Markin v Animals Australia Federation (No 2)
[2020] VSC 270
•15 May 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S ECI 2018 02474
IN THE MATTER of the Will and Estate of VIVIENNE ROSARIA ROSS, deceased
-and-
IN THE MATTER of an application pursuant to Rule 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 for the determination of a question arising in the administration of the estate
BETWEEN
| HOPI JULIAN MARKIN (as Executor of the Will and Estate of VIVIENNE ROSARIA ROSS, deceased) | Plaintiff |
| v | |
| ANIMALS AUSTRALIA FEDERATION ACN 617 080 387 | First Defendant |
| - and - | |
| SYDA FOUNDATION | Second Defendant |
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JUDGE: | MOORE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 15 May 2020 |
CASE MAY BE CITED AS: | Markin v Animals Australia Federation & Anor (No 2) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 270 |
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COSTS – Trustees – Indemnification – Where trustee sought judicial advice – Whether trustee’s costs should be paid out of estate on an indemnity basis to be assessed in default of agreement – Where trustee has not provided information to defendant residuary beneficiaries regarding the quantum or breakdown of costs – Trustee entitled to indemnification for properly incurred costs – 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, applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Flynn QC | Nicholson Ryan Lawyers |
| For the Defendants | Mr S Pitt | Lawson Hughes Peter Walsh |
HIS HONOUR:
The plaintiff commenced this proceeding pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 seeking advice in relation to the administration of the estate of Vivienne Ross. The plaintiff is the executor of the estate as well as a beneficiary, receiving the deceased’s shares in any companies. The plaintiff, in his capacity as executor, sought advice from the Court pertaining to a dividend that had been declared and paid after the death of the deceased. The defendants, residuary beneficiaries of the estate, unsuccessfully contended that the dividend belonged to the residue of the estate and was payable to them. The Court will make declarations in the form proposed by the parties.
The remaining issue to be determined concerns the costs of the proceeding. The plaintiff seeks an order in the following terms:
The Plaintiff and the Defendants be indemnified in respect of their costs of and incidental to the application out of the estate of Vivienne Ross.
The defendants seek that the following orders be made:
1.The Plaintiff’s costs of and incidental to the proceeding to be paid or retained out of the Estate of Vivienne Rosaria Ross and to be assessed, in default of agreement, on an indemnity basis.
2.The Defendants’ costs of and incidental to the proceeding be paid out of the Estate of Vivienne Rosaria Ross to be assessed, in default of agreement, on an indemnity basis.
For the reasons which follow, the Court will make an order substantially in the terms proposed by the plaintiff.
Relevant principles
Section 24(1) of the Supreme Court Act 1986 provides that:
24 Costs to be in the discretion of Court
(1)Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.
The power of the Court to order costs under s 24 of the Supreme Court Act 1986 is to be exercised subject to and in accordance with Order 63 of the Supreme Court (General Civil Procedure) Rules 2015. Rule 63.26 provides as follows:
63.26 Trustee or mortgagee
Unless the Court otherwise orders, a party who sues or is sued as trustee or mortgagee shall be entitled to the costs of the proceeding out of the fund held by the trustee or out of the mortgaged property in so far as the costs are not paid by any other person.
Section 36(2) of the Trustee Act 1958 provides that:
36 Implied indemnity of trustees
…
(2)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.
There is no dispute that, as stated by the Court of Appeal in Wales v Wales,[1] ‘[i]n general, a trustee is justified in seeking advice and directions from the Court, and will be indemnified out of the trust fund for his or her costs incurred in doing so’.[2] The Court continued:[3]
However, the right of indemnity is confined to expenses properly incurred. That means that a trustee is not indemnified for expenses incurred when acting beyond power, in bad faith or without the care and diligence of a person of ordinary prudence.[4] Similarly, a trustee is not indemnified where a liability is incurred as a result of conduct on the part of the trustee in breach of his or her duty to execute the trust with reasonable diligence and care.[5] However, the standard of care is that ‘which might be expected of a trustee as objectively but not over-zealously enforced’.[6] What is “proper” or “improper” for this purpose is to be answered by reference to the duty with which the trustee was required to comply or the power the trustee was intending to exercise.[7]
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.[8]
[1][2015] VSCA 345 (‘Wales’).
[2]Ibid [41].
[3]Wales (n 1) [41]–[42].
[4]Nolan v Collie (2003) 7 VR 287, 308 [53] (‘Nolan’).
[5]RWG Management Ltd v Commissioner for Corporate Affairs [1985] VR 385, 396.
[6]Nolan (n 4) 308 [53].
[7]Nolan (n 4) 306 [51].
[8]Nolan (n 4) 306 [50].
Submissions of the defendants
The order proposed by the plaintiff is consistent with the principle that a trustee is entitled to a right of indemnity for expenses properly incurred. The defendants do not consent to an order being made in the terms proposed by the plaintiff because the plaintiff’s solicitors have refused to provide a breakdown, or the quantum, of his costs and expenses of the litigation.
The defendants submit that this lack of transparency in relation to the plaintiff’s costs means that they cannot discharge the burden of proof which rests on a party seeking to deny a right of indemnity to demonstrate that costs have been improperly incurred. They submit that, without knowing the nature or the quantum of the plaintiff’s costs, it is impossible for them to know whether those costs were properly or improperly incurred, or whether their quantum is reasonable or unreasonable.
In support of their submission, the defendants rely upon the following extract from Dal Pont in Equity and Trusts in Australia:[9]
As the right of indemnity dictates that the trust property meets the trustee’s expenses and liabilities, there must be a check on the expenses and liabilities incurred. The check is that those expenses and liabilities must be properly incurred – improperly incurred expenses or liabilities fall outside the right of indemnity on the trustee personally. Provided a debt is properly incurred, the right of indemnity is not denied merely because the trustee in incurring it did not disclose that he or she was doing so in the capacity of trustee. Expenses will be improperly incurred if they involve a deliberate breach of trust. For example, a trustee who enters into an unauthorised agreement may be personally liable to the other contracting party but can secure no indemnity from the trust estate. Yet a “mere slip” or “error of judgment” will not prevent an expense from being properly incurred, given the judicial admonition that “properly incurred” equates to “not properly incurred”. It follows that a trustee may be entitled to an indemnity in respect of one set of expenses but not another; to determine whether a trustee can be indemnified in respect of multiple claims, the circumstances giving rise to each liability requires separate investigation.
If called upon, the trustee must show that the expense for which he or she seeks to be indemnified arose out of acts within the scope of the trusteeship, and that its incurrence (and quantum) was “reasonable”. If the expense appears regular enough, though, the burden of proving unreasonableness falls on the party alleging it. Expenses that are, on their face, properly incurred include those authorised by the trust deed, statute or the general law, such as general outgoings associated with land held in trust, and expenses of carrying on a business where this is authorised. However, no right of indemnity exists at general law vis-à-vis trustee remuneration unless the trust instrument creates a security interest to this effect or there is otherwise an agreement to create a charge over trust property for that remuneration.
[9]G E Dal Pont, Equity and Trusts in Australia (Lawbook Co, 6th ed, 2015) 710–11 [23.135] (citations omitted) (emphasis added in defendants’ submissions).
The defendants submit that the plaintiff’s refusal to provide a breakdown and quantum of the costs of the proceeding mean that they have had ‘no opportunity to check the costs’. They are unable to form a view about the reasonableness or otherwise of the plaintiff’s costs until they know what they are. The defendants further submit that the unwillingness of the plaintiff to provide this information and a statement by the plaintiff’s solicitors that the quantum of costs is irrelevant given the plaintiff’s right to be indemnified, has heightened their suspicion.
The defendants submit that the order proposed by the plaintiff affords him an opportunity to write a ‘blank cheque’ for the costs of the proceeding, without any accountability to the beneficiaries of the fund from which the money is being paid. They accordingly submit that the appropriate orders to be made are those set out in [3] above.
Consideration
The fundamental problem with the defendants’ submission is that, if accepted, it would deny the plaintiff’s right to be indemnified from the trust for his costs in circumstances where the defendants, being the parties who bear the onus, have not established that the costs were improperly incurred.
The defendants’ submission that ‘it is not possible [for them] to discharge their burden of proof without having any knowledge of the nature and quantum of the plaintiff’s costs’ carries with it a clear concession which is fatal to their application. It also highlights that their submission, if accepted, would involve the Court impermissibly shifting the onus on to the plaintiff trustee to prove that the legal expenses were properly incurred.
It must not be overlooked that, not only did the plaintiff succeed in the proceeding, there is no suggestion by the defendants that he has acted beyond power, in bad faith or without the care and diligence of a person of ordinary prudence. Nor do they point to any conduct by the plaintiff in breach of his duty to execute the trust with reasonable diligence and care. The simple position is that the defendants have no basis whatsoever to contend that the plaintiff’s legal expenses were not properly incurred.
The defendants’ reliance upon the extract from Dal Pont is misplaced. Their submission that they have had ‘no opportunity to check the costs’ proceeds from a mischaracterisation of the learned author’s underlined statements in the first paragraph of the extract referred to above. In stating that ‘there must be a check on the expenses and liabilities incurred’ by a trustee, the learned author proceeds to state that ‘the check is that those expenses and liabilities must be properly incurred’; there is no suggestion that the ‘check’ is a right to examine expenses and liabilities as suggested by the defendants.
As the plaintiff submitted, there is authority for the proposition that, where an order is made that an executor’s costs be paid out of the estate on an indemnity basis, a party is not precluded from contending, on the passing of the executor’s accounts, that costs have been improperly incurred.[10] This may be viewed as an instance of the situation referred to by Dal Pont in the above extract where a trustee is called upon to ‘show that the expense for which he or she seeks to be indemnified arose out of acts within the scope of the trusteeship and that its incurrence (and quantum) was “reasonable”’. It is important to note however that, as the learned author states in the following sentence, ‘[i]f the expense appears regular enough, though, the burden of proving unreasonableness falls on the party alleging it’.
[10]See Brown & Anor v Grosfeld [2011] NSWSC 1429, [31].
In the circumstances and in the interests of making clear the right of the defendants to contend, on the passing of the executor’s accounts, that costs have been improperly incurred, the Court will order that the plaintiff and the defendants be indemnified out of the estate of Vivienne Ross in respect of their properly incurred costs of and incidental to the application.
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