JPD as Guardian v DMS as Trustee (No 2)
[2022] QSC 215
•2 September 2022
SUPREME COURT OF QUEENSLAND
CITATION:
JPD as Guardian v DMS as Trustee (No 2) [2022] QSC 215
PARTIES:
REDACTED
FILE NO/S: 161 of 2022
211 of 2022
DIVISION:
Trial
PROCEEDING:
Application
ORIGINATING COURT: Supreme Court of Queensland at Cairns
DELIVERED EX-TEMPORE ON:
2 September 2022
DELIVERED AT:
Cairns
HEARING DATES:
2 September 2022
JUDGE:
Henry J
ORDERS:
1. In matter 161 of 2022, the new trustee, Ms Bennett, will pay each party’s costs from trust assets, such costs to be assessed on an indemnity basis if not agreed.
2. In matter 211 of 2022, the new trustee, Ms Bennett, will pay each party’s costs from trust assets, such costs to be assessed on an indemnity basis if not agreed.
CATCHWORDS:
PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – COSTS OUT OF FUND OR PROPERTY – BASIS ON WHICH COSTS ORDERED – TRUSTEE PERSONAL REPRESENTATIVE – GENERALLY – where orders were made granting the application for the litigation guardian for removal of the trustee – where a cross application of the trustee against the children was summarily dismissed – where argument for costs was later heard – where the father argues the trustee should not be paid costs out of the estate – where misconduct of the trustee was not found – whether the general rule that the trustee is allowed costs out of the estate should not be followed
Uniform Civil Procedure Rules (Qld) r 700
Cardaci v Filippo Primo Cardaci (as executor(s) of estate of Marco Antonio Cardaci [No 5]) (2021) WASC 331 (S), distinguished
Miller v Cameron (1936) 54 CLR 572, followed
Wareham & Anor v Marsella [2020] VSCA 118, citedCOUNSEL: C Ryall with J Seccull for the applicant in matter 161/22 and for the respondents in matter 211/22
D de Jersey KC for the respondents in matter 161/22 and for the applicants in matter 211/22
SOLICITORS: The Will and All for the applicant in matter 161/22 and for the respondents in matter 211/22
MacDonnells Law for the respondents in matter 161/22 and for the applicants in matter 211/22
HENRY J: On 30 August I made orders in matter 161 of 2022 granting an application by the litigation guardian, who is the father of the child beneficiaries of trusts, removing the trustee of those trusts as trustee thereof and as executor of the estate of the settlor of those trusts, the children’s mother. Further, in matter 211 of 2022 I dismissed a cross application of the trustee against the children in which the father appeared for them as litigation guardian. I reserved argument on and consideration of costs until today when the matter returned before me and I heard argument.
It is common ground costs should follow the event in both applications so far as the father’s position is concerned. Further, in circumstances where the father appeared in both applications in a representative capacity for the child beneficiaries of the trusts, it is uncontroversial his costs should be on the indemnity basis.
The real issue joined between the parties is whether the trustee should be indemnified from trust assets, both for the costs payable to the father and for her own costs. If so, the parties are agreed an uncomplicated form of order in each matter would simply be to order that the new trustee pay each party’s costs, to be assessed on the indemnity basis if not agreed, from trust assets.
The father argues against such an outcome, urging the conclusion the trustee should bear costs personally. I approach consideration of that argument conscious, as the father emphasises, that an outcome in which trust assets will bear the costs will inevitably result in the diminution of assets held for the benefit of the children. I am likewise conscious, as the trustee argued, that the very conduct provoking the applications was informed by the trustee’s goal of increasing the value of those assets, something she had unquestionably done in her unpaid time as trustee. In the end result, I consider those considerations are of neutral relevance.
Background considerations which do tend to relevantly inform determination of the issue at hand are that this is not a case of financial maladministration or of dishonesty. Further, while my reasons in the application were critical of a dual pattern of trustee conduct and its adverse impact upon her ability to discharge her obligation to administer the trusts for the children’s benefit, I did not expressly conclude she had engaged in misconduct. Rather, I regarded the trustee as uninsightful of her shortcomings in so conducting herself and as perceiving herself as engaged in a righteous pursuit of the mother’s wishes.
That she found herself in that pursuit was a direct result of her appointment by the mother and, what is more, the mother’s indication to her of the mother’s wishes regarding the future administration and management of her assets which, of course, became trust assets, as the mother knew would occur. In such circumstances, the trustee’s resistance to the application to remove her both as trustee and executor can scarcely be regarded as an unreasonable course or as a course which she, rather than the estate, ought bear the costs of.
As to her cross-application, while it was misconceived, it was misconceived for a legal reason and in the context of her being legally represented. It cannot be described as a product of unreasonableness by her. The Brisbane refusal, referred to in my reasons given earlier this week, occurred in the context of exchanges of solicitors’ correspondence so that it was not per se an unreasonable step to perceive that she ought pursue some form of sanction from the Court about the propriety of her conduct.
It is to be borne in mind costs are not designed to punish. It is also relevant that the father’s approach to the cross-application was to sit back and not write to the trustee indicating why the cross-appeal was misconceived and doomed to fail and should be discontinued prior to the listed hearing. I do not criticise him for not doing so. There were likely sound forensic reasons for not doing so. However, his effective acquiescence to various orders made in the course of case management of this matter advancing both applications to simultaneous hearing mark this matter apart from a case in which an applicant forges unreasonably ahead with an application her opponent had forewarned her was doomed to fail.
I note exhibit 5 shows the father offered on 10 June that if the trustee conceded his application and discontinued hers, he would not pursue his costs from her and consent to her being indemnified for her costs from the trust. However, that Calderbank offer does not carry the same degree of significance as it would if I were dealing with applications in which the trustee was acting in her own right, as distinct from in a representative capacity. Where a trustee incurs costs in that capacity, Latham CJ observed in Miller v Cameron (1936) 54 CLR 572 at 578:
“Certainly, 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.”
There may, of course, be exceptions to that rule. In Miller v Cameron, Latham CJ identified misconduct in the management of the trust estate as such an exception, but the present case is not one in that category. Nor, for that matter, was Miller v Cameron, yet there the trustee defendant was nonetheless required to pay the plaintiff’s costs. But that outcome was prompted by the exceptional circumstance that the trustee’s financial misuse of moneys of another party marked him as so obviously unsuitable to be entrusted with continuing control of the beneficiary’s moneys that the Court considered, if acting properly, he should have resigned when asked to do so.
The present matter is quite different. I am quite unable to conclude, as the Court could in Miller v Cameron, that the trustee’s continuation in, rather than concession of the proceedings, was in support of her personal interests rather than those of the trust estate. The trustee’s resistance to the primary application was entirely consistent with her wanting to pursue the status quo, namely her continuation as a settlor appointed trustee, in circumstances where she continued to believe she had pursued that settlor’s wishes for the administration of the trust estate. She did not engage in some external conduct marking her as no longer trustworthy for the role, either.
As to the cross-application, to the extent it was brought to seek a degree of Court sanction of her conduct, that was where it was responsive, as I have explained, to a context of the solicitors’ exchange of correspondence foreshadowing a likely contest and, in any event, was directly connected with the aforementioned pursuit of the settlor’s wishes in her capacity as trustee.
The father’s counsel relied upon Cardaci v Filippo Primo Cardaci (as executor(s) of estate of Marco Antonio Cardaci [No 5]) (2021) WASC 331 (S), a decision of Le Miere J, particularly his Honour’s observation at [14]:
“As a general rule, a trustee who resists removal but whose removal is subsequently ordered by the court will not be entitled to indemnity from the trust.”
I would not follow that observation here. I note it was not supported by cited authority. Importantly though, in fairness to his Honour, it was preceded by an extensive analysis of texts and authorities, and I would regard that analysis as heavily qualifying what his Honour meant by the comment I have quoted. The earlier referenced text and authorities identified certain kind of cases to which his Honour’s observation would apply. For example, if:
• “…a trustee is removed on the ground of misconduct”;
• if the costs were “improperly incurred”;
• if the trustee “…has, in the litigation, acted unreasonably or for his own benefit rather than for that of the trust”;
• if the trustee has acted “…in breach of trust”.
The trustee’s conduct here cannot fairly be categorised as having any such qualities. No basis has been shown why the relevant normal rule in Miller v Cameron, quoted earlier ought not apply.
There are two remaining considerations informing that conclusion. The first is rule 700 Uniform Civil Procedure Rules which provides:
“(1) This rule applies to a party who sues or is sued as a trustee.
(2)Unless the Court orders otherwise, the party is entitled to have costs of the proceeding, that are not paid by someone else, paid out of the fund held by the trustee.”
Of course, that describes no more than the default starting position favouring the trustee’s position here. But it is certainly consistent with approaching this issue with due deference to the fact the trustee has litigated in her capacity as trustee.
The second remaining consideration is that various content within the trusts’ deeds either require or at least favour the conclusion that the trust assets should indemnify the trustee for her losses. By way of example, these include clause 7 of the will which provides, so long as the executors, trustees act honestly, they are not liable for loss and are “…entitled to be indemnified out of my estate for any loss incurred by my trustees in the exercise or purported exercise of my trustee’s powers”.
The testamentary trust deed annexed to the will also contains in [11.2]:
“No trustee shall be liable for any breach of trust howsoever occurring except to the extent (if any) that such breach results from its own wilful default or wilful neglect.”
Thirdly, by way of example, schedule 2 to the deed of trust dealing with trustee powers contains at [13.1]:
“GENERAL LIMITATION OF LIABILITY
No trustee is liable for any losses other than those attributable to his own dishonesty or the wilful commission of any act known by him to be a breach of trust …”
In Wareham & Anor v Marsella [2020] VSCA 118, the Victorian Court of Appeal “expressed doubt” (at [13]) whether parties to litigation can contractually displace the discretion of the Court as to costs. The Court did not need to decide the point there. I do not need to decide the point here. Even taking the approach that my discretion is not displaced by the content of the will or the trust documents, these reasons explain why, in my conclusion, the trusts’ assets should indemnify both the father and trustee for their costs.
My orders are:
In matter 161 of 2022, the new trustee, Ms Bennett, will pay each party’s costs from trust assets, such costs to be assessed on an indemnity basis if not agreed.
In matter 211 of 2022, the new trustee, Ms Bennett, will pay each party’s costs from trust assets, such costs to be assessed on an indemnity basis if not agreed.
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