Leerac Pty Ltd v Garrick E Fay
[2010] NSWSC 1088
•23 July 2010
CITATION: Leerac Pty Ltd v Garrick E Fay & ors [2010] NSWSC 1088 HEARING DATE(S): 23 July 2010 JURISDICTION: Equity Division JUDGMENT OF: Brereton J EX TEMPORE JUDGMENT DATE: 23 July 2010 DECISION: Trustees justified and entitled to aid defence of defendants CATCHWORDS: EQUITY – Trusts and trustees – Applications to the court for advice and authority – whether trustee justified in paying successful costs of estate proceedings prior to defendants taking recovery action against plaintiffs LEGISLATION CITED: (NSW) Trustee Act 1925 s 63 CATEGORY: Consequential orders CASES CITED: Fay v Moramba Services Pty Ltd [2010] NSWSC 725 PARTIES: Leerac Pty Ltd (plaintiff)
Garrick E Fay (first defendant)
Dallas Fay (second defendant)
Sioned Fay (third defendant)
Louisa Fay (fourth defendant)FILE NUMBER(S): SC 08/282225 COUNSEL: Mr R M Smith SC w Mr P W Flynn (plaintiff)
Ms Merkel (first & second defendants)SOLICITORS: Corrs Chambers Westgarth (plaintiff)
Slater & Gordon (first & second defendants)
Emil Ford & Co (third & fourth defendants)
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
BRERETON J
Friday, 23 July 2010
2008/282225 Leerac Pty Ltd ACN 000 566 843 v Garrick E Fay
JUDGMENT (ex tempore)
1 HIS HONOUR: This judgment is given in proceedings 08/282225, formerly 6250/08, Leerac Pty Ltd v Fay and others, in which on 2 July 2010 the court gave certain judicial advice to the plaintiff Leerac Pty Ltd [see Fay v Moramba Services Pty Ltd [2010] NSWSC 725, [62]], including advice that Leerac, in its capacity as trustee of the inter vivos trusts, would be justified in paying out of the trust estate the defendants’ costs of their defence of the estate proceedings, to the extent that costs are not recovered from the plaintiffs pursuant to the party/party costs order against them, and are not recoverable from the deceased’s estate pursuant to the defendants’ right of indemnity against the deceased’s estate.
2 In the course of that judgment it was recorded (at [60]) that as the judicial advice involved views which were not necessarily agitated in the course of the hearing it may be that the trustees would desire to put further matters to the court in respect of the judicial advice, and liberty to apply for clarification, supplementation or revision of the advice was reserved, any such application to be made by arrangement with my associate by 9 July 2010.
3 On 9 July 2010, Leerac’s solicitors forwarded to my associate, and to the solicitors for the other parties that had been represented, a letter seeking clarification and/or supplementation of the advice in the following respects:
1. Whether it would be consistent with his Honour’s order and his Honour’s reasons for making the order (see paragraphs 25 to 30 of the judgment) for:
(a) Leerac to pay the defendants’ legal costs of the estate proceedings now (including costs which may be incurred in enforcing the costs orders) on the basis that the defendants hold the benefit of the costs orders obtained in the estate proceedings for the benefit of Leerac;
(b) following the payment of the defendants’ costs by Leerac pursuant to (a) above, the defendants in the estate proceedings to seek to enforce the costs orders obtained in the estate proceedings against, in the first instance the plaintiffs, and then the estate pursuant to the defendants’ right of indemnity against the deceased’s estate; and
2. Whether it would be consistent with his Honour’s order and his Honour’s reasons for making the order (see paragraphs 25 to 30 of the judgment) for Leerac to pay the defendants’ legal costs of the appeal proceedings incurred to date now and on a continuing basis, on the basis that the defendants hold the benefit of any costs orders obtained in the appeal proceedings for the benefit of Leerac.(c) pursuant to (a) above, the defendants in the estate proceedings to pay any monies recovered pursuant to (b) above to Leerac.
4 The reference to appeal proceedings is intended to be a reference to any appeal brought or to be brought from my judgment in the substantive proceedings.
5 The evidence of Mr Lewis establishes that not all of the defendants’ costs incurred in the defence of the estate proceedings have so far been paid and some remain outstanding. It is self-evident that further costs will be incurred in resisting the appeal proceedings. As Leerac submits, it is unlikely that the defendants will pursue and enforce the costs orders made in the estate proceedings until the determination of the appeal. To do so would in any event incur further costs.
6 As I indicated in the judicial advice judgment, the prospect of recovery under the costs orders in the estate proceedings against the plaintiffs in those proceedings is at best uncertain. Further costs will self evidently be incurred in connection with the appeal.
7 Unless assisted by Leerac, the defendants would have to resort to their own assets to fund those costs, unless and until they recover under the costs orders from the plaintiff or the estate. Evidence in the main proceedings also established that the resources of the estate were unlikely to be adequate to meet that costs burden.
8 In the judicial advice proceedings, I concluded that Leerac was justified in paying out of the trust estate the defendants’ costs of their defence to the extent that I then described, on several bases.
9 The first was that Leerac had a real and legitimate interest in the defence of the estate proceedings, because the plaintiffs called into question the conduct of its directors in their capacity as such. That real and legitimate interest of Leerac did not depend and was not conditional on the outcome of the estate proceedings, and in particular on what costs order was made in them.
10 Secondly, I concluded that in the particular circumstances of this case, Leerac was entitled to adopt the view that a change in the control of the testamentary trust would be adverse to the interests of inter vivos trusts, and thus to support the defendants’ resistance to the plaintiff’s claims to that end. That entitlement also did not depend on the outcome of the estate proceedings, and in particular on the costs orders that might be made in them.
11 For the same reasons – and arguably more so now that the position has at least been established at first instance by my judgment in the principal proceedings – Leerac would be justified in funding the defendants’ resistance of the appeal.
12 It is implicit in the reasoning in the judicial advice judgment that Leerac was justified and entitled to aid the defence of the defendants during the currency of the proceedings, and not only after the outcome and in particular the outcome of any costs order, was known. It follows that enforcement of the party/party costs order ought not be a precondition to the propriety of the course taken by Leerac, at least so long as the benefit of any costs order enures for the benefit of Leerac.
13 As the defendants are not trustees of the inter vivos trusts I do not find the analogy sought to be drawn by Leerac with a trustee’s right to be exonerated, not merely indemnified, of assistance in these circumstances; but for the other reasons given in my judgment, Leerac need not await the outcome of any attempts to enforce the costs orders before assisting the defendants’ defence in the manner and to the extent previously described and on the basis set out in sub-paragraphs (a) (b) and (c) of question 1 above.
14 By way of judicial advice to Leerac and pursuant to (NSW) Trustee Act 1925, s 63, I order that question 1 and question 2 stated above each be answered "Yes". I order that Leerac’s costs of the application be paid on the indemnity basis out of each of the eight inter vivos trusts pro rata.
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