Maradval Pty Ltd v Admarval Pty Ltd
[2017] VSC 745
•8 December 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S CI 2017 00765
| MARADVAL PTY LTD (ACN 616 314 222) (as trustee for the Admarval Discretionary Trust) | Plaintiff |
| v | |
| ADMARVAL PTY LTD (ACN 119 834 543) | Defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF RULING: | 8 December 2017 |
CASE MAY BE CITED AS: | Maradval Pty Ltd v Admarval Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2017] VSC 745 |
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COSTS — Trustees — New trustee seeking trust documents from former trustee — Where former trustee provided documents after proceeding issued — Proceeding dismissed by consent — Where both trustees seek costs from the trust on a trustee basis — New trustee entitled to costs from the trust — Whether former trustee entitled to costs from the trust — Supreme Court Act 1986, s 24 — Nolan v Collie (2003) 7 VR 287 — Asta Development (Aust) Pty Ltd v Amasya Enterprises Pty Ltd [2016] VSCA 186.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S T Pitt | Lawson Hughes Peter Walsh |
| For the Defendant | Mr J D S Barber | Arnold Bloch Leibler |
HER HONOUR:
Introduction
On 7 December 2016, the plaintiff was appointed trustee of the Admarval Discretionary Trust, established on 23 May 2006 (‘the trust’). The defendant is the former trustee of the trust.
In early January 2017, the defendant received a request from the plaintiff to deliver relevant documents relating to the trust and for the property of the trust to be vested in the plaintiff. On 1 February 2017, the plaintiff made a demand of the defendant to the same effect.
On 3 March 2017, the plaintiff issued this proceeding seeking delivery up of all of the assets of the trust fund, including but not limited to the property described in Schedule 1 to the statement of claim, as well as the books, documents, records and other property in relation to the trust. The plaintiff also sought damages and costs.
The substantive issues have now resolved between the parties and the remaining dispute concerns the parties’ costs of the proceeding. For the purposes of determining the dispute as to costs, the parties have provided an agreed bundle of correspondence of 120 pages and written submissions.
The plaintiff seeks orders that its costs of and incidental to the proceeding, including reserved costs, be paid out of the assets of the trust on a trustee basis, the defendant bear its own costs and the proceeding otherwise be dismissed.
The defendant seeks orders that its costs be paid out of the assets of the trust on a trustee or indemnity basis and, if that order is made, it does not oppose an order that the plaintiff‘s costs also be paid out of the assets of the trust on the same basis.
Factual background
Mariano Valmorbida and Adrian John Valmorbida were the original principals of the trust. On 12 February 2016, they resigned as principals of the trust and appointed Valmorbida Custodians Pty Ltd (‘Valmorbida Custodians’) in their place. The directors of Valmorbida Custodians are Mariano Valmorbida and his cousin, Luisa Valmorbida. On 7 December 2016, Valmorbida Custodians removed the defendant as trustee of the trust and appointed the plaintiff in its place.
The sole director and shareholder of the plaintiff is Mariano Valmorbida. The sole director and shareholder of the defendant is Kairu Chan. Ms Chan was married to Adrian John Valmorbida, the son of Mariano Valmorbida. On 4 August 2016, Adrian John Valmorbida died (‘the deceased’). Probate of the deceased’s will and estate was granted to Ms Chan on 7 October 2016. Ms Chan was admitted to practice as a lawyer in 2015, having studied law between 2004 to 2011. Although admitted to practice, she has not practised as a lawyer.
There are a number of disputes between the interests of Ms Chan and Mariano Valmorbida concerning interests in real property, control of documents of another company and an application by Mariano Valmorbida for rectification of the deceased’s will. The deceased and one of the entities involved in the disputes, Golden Fin Pty Ltd, had received legal advice from Kyriacou Lawyers. After the death of the deceased, Ms Chan continued to obtain advice from Kyriacou Lawyers. By letter dated 18 November 2016, interests associated with the plaintiff objected to Kyriacou Lawyers continuing to act for Ms Chan on the grounds of a conflict of interest.
By letter dated 22 December 2016, the solicitors for the plaintiff requested the defendant, care of the defendant’s accountants, Moran Accountants, to cause the property of the trust to vest in the plaintiff and deliver all books, documents, records and other property in relation to the trust to the plaintiff. That request was followed on 1 February 2017 by a demand for the same matters, care of Moran Accountants.
In respect of the allegation of conflict of interest, Kyriacou Lawyers sought a ruling from the Law Institute Ethics Committee. On 16 February 2017, the Ethics Committee ruled that Kyriacou Lawyers had a conflict of interest and should cease acting for the estate of the deceased.
After the ruling was delivered, the defendant retained solicitors, Gilbert & Tobin and later its present solicitors, who first wrote to the plaintiff’s solicitors on 22 March 2017.
By 7 April 2017, Ms Chan was overseas on a pre-arranged family holiday until Easter. On 20 April 2017, the defendant’s solicitors wrote to the plaintiff’s solicitors confirming that Ms Chan was continuing to review the documents in her possession and that she had met with the defendant’s accountants the previous day. An estimate of four weeks for certain records to be produced and finalised was given, together with an assurance that further searching for documents would occur. After referring to the plaintiff pressing for the defendant’s initial solicitors to no longer act for the defendant, the letter stated:
… your clients continued to actively pursue their interests at a time when Ms Chan’s attempts to obtain legal advice from a lawyer in whom she had trust in [sic] confidence because he had previously acted for Adrian were stymied.
Ms Chan has recently become a sole director of several companies, with all of the responsibilities that entails and without significant previous experience in that regard, at the worst possible time in her life. Your clients have pursued their alleged rights against Ms Chan, the Estate and companies which she has come to control by virtue of Adrian’s death, in a manner which has caused significant distress to Ms Chan.
If Maradval has served what appears to be a completely unnecessary proceeding on Admarval, this letter and your clients’ conduct since Adrian’s death will be put into evidence in support of an indemnity costs order against Maradval.
On 13 April 2017, the defendant was served with the writ and statement of claim filed on 3 March 2017.
On 26 April 2017, the defendant’s solicitors filed an appearance in the proceeding.
By letter dated 15 May 2017 to the solicitors for the plaintiff, the solicitors for the defendant reserved the defendant’s right to challenge the appointment of the plaintiff as trustee of the trust. The letter set out the documents that the trust possessed, attached copies of some of them and noted that documents would need to be collected in person from their office. The letter asserted that the defendant had a right of indemnity out of the trust for liabilities incurred by the defendant in its capacity as trustee of the trust, including bank liabilities. It asserted the existence of an equitable lien, requested that the plaintiff acknowledge existence of the right of indemnity of the past trustee and the lien, and referred to the replacement of the trustee as putting the facility with the bank into default.
By letter dated 8 June 2017, the solicitors for the plaintiff wrote to the solicitors for the defendant. The plaintiff denied the existence of a right of security for any accrued right of indemnity and proposed a differently worded undertaking. The letter further noted that a defence ought to have been filed by 26 May 2017, but that it had not been so filed. The prospect of the plaintiff seeking judgment in default of defence without further notice was threatened if a defence was not filed by 14 June 2017.
By letter dated 16 June 2017 to the solicitors for the plaintiff, the solicitors for the defendant noted the plaintiff had not attempted to collect the documents referred to in the letter dated 15 May 2017. Copies of other trust documents were enclosed. The letter concluded:
24In light of the above and with the aim of narrowing the issues in dispute in the Maradval Proceeding, by 29 June 2017 please identify with particularity what, if any, Trust documents, books, accounts, choses in action or other assets etc Maradval continues to seek from Admarval.
25 Admarval instructs that, apart from the documents referred to above that are held at our office for collection by yours, our client no longer has any Trust assets or documents in its possession or control. If your client continues to press the Maradval Proceeding, we reserve Admarval's right to produce this letter on the question of costs and in particular in support of an application for indemnity costs against your client.
On 19 June 2017, the defendant filed its defence. The defendant pleads that the letter dated 22 December 2016 request the vesting of the trust and documents was not received by the defendant until 11 January 2017, and the letter dated 1 February 2017 was received the day after the date of the letter. The defendant denies that it breached its obligations under the trust deed but does not provide particulars as to why it says the duty had not been breached. The defendant admits the plaintiff is the legal owner of the property of the trust. The defendant says its solicitors offered the plaintiff’s solicitors the opportunity of collecting the documents in the defendant’s possession, however, as at the date of the filing of the defence, the offer had not been accepted. It says the defendant’s accounting firm had delivered the books and records of the trust to the plaintiff and that money held in bank accounts has been paid in its entirety in partial discharge of moneys owing under bank loans that were incurred by the defendant in its capacity as trustee of the trust.
By letter dated 27 July 2017, the solicitors for the plaintiff wrote to the solicitors for the defendant acknowledging that trust assets, documents and funds had been delivered up by the defendant and proposed consent orders that the proceeding be dismissed subject to an undertaking by the defendant that it would deliver up further statements and any further documents or assets discovered or coming into the possession of the defendant. The plaintiff sought the defendant’s consent to an order that the costs of the plaintiff be borne by the defendant personally. By a further letter dated the same day, the plaintiff offered that its costs be recovered from the assets of the trust, but that the defendant bear its costs personally.
On 28 July 2017, the first directions hearing in the proceeding was adjourned to 11 August 2017. On that date, the Court was informed that subsequent to the issuing of the proceeding, the defendant arranged for delivery up of various assets, books, documents, records and other property of the trust to the plaintiff, including the assets set out in schedule 1 to the statement of claim. The defendant acknowledged its continuing obligations to deliver up that property and that the substantive relief sought by the plaintiff in the proceeding had therefore been satisfied.
By letter dated 9 August 2017, the solicitors for the defendant wrote to the solicitors for the plaintiff asserting that the undertaking proposed was unnecessary as the duty alleged was acknowledged and had been complied with. It was also asserted that the proceeding was unnecessary and alleged an improper purpose in bringing the proceeding to impose ‘maximum pressure’ on the director of the defendant ‘soon after the loss of her husband’. It was said that the new trustee had access to the accounts held by the accountant, which had not changed when the plaintiff was appointed. It was also said that the delay in providing the documents and assets sought was in part due to the requirement that the defendant retain new solicitors, and that this was required after the plaintiff had objected to the previous solicitors continuing to act for the defendant and Ms Chan. The letter concluded:
Our client believes that the Proceeding was unnecessary. An appropriate resolution of the Proceeding would be that the Proceeding be dismissed and the parties’ costs be paid on an indemnity basis out of the Trust.
By letter dated 10 August 2017, that proposal was rejected by the plaintiff.
Applicable principles
Costs are at the discretion of the Court, unless otherwise provided by an Act or the Rules.[1] The prima facie position in respect of costs in litigation is for standard costs to be ordered by the Court, with the Court having the discretion to award costs other than on the standard basis. The usual order as to costs is that costs follow the event and a successful party is entitled to an award of costs in its favour.[2] The relevant ‘event’ is success in the action or on particular issues.[3] The unsuccessful party bears the liability for the costs of the unsuccessful litigation.[4] The central principle is to make an order that is fair and just between the parties in the circumstance of each case.[5]
Trustee’s costs
[1]Supreme Court Act 1986, s 24.
[2]Oshlack v Richmond River Council (1998) 193 CLR 72, 97 (McHugh J).
[3]Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin(1997) 186 CLR 622, 624–5 (McHugh J) (‘Ex parte Lai Qin’); Seng Hpa v Walker [2017] VSC 320 (8 June 2017) [77]–[81].
[4]Oshlack v Richmond River Council (1998) 193 CLR 72, 97 (McHugh J).
[5]Earnshaw v Loy (No 2)[1959] VR 252, 253 (Sholl J). See also G E Dal Pont, Law on Costs (Lexis Nexis, 3rd ed, 2013) [6.15].
A trustee is entitled as of right to indemnity out of the trust for expenses properly incurred, that is, all costs except to the extent that they are of an unreasonable amount or have been unreasonably incurred. The concept of proper expenditure excludes conduct that demonstrates want of prudence or diligence.[6] Expenses and liabilities that are improperly incurred, such as acting beyond power, in bad faith or exercising power ‘with an absence of care and diligence that a person of ordinary prudence should exercise’ are not caught by the right of indemnity and shall be borne by the trustee personally.[7]
Costs where proceeding not determined by contest
[6]Nolan v Collie (2003) 7 VR 287, 303–10 (Ormiston JA); Dimos v Skaftouros (2004) 9 VR 584, 617 (Dodds-Streeton AJA), citing National Trustees Executors & Agency Company of Australasia Ltd v Barnes (1941) 64 CLR 268, 279 (Williams J).
[7]Re O’Donoghue [1998] 1 NZLR 116, 121 (Hammond J); Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq)(2001) 188 ALR 566, 606 (Finkelstein J); Nolan v Collie (2003) 7 VR 287, 308–9 (Ormiston JA).
Where a proceeding is not resolved by a contested hearing on the merits, the Court is deprived of the factor that usually determines whether or how it will make a costs order. The applicable principles in circumstances where the Court is deprived of a hearing on the merits were considered in Asta Developments (Aust) v Amasya Enterprises:
In Australian Securities Commission v Aust-Home Investments Ltd, Hill J summarised the following principles concerning the exercise of a court’s discretion to order costs where the parties to a proceeding no longer wish to continue:
(1)Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order.
(2)It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial. …
(3)In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them.
(4)In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation.
(5)Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted.[8]
[8] Asta Development (Aust) Pty Ltd v Amasya Enterprises Pty Ltd [2016] VSCA 186 (3 August 2016) [24]–[26] (Whelan and Ferguson JJA) (citations omitted). See also Ex parte Lai Qin (1997) 186 CLR 622, 624 (McHugh J); Seng Hpa v Walker [2017] VSC 320 (8 June 2017) [77]–[81].
Consideration
Upon appointment as trustee of a trust, a trustee becomes subject to the duties and obligations inherent in that position. The duties include the familiarisation by the trustee with the terms of the trust, ensuring that trust property is brought under the control of and vested in the trustee, and ensuring that documents of title to trust property are kept in a safe place and safeguarded from unauthorised use or access. These duties commence from the time of appointment, not from the time of vesting of trust property. The duty to get in trust property may require a trustee to take proceedings against a former trustee.[9]
[9] G E Dal Pont, Equity and Trusts in Australia (Thomson Reuters, 6th ed, 2015) [22.10].
Notwithstanding that in May 2017, the solicitors for the defendant reserved the defendant’s right to challenge the appointment of the plaintiff as trustee of the trust, the defendant has otherwise not taken any issue with its removal. In its defence filed in June 2017, the defendant admitted the appointment of the plaintiff as trustee of the trust and the defendant’s removal as trustee of the trust and admitted the plaintiff was the legal owner of and entitled to possession of the trust assets. It denied that it had failed to deliver up the trust fund to the plaintiff by reason of two letters dated 15 May and 16 June 2017 whereby the solicitors for the defendant enclosed copies of documents in the possession of the defendant and invited the solicitors for the plaintiff to collect them.
Ultimately, the plaintiff obtained the relief it sought in the proceeding without a determination on the merits. Where the Court is required to determine the question of costs in a proceeding not resolved by contest, the Court may consider whether a plaintiff acted reasonably in commencing the proceeding and whether a defendant acted reasonably in their response to the proceeding. In particular cases, the Court may also consider the conduct of the defendants before the commencement of a proceeding and whether such conduct precipitated the proceeding.
The defendant received notification of its removal as trustee of the trust and the request for relevant trust documents on 11 January 2017 when it received the letter dated 22 December 2016. The follow up demand for delivery up of the documents was received by the defendant on 2 February 2017. No response concerning the delivery up of documents was forthcoming from the defendant. This was despite the fact that the Ethics Committee ruling was delivered on 16 February 2017 and by 22 March 2017 the defendant had retained her present solicitors, having earlier retained Gilbert & Tobin. The defendant’s solicitors were not served with the proceeding until 13 April 2017, which provided around three months to deliver up the documents. No realistic explanation was forthcoming from the defendant for its lack of response to the request for delivery up of the documents. After the proceeding was served, the plaintiff obtained the relief sought by it in the proceeding without a determination on the merits.
In circumstances where the defendant has not taken any issue with its removal, has not disputed the factual basis for the plaintiff’s request for delivery up of the documents, knew of the plaintiff’s request for delivery up since 11 January 2017 and has failed to explain the delay in delivering up the documents, the plaintiff was more than justified in issuing the proceeding against the defendant. The correspondence provided to the Court does not demonstrate unnecessary, hasty, heavy-handed or wasteful conduct on the plaintiff’s part. To the contrary, the plaintiff provided substantial latitude to the defendant to comply with its obligations as well as a sympathetic understanding of the position of Ms Chan as a result of the death of her husband. The plaintiff provided a proper and reasonable amount of time before it served the proceeding. This allowed the defendant time to retain alternative legal representation and provide the documents to the plaintiff. While the correspondence provided to the Court dealt with other issues between the family and other entities, it is apparent that the defendant or its solicitors were not as helpful or cognisant of the duties of the defendant as the former trustee of the trust as they could have been. The proceeding could have easily been avoided by the timely delivery up of the relevant documents to the plaintiff during the period before the proceeding was issued, particularly when the defendant’s solicitors informed the plaintiff’s solicitors that the defendant was aware of its obligations.
The order sought by the plaintiff for its costs reflects the principle that, as trustee of the trust, the plaintiff is entitled as of right to indemnity out of the trust for expenses properly incurred, except to the extent of costs that are of an unreasonable amount or unreasonably incurred. Such an order is justified in the circumstances.
The defendant does not oppose the costs order sought in respect of the plaintiff’s costs provided that its costs are also paid out of the assets of the trust on a trustee or indemnity basis. The Court necessarily places little or no weight on such a conditional proposal when exercising its discretion as to costs. It fails to take into account the reasonableness of the defendant’s response to the requests for delivery up of the documents and whether the conduct of the defendant precipitated the proceeding.
Having regard to the content of the 120 pages of correspondence provided to the Court for the determination of the costs of the proceeding, I accept that Ms Chan as the sole director and shareholder of the defendant was placed in a difficult and stressful situation as a result of her husband’s death. Notwithstanding this, she has qualified as a lawyer and would have more insight into her role as a director and shareholder of the defendant than a lay person. The defendant retained solicitors to advise it after the Ethics Committee ruling in February 2017 and the trust employed Moran Accountants as its accountant. That firm was able to assist the defendant in understanding the financial side of the trust and in delivering the documents to the plaintiff in a timely manner. Ms Chan was overseas for some of the time but there is no suggestion that communication with her during that time could not be made. Communication with the defendant’s legal advisers and the trust’s accountants should have been relatively simple for her while she was overseas.
In the three months before the proceeding was issued and thereafter, the plaintiff has allowed more than sufficient time for the defendant and its advisers to comply with the defendant’s obligations. On balance, the defendant had scant regard for the obligations of the plaintiff as trustee and its own obligations as the former trustee and its conduct both before the proceeding and since has been unreasonable. Had the defendant acted in a reasonable manner, it would not have been necessary for the plaintiff to issue the proceeding. The defendant’s conduct has caused delay and wasted costs. Such conduct does not warrant an order that the defendant’s costs be paid from the assets of the trust on an indemnity basis.
However, as a former trustee of the trust, the defendant is entitled to some costs for finalising its obligations and providing for the delivery up of the relevant documents. Those costs must be limited to what is reasonable for those purposes. In the circumstances, the parties should be able to agree an amount for the defendant’s reasonable costs in complying with its obligations as the former trustee, such amount to be paid from the assets of the trust. If the parties are unable to agree, they are to file submissions on the defendant’s costs by 2 February 2018.
Orders
I will make the following orders:
(a) the plaintiff’s costs of and incidental to the proceeding, including any reserved costs, be assessed on a trustee basis and paid out of the assets of the trust;
(b) the defendant’s reasonable costs of delivering up the trust documents in a timely manner be agreed between the parties and paid out of the assets of the trust; and
(c) the proceeding otherwise be dismissed.
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