting that a few chattels, which were valued by the first defendant at approximately $6,000, be included in the estate.
The consent orders made on 4 November 2022 therefore provided finality to what had become an unnecessarily onerous task for the plaintiff in his administration of the estate over the preceding six years, a task that had been drawn out by the defendants to no substantive end.
Defendants’ submissions
The defendants submitted that the plaintiff ought bear his own costs of the application as there had not been any determination on the merits of the issues and, accordingly, the appropriate order was that each party bear its own costs unless there are special circumstances.[3] It was submitted that there are no special circumstances which warrant a departure from this usual position.
[3]Gribbles Pathology Pty Ltd v Heath Insurance Commission (1997) 80 FCR 284.
The defendants further submitted that the conduct of the parties in the litigation, detailed below, was such that no order for costs should be made in favour of the plaintiff.
In the first instance, the plaintiff did not provide the defendants with an opportunity to consider the accounts prior to issuing the proceeding and did not put the defendants on notice that, unless agreement was reached in relation to the accounts, the proceeding would issue.
The defendants noted that they had notified the plaintiff in writing on 30 June 2022 that they would agree to the passing of the administration accounts, subject to the following conditions:
a. That there be no order for costs made against [the defendants];
b.That item 25 of the Administration Accounts labelled “Aznanob Pty Ltd – final loan repayment” be relabelled as “Aznanob Pty Ltd – Loan Repayment”;
c.That item 26 of the Administration Account labelled “Jennifer James – gift for surgery” be relabelled “Gift to Jennifer James”; and
d.That the chattels belonging to Felicity Beale but not included in the Administration Account … be included in the Administration Accounts and otherwise distributed.
The letter also reserved the defendants’ right to ‘object to your client seeking indemnity for his legal costs from the estate’, and requested the plaintiff inform the defendants of his costs ‘so that [the defendants] can consider whether formal application is warranted in that regard’.
The defendants submitted that, by sending the abovementioned letter, they had expressed their consent to orders sought by the plaintiff subject to three amendments to the accounts and noted their disagreement with the assertions made by the plaintiff, but elected to not contest those issues to avoid additional expenses and delay.
The plaintiff did not respond to the defendants’ 30 June 2022 letter.
Following a directions hearing on 30 September 2022, the Court made orders which, inter alia, noted that the plaintiff had agreed to the request in [27](c) above to amend the administration account without any acceptance that the initial description was inaccurate. The plaintiff was ordered to respond to the requests in [27](b) and (d) above. The plaintiff ultimately agreed to those requests. The defendants submitted that each of the requests made by the defendants in the 30 June 2022 letter, bar for the request that the proceeding be resolved on the basis that ‘there be no order as to costs’, was ultimately agreed to by the plaintiff.
The defendants also drew attention to the fact that the parties had scheduled a mediation on 13 September 2022. Without prior warning, on 12 September 2022, the plaintiff informed the defendants that he would not participate in the mediation and did not respond to the defendants’ communication seeking to reschedule the mediation.
On 18 January 2023, prior to the defendants filing a response to the plaintiff’s application, the defendants emailed the plaintiff seeking an indication as to the amount of costs sought. The plaintiff did not respond to this email.
The defendants submitted that, for the above reasons relating to the conduct of the parties, the plaintiff ought bear his own costs of the proceeding, without recourse to the estate.
Lastly, the defendants noted that any order that the plaintiff’s costs of the litigation be paid out of the estate would be paid for, in part, by the first defendant as she (along with the plaintiff’s life partner) is a primary beneficiary of the estate.
Consideration
I reject the defendants’ submission that the document filed by the plaintiffs titled ‘application in relation to costs’ is not in fact an application. On 3 November 2022, the parties agreed on a timetable for submissions in relation to any application for costs which might be made. Having agreed to that course, there was no requirement on either party to file a summons if they wished to apply for costs. The usual procedure in the Trusts Equity and Probate List is that applications for costs are either made orally at the conclusion of a hearing, or through an exchange of submissions as occurred in this case. The qualification at the end of r 46.02(1) of the Supreme Court (General Civil Procedure) Rules 2015, ‘unless the Court otherwise orders’, makes clear that the requirement that an application on notice be by summons is not absolute. By its orders made on 4 November 2022 with the consent of the parties, the Court otherwise ordered by setting out a timetable for either party to seek their costs and for the exchange of submissions. The making of this claim by the defendants is inconsistent with the overarching obligations upon them (and their solicitors) to narrow the scope of issues in dispute in the proceeding and to cooperate in the conduct of the proceeding.[4]
[4]Civil Procedure Act 2010 ss 20 and 23.
Both parties submitted that their position in relation to the plaintiff’s costs was the ‘usual position’. That is, the plaintiff contended that the usual position is for an executor’s costs to be paid from the estate;[5] the defendant contended that the usual position is for the parties to bear their own costs where a decision on the merits has not been required,[6] and that accordingly, the plaintiff should bear his own costs without recourse to the estate.
[5]The plaintiff contended further that he had a achieved a victory in substance, despite no decision having being made on the merits. This being the case, he did not seek an order that the defendants pay his costs.
[6]Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284.
Although s 24 of the Supreme Court Act 1986 gives the Court a broad discretion as to the awarding of costs, such discretion is to be exercised with regard to the operation of Order 63 of the Supreme Court (General Civil Procedure Rules) 2015.
Rule 63.26 of the Rules establishes the ‘usual position’ for the purposes of litigation in which one or more parties is sued in their representative capacity as trustee or mortgagee. In such circumstances, that rule provides for the trustee to be entitled to the costs of the proceeding out of the funds held by them, insofar as the costs are not paid by any other person.
This position is echoed in s 36(2) of the Trustee Act 1958, which provides that:
A trustee may reimburse himself or pay or discharge out of the trust premises all expenses incurred in or about the execution of the trusts or powers.
As noted by the Court of Appeal in Wales v Wales,[7] this general entitlement is fettered by the proviso that a trustee’s right of indemnity ‘is confined to expenses properly incurred’. The general entitlement does not extend to expenses incurred ‘when acting beyond power, in bad faith or without the care and diligence of a person of ordinary prudence’.[8] Notably, their Honours stated that:[9]
In deciding this question, the onus rests on the party seeking to deny the right to indemnity to show that the costs were improperly incurred.
[7]Wales v Wales [2015] VSCA 345.
[8]Ibid [41].
[9]Ibid [42].
Although the defendants raised matters which they say militate against a costs order in the plaintiff’s favour, none of those matters lead to a conclusion that the plaintiff’s costs were improperly incurred.
The defendants contended that the plaintiff issued proceedings without putting them properly on notice that proceedings would be issued if consent to their administration account was not forthcoming, and that the administration account sought to be approved by the Court was not produced until approximately 28 February 2022. I reject this characterisation of the course of litigation insofar as it suggests that the defendants were not on notice of the substance or gravity of the dispute. The plaintiff had provided an administration account as early as September 2019; the defendants did not need to wait until proceedings were formally issued in order to consider their position.
The defendants submitted that their letter dated 30 June 2022 contained demands, all of which were eventually ‘conceded’ by the plaintiff, save that ‘there be no order as to costs’.[10] This submission is misleading. The costs position proposed by the defendants in their 30 June 2022 letter was not that there be ‘no order as to costs’. Paragraph 8(a) of that letter provided:
‘that there be no order for costs are [sic] made against our client’[11]
and at paragraph 10:
‘our clients reserve their right to object to your client seeking indemnity for his legal costs from the estate’.
[10]I note that the letter was not expressed to be sent pursuant to the principles in Calderbank v Calderbank [1976] Fam 93, [1975] 3 All ER 333 (EWCA).
[11]My emphasis.
As outlined in paragraphs [38] – [41] above, except insofar as any costs were improperly incurred, the plaintiff would have had a reasonable expectation of a trustee’s indemnity. The position put in the letter dated 30 June 2022 was inconsistent with this principle. The defendants’ position on costs only provided only for their costs and uncertainty for the plaintiff. The plaintiff’s failure to capitulate upon receiving the letter dated 30 June 2022 was not unreasonable.
Further to the above, the defendants’ conduct referred to in paragraphs [6] – [9] add context to the plaintiff’s decision to issue proceedings to bring finality to the administration of the estate. The issuing of proceedings was not rash, but calculated to save time and expense for the estate in the context of repeated demands for information and disputation by the defendants and their lawyers.
Accordingly, I do not consider that the defendant has demonstrated that the plaintiff’s costs were improperly incurred, nor any other sufficient reason for the Court to depart from the usual rule in permitting a trustee an indemnity from trust assets.
The plaintiff submits that the estate should not bear the defendants’ costs and the defendants do not seek for their costs to be borne by the estate. Accordingly, it is appropriate that the defendants bear their own costs.
In the circumstances, I will order that the plaintiff be indemnified out of the estate of the late Felicity Irene Beale in respect of his properly incurred costs. I will make no order as to the defendants’ costs.
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