Northey v Juul
[2014] NSWSC 464
•28 April 2014
Supreme Court
New South Wales
- Amendment notes
Medium Neutral Citation: Henry John Northey v Jennifer Frances Juul & Anor [2014] NSWSC 464 Hearing dates: 17 & 18 September 2013 Decision date: 28 April 2014 Jurisdiction: Equity Division Before: Slattery J Decision: See paragraph [204].
Catchwords: SUCCESSION - administration of estates - application for judicial advice - application for indemnity for executors' legal costs from the estate - deceased's daughter and son-in-law sub-divide and renovate her property before her death - deceased gives estate to her seven children in equal shares and appoints two of her children as her executors and trustees - proceedings brought in 2004 by one of the deceased's children against the executors/trustees for wilful default in their duties - executors/trustees fail substantially at first instance in 2005 and 2008 - executors/trustees successful on appeal in 2010 - disputes about the burden of the legal, administration and financial costs of the 2004 litigation. Legislation Cited: Civil Procedure Act ss 56, 98(4)(c)
Real Property Act 1900
Trustee Act 1925, ss 5, 59(4), 63
Uniform Civil Procedure Rules r 42.25Cases Cited: Armitage v Nurse [1988] Ch 241
Bovaird v Frost [2009] NSWSC 917
Bristowe v Needham (1847) 2 Ph 190
Commissioner of Stamp Duties v Buckle (1998) 192 CLR 226
Dawson v Clarke (1811) 34 ER 311
Dodds v Tuke (1884) 25 Ch D 617
Evans v Evans [1985] 3 All ER 289
Fitzwood Pty Limited v Unique Goal Pty Limited (In Liquidation) (2001) 188 ALR 566
Frost v Bovaird & Ors [2012] 203 FCR 95
Gatsios Holdings v Kritharas Holdings (In Liquidation) [2002] NSWCA 29
Harrison v Mills (1976) 1 NSWLR 42
Harrison v Schipp (No 2) (2002) 54 NSWLR 738
Hartigan Nominees Ltd v Rydge (1992) 29 NSWLR 405
Heid v Reliance Finance Corporation (1983) 154 CLR 326
In re Beddoe [1893] 1 Ch 547
In re Dunn [1904] 1 Ch 648
In re Grimthorpe (deceased) [1958] Ch 615
In Re Buckton; Buckton v Buckton [1907] 2 Ch 406
Juul v Northey [2010] NSWCA 211
Kemtron Industries Pty Limited v Commissioner of Stamp Duties (Qld) [1984] 1 Qd R 576
In re Llewellin; Llewellin v Williams (1887) 37 Ch D 317
Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar (2008) 237 CLR 66
Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198
McDonald v Horn [1995] 1 All ER 961
Mead v Watson (as liquidator for Hypec Electronics (2005) 23 ACLC 718
Miller v Cameron (1936) 54 CLR 572
National Trustees Executors and Agency Company of Australasia Limited v Barnes (1941) 64 CLR 268
National Trustees Executors and Agency Co v Dwyer (1940) 63 CLR 1
Northey v Juul [2005] NSWSC 933
Northey v Juul [2008] NSWSC 275
Octavo Investments Pty Limited v Knight (1979) 144 CLR 360
Re Australian Pipeline Limited [2006] NSWSC 1316
Re Dallaway (Deceased) [1982] 3 All ER 118
Re Exchange Securities and Commodities Ltd (No. 2) (1985) BCLC 392
Re Jones; Christmas v Jones [1897] 2 Ch 190
Re March; March v Harris (1884) 27 Ch D 166
Re Spurling's Will Trusts [1966] 1 WLR 920
Stott v Milne (1884) 25 Ch D 710
Turner v Hancock (1882) 20 Ch D 303
Walter v Woodbridge (1878) 7 Ch D 504
Williams v Jones (1886) 34 Ch D 120Category: Principal judgment Parties: Plaintiff/Respondent: Henry John Northey
First Defendant: Jennifer Frances Juul
Second Defendant: James Knight Northey
Third Defendant: John Stewart Hunter
Fourth Defendant: Richard BookerRepresentation: Counsel:
Plaintiff/Respondent: Ms R. N. Winfield
First Defendant: Mr R. Lovas
Third & Fourth Defendant: Mr J.S. Drummond
Solicitors:
Plaintiff: Delwyn Bishop, Delwyn A. Bishop
First Defendant: Robert Van Aalst, Murphy's Lawyers
Third & Fourth Defendant: John Stewart Hunter, E. H. Tebbutt & Sons Lawyers
File Number(s): 2004/184131 Publication restriction: No
Judgment
Betty Frances Northey died in December 2003. In the more than ten years since her death her children have been caught in a vortex of litigation about her estate. They have fought out their differences in several hearings in the Equity Division of this Court and in the Court of Appeal, eventually entering the High Court's special leave lists. All that litigation has been very costly.
In two notices of motion now before the Court, one seeking judicial advice and the other seeking indemnity from the estate for legal costs, the parties to this unfortunate litigation now contest how each of them and the estate should bear the substantial legal, administration and financial costs they have incurred.
A Sub-Division in Collaroy
But first some background. Mrs Betty Northey became a widow in July 1996. She was then in her early eighties. After her husband's death she became the sole registered proprietor of the family home, a residence with tennis courts on a large block of land in the Sydney northern beaches suburb of Collaroy.
She needed to plan her future accommodation and financial security. She turned to one of her seven children to discuss the alternatives available to her. She had the options: to sell the family home and move into a retirement village; or to stay and sub-divide the land, using the sale proceeds of the new lots to renovate and adapt the family home for her then circumstances.
Mrs Northey's consideration of her options resulted in her entering into a deed in February 1997 with one of her children, Mrs Jennifer Frances Juul and her husband, Mr Ole Juul. The February 1997 deed between Mrs Northey and Mr and Mrs Juul provided that the Juuls would do all that was necessary to subdivide the property into five lots, including the house lot. In return for their subdivision efforts Mr and Mrs Juul would receive one of the four new lots created in the subdivision.
The subdivision proceeded. Four new lots were created: lots 51, 52, 53 and 54. The original house property became lot 55 in the subdivision.
Both lots 53 and 54 were sold to third parties in late 1998, early 1999. Mrs Northey received the sale proceeds of these two lots, in accordance with the February 1997 deed.
Mrs Northey transferred lot 52 to the Juuls in February 1998, as the February 1997 deed had contemplated. After the transfer of lot 52 to the Juuls they built two townhouses on the lot.
Mrs Northey sold lot 51 (the last of the newly created lots to be sold) not to a third party, but to a child of Mr and Mrs Juul, Gaetan Juul in January 2003. Lot 51 was valued for stamp duty purposes at $475,000. But Mr Gaetan Juul paid only $300,000 of the agreed consideration for the transfer.
Once Mrs Northey had raised funds by subdividing and selling parts of the family home, the second part of her plan was to use the sale proceeds to renovate the house to better adapt it for her immediate needs. At an earlier stage in his life, Mr Ole Juul, had been a builder. Mrs Northey contracted with Mr Juul for reward for him to renovate the family home, as she required. He completed the renovations by April 2011. She paid Mr and Mrs Juul $515,000 for the building work. Throughout these renovations Mrs Northey was the owner/builder. But Mr Juul carried out the tasks of arranging the development application, engaging, supervising and paying sub-contractors, and procuring and paying for materials. He also did some of the building work himself.
The Sub-Division leads to Litigation
Mrs Northey continued to live in the family home after the renovations were completed in April 2001, until her death in December 2003.
Although Mrs Northey gave her estate to her seven children in equal shares, some of the children perceived that Mrs Northey's dealings with Mr and Mrs Juul before her death required an account in relation to the assets of the estate before it was distributed on an equal basis. This was the general theme of the litigation that followed in 2004.
Not all of the deceased's seven children were parties to the litigation. In birth order Mrs Northey's seven children are Henry John Northey, Elizabeth Siberteen Smith, Julia Hester Orofino, John Joseph Northey, Jennifer Frances Juul, James Knight Northey and Richard Northey.
Mrs Northey appointed two of her younger children, Mrs Jennifer Juul and Mr James Northey, as the executors and trustees of her will (called throughout these reasons "the trustees"). Her eldest child, Mr Henry Northey, commenced proceedings in August 2004 against both trustees, as first and second defendants, seeking to bring them to account in various ways in respect of the administration of Mrs Northey's estate. Mr Henry Northey claimed that he sought through this litigation to benefit his siblings, Mrs Elizabeth Smith, Mrs Julia Orofino and Mr John Northey, who with him are the four eldest children. Mr Ole Juul was not a party to the litigation. The youngest child, Mr Richard Northey was neither a party to the litigation nor a person that Mr Henry Northey declared that he intended to benefit through his litigation.
On 23 July 2008, after the trial at first instance, Mrs Juul and Mr James Northey retired as trustees of the estate and were replaced by Mr John Stewart Hunter and Mr Richard Booker, ("the Present Trustees"). They in turn were joined as the third and fourth defendants to Mr Henry Northey's litigation.
Mr Henry Northey's litigation sought to have the trustees account for the receipt of the proceeds of sale of the various lots in the sub-division and for the conduct of the building works. This may at first seem an unusual claim against the trustees of Mrs Northey's estate: the sub-division and the renovations to the family home had been completed almost three years before Mrs Northey died.
Mr Henry Northey made three main claims. The first related to lot 52. Mr Henry Northey alleged that the transfer of this lot, despite having been an inter-vivos transaction between Mrs Northey and Mr and Mrs Juul, was in fact the sale of a trust asset and that the trustees of her estate should account to the estate for their dealings with it. The trial judge found this claim was misconceived and dismissed it.
The second claim related to lot 51. This was an inter-vivos transaction between Mrs Northey and her grandson Mr Gaetan Juul. The plaintiff, Mr Henry Northey, alleged that the trustees of Mrs Northey's estate should account for the sale of lot 51 at what was alleged to be an undervalue. The trial judge also dismissed this claim.
The third claim related to the building contract between Mrs Northey and Mr Juul. As earlier indicated, Mrs Northey had paid Mr and Mrs Juul $515,000 for his renovations to the family home. Although this too was an inter-vivos transaction between Mrs Northey and Mr Juul, Mr Henry Northey contended he could maintain an action in respect of it against the deceased's trustees. Unlike the two earlier claims, this claim succeeded at trial. But on appeal the trial judge's decision was overturned and the building contract claim was dismissed.
Procedural History of the Litigation
The procedural history of this litigation is complex. Mr Henry Northey commenced his proceedings by Summons on 10 August 2004. The claims within his Summons were determined over the course of two principal hearings: the first on 29, 30 August and 1 September 2005 (known as "the wilful default hearing"); and, the second hearing over a further four days in 2007 (known as "the accounting hearing"). Both hearings took place before Macready AsJ. His Honour gave judgment after the wilful default hearing on 16 September 2005 ("the wilful default judgment"): Northey v Juul [2005] NSWSC 933. After the accounting hearing his Honour gave judgment on 1 April 2008 ("the accounting judgment"): Northey v Juul [2008] NSWSC 275. Both the wilful default judgment and the accounting judgment were the subject of appeal. Macready AsJ's procedural and substantive determinations in the wilful default and the accounting judgments are important foundations for the present disputes.
In the wilful default judgment in September 2005, Macready AsJ dismissed as unmeritorious Mr Henry Northey's claim in respect of lots 51 and 52. But Macready AsJ found that the $515,000 Mrs Northey had paid to Mr and Mrs Juul to renovate her home was only paid "on account" of the Juul's actual expenditure on the renovations and was not payment of consideration under a fixed-price building agreement. Macready AsJ held that of the $515,000 paid to Mr and Mrs Juul a maximum of $370,839.62 was for their actual expenditure on the building work, so that no less than $144,160.38 was repayable to the estate. But his Honour also held that the trustees had not recovered this sum from Mr and Mrs Juul in circumstances constituting a wilful breach of trust. The trustees should account for certain monies that they should have recovered but did not recover from them. The amount found that should have been recovered was the difference between the value of the building work done and the $515,000 actually paid to Mr and Mrs Juul. Macready AsJ found that in failing to recover this difference the trustees wilfully defaulted in their executorial duties or duties as trustees. But he did not find any dishonesty or male fides against either Mrs Juul or Mr James Northey. On 27 September 2005 Macready AsJ made orders for the filing of evidence for an accounting hearing in respect of the recovery of at least $144,160.38 of the $515,000.
But there was only a slender procedural foundation for Mr Henry Northey's success on his wilful default allegations against the trustees. The relief, which Macready AsJ granted in the wilful default judgment was described in a proposed amendment to Mr Henry Northey's Summons. At the conclusion of the wilful default hearing, just before the parties addressed the Court in closing submissions, Macready AsJ granted the following leave to the plaintiff to amend his Summons:
"I will give leave to file the Amended Summons and orders in accordance with the document handed up on 29 August 2005 subject to an amendment to delete order 6 and for the purposes of identification I will sign and date it today."
But when his Honour reserved judgment on 1 September 2005, he did not make any further orders about the amendments. And the plaintiff, Mr Henry Northey, never exercised the leave granted to him to amend the Summons. These matters were one basis for the Court of Appeal later to overturn Macready AsJ's wilful default judgment.
Despite the fragile procedural basis for the accounting hearing, it went ahead in August 2007. Between the wilful default hearing and the accounting hearing Mr James Northey changed his allegiances. Mr Henry Northey persuaded him to turn against Mrs Juul and join the plaintiffs. This caused consequential rearrangement in the parties' representation: Mr James Northey and Mrs Juul's joint legal representatives had to retire from the proceedings and each of the defendants, Mrs Juul and Mr James Northey, had to retain new separate lawyers.
The August 2007 accounting hearing developed into a detailed contest with expert evidence about the work Mr Juul had done at Mrs Northey's family home. After Macready AsJ gave the accounting judgment on 1 April 2008 his Honour determined several consequential issues. Between April and July 2008 he: (1) dealt with submissions on the terms of the orders to give effect to his judgment, including arguments about interest and costs; (2) determined Mr James Northey's notice of motion for leave to file a cross-claim against Mrs Juul; and, (3) determined Mrs Juul's notice of motion that she and Mr James Northey be replaced as trustees.
The dispute widened in June 2008. Mr Henry Northey lodged a caveat under the Real Property Act 1900 against the title of Mrs Juul's home on 16 June 2008. Aspects of the merits and costs of that caveat are the subject of present contest.
Macready AsJ made final orders at first instance on 23 July 2008. His orders gave effect to the accounting judgment (entering judgment against Mrs Juul and Mr James Northey for $165,493.72 together with interest of $102,203.18) but reducing this liability by $137,348.45 on account of just allowances for work done by Mr Juul. The orders allocated the liabilities for costs among the parties, and granted leave to Mr James Northey to file a cross-claim seeking orders that Mr and Mrs Juul indemnify him for his then adjudged liability to the estate. The 23 July 2008 orders also replaced Mrs Juul and Mr James Northey as trustees with the present trustees, Mr John Hunter and Mr Richard Booker ("the present trustees") who have administered Mrs Northey's estate continuously since 23 July 2008.
Macready AsJ's allocation of costs for the wilful default and accounting hearings reflected his findings. His Honour gave reasons for his costs awards in a third judgment, on 13 June 2008: ("the costs judgment"). The resulting orders were included in the final orders made on 23 July 2008. Macready AsJ allowed Mrs Juul and Mr James Northey to be indemnified out of the estate for one half of their costs of the wilful default hearing. This reflected their partial success at the wilful default hearing. But Macready AsJ directed that such indemnity should not be exercised "until such times as the amounts payable by the executors are paid back to the estate": the costs judgment, at [12].
The trustees were ordered to pay Mr Henry Northey's costs of the accounting hearing and their own costs of that hearing. Macready AsJ reasoned that "as these costs arose out of the wilful default and a failure to account that they should not be entitled to an indemnity out of the estate of the deceased in respect of these amounts": the costs judgment, at [13].
The estate paid on the trustee basis all parties' costs of replacing the trustees with the present trustees on 23 July 2008. Mr Henry Northey had filed a motion seeking orders to this effect on 7 April 2008. Mrs Juul had filed a motion to similar effect on 7 July 2008. The outcome of both motions improved the administration of the estate.
Mrs Juul appealed. Her notice of appeal filed on 8 October 2008 challenged the result of both the wilful default judgment and the accounting judgment, and their costs consequences reflected in the costs judgment. On 4 November 2008, Mr Henry Northey filed a notice of cross-appeal, challenging Macready AsJ's decisions dismissing his claims in respect of lots 51 and 52.
The Court of Appeal (McColl, Basten and Campbell JJA) heard the appeal and cross-appeal on 11 November 2009 and gave judgment on 26 August 2010: Juul v Northey [2010] NSWCA 211. The Court of Appeal concluded: (1) Mr Henry Northey's proceedings were misconceived (at [200]); (2) Mr Henry Northey had never exercised the leave to amend his Summons to include a prayer for an accounting on the basis of wilful default and therefore the wilful default allegations were never properly pleaded and the findings at first instance went beyond the case notified to Mrs Juul (at [203], [206 and [209]); (3) the plaintiffs' substantive allegation (on the unamended pleadings) remained one that Mrs Juul and Mr Juul had taken $515,000 from Mrs Northey without her agreement, an allegation which was not made out on the evidence and was rejected (at [234]); so (4) Mr Henry Northey failed on appeal because Macready AsJ had considered issues which were not part of Mr Henry Northey's pleaded case and because his Honour's findings that survived appeal did not support such a case.
In the result the Court of Appeal upheld Mrs Juul's appeal and dismissed Mr Henry Northey's cross-appeal, and awarded Mrs Juul party/party costs on the appeal and cross-appeal and at first instance. But the Court of Appeal did not dismiss Mr Henry Northey's claim solely on the basis of the failure to file an amended Summons. The present reasons necessarily involve a degree of simplification of the factual and procedural history and the issues litigated in the Court of Appeal. These matters are fully set out in McColl JA's detailed judgment in Juul v Northey [2010] NSWCA 211, agreed by Basten JA and Campbell JA. Aspects of the judgments of McColl JA and Basten JA are considered in more detail below.
The costs orders on appeal significantly varied the costs outcome of the trial. The Court of Appeal set aside Macready AsJ's judgment and all the costs orders his Honour had made on 23 July 2008. In lieu the Court of Appeal ordered that:-
(1) Mr Henry Northey should pay Mrs Juul's and Mr James Northey's costs of all the proceedings at first instance (the wilful default hearing and the accounting hearing) with the exception of two procedural motions in 2004;
(2) Mr Henry Northey should pay Mrs Juul's costs of the appeal;
(3) Mrs James Northey should bear his own costs of the appeal;
(4) Mr James Northey should pay Mrs Juul's costs of the Summons seeking leave to appeal; and
(5) Mr Henry Northey should pay Mrs Juul's costs of the cross-appeal.
Mr Henry Northey sought to appeal further. On 23 September 2010 he filed an application for special leave to appeal to the High Court. But on 17 March 2011 the High Court dismissed his application with costs.
In the result, by March 2011 Mrs Juul was successful on the three main matters contested in the litigation: matters concerning lot 51, lot 52, and the costs of the renovations. She had the benefit of awards of party/party costs in her favour and against Henry and James, reflecting those successes. Mrs Juul has not sought since March 2011 to have any of the costs orders in her favour enforced or the costs assessed.
For the next two years, between March 2011 and March 2013 the parties, including the present trustees, exchanged correspondence about the legal, costs, administration and financial consequences of the outcome of this litigation. The position that Mrs Juul advanced as early as April 2011 and still advances in the present applications, largely defines the issues still in contest.
In a letter of 15 April 2011 Mrs Juul's solicitors contended that the result of the litigation after the Court of Appeal's decision was that she was entitled to have her costs paid out of the estate as follows:
"We submit that a proper analysis of the parties' respective positions are as follows:
(a) Mrs Juul is presently the legal and beneficial owner of the various costs orders (and causes of action against the lawyers, if any)
(b) Mrs Juul is presently the owner of the equitable right of exoneration by way of reimbursement from the estate.
(c) Mrs Juul is presently the owner of an equitable charge over the assets of the estate securing her entitlement to that reimbursement.
(d) As and to the extent that the estate reimburses her for her costs and expenses, Mrs Juul will hold those rights on trust for the estate and/or the estate will be entitled, in equity, to subrogate itself to exercise those rights. (In such an event, the present trustees and Mrs Juul should ideally act in concert to ensure (a) no duplication of effort and cost, (b) no duplication of recovery, and (c) no right of recovery abandoned without a common resolution to that effect.)
(e) As a beneficiary of the estate, Mrs Juul has an interest in the recovery of as much of the costs and expenses from the persons who should ultimately bear that liability.
(f) Until each of Henry Northey and Jim Northey has paid his obligations under the costs orders, the estate has an equitable charge (and a right of ser of in that respect) against his respective one seventh of the net estate."
Mrs Juul asked the present trustees to fund the task of having her costs assessed, which request the present trustees rejected. Mrs Juul's contentions about her entitlements as the successful defendant and as a former trustee of Mrs Northey's estate were neither accepted by the present trustees nor by the other parties to the litigation.
The detail behind Mrs Juul's contentions is examined below in dealing with her motion for indemnity and the present trustees' motion for judicial advice.
The Present Trustees' And Mrs Juul's Motions
The present trustees seek to complete the administration of the estate. To that end, they filed a motion for judicial advice on 10 May 2013 to facilitate the distribution of the estate. The present trustees motion seeks the opinion, advice or direction of the Court on the following:
"1. Whether on the facts and in the circumstances which have occurred: John Stewart Hunter and Richard Booker as the executors of the estate of the late Betty Frances Northey ('the Deceased') would be justified in distributing the residual estate of the Deceased on the basis that:-
(i) No liability exists on the part of the estate to Henry James Northey for estate expenses allegedly incurred by him from and during the period 2006 to 2008.
(ii) No liability exist on the part of the estate to James Knight Northey for estate expenses allegedly incurred by him from and during the period 2006 to 2008.
(iii) James Knight Northey is liable to repay to the estate:-
(a) Monies received by him from the trust account of Wood Marshall Williams, solicitors (the previous solicitors acting on behalf of the estate) in the sum of $6,669.56; and
(b) Rent payable to the estate in respect to the occupation by James Knight Northey of the estate property known as [address not published], Collaroy in the agreed sum of $11,640.00.
(iv) Jennifer Frances Juul is liable to repay to the estate monies received by her or for her benefit from the trust account of Wood Marshall Williams, solicitors (the previous solicitors retained on behalf of the estate) in the sum of $18,537.32.
(v) The estate is liable to pay to Henry James Northey the sum of $4,049.50 being his legal costs as agreed in respect to the two notice of motion dated 7 April 2008 and that dated 7 July 2008.
(vi) No liability exists on the part of the estate to James Knight Northey in respect to his legal costs of the two notice of motion dated 7 April 2008 and that dated 7 July 2008.
(vii) No liability exists on the part of the estate to Jennifer Frances Juul in respect to her legal costs of the two notice of motion dated 7 April 2008 and that dated 7 July 2008."
The present trustees also ask that their costs of their May 2013 motion be paid out of the estate on an indemnity basis.
Mrs Juul filed her own motion on 14 June 2013. Her motion sought relief to give effect to her solicitors April 2011 contentions, declarations and orders to the effect that her costs incurred in the trial, on appeal and in the application for special leave, should be paid out of the estate on the trustee basis and that she is entitled to be indemnified in respect of her costs out of the assets of the estate. The four declarations she seeks are as follows:
"1. In respect of the "Heads of Loss" identified in Schedule below, a DECLARATION that the first defendant is entitled to an indemnity and to reimbursement our of the estate of the late Betty Northey (the estate).
2. A DECLARATION that:
a. the trustees hold the value of such of the first defendant's entitlements as determined by the Court pursuant to paragraph 1 above on trust for the first defendant;
b. the assets of the estate stand charged to the first defendant's benefit with the value of such of the first defendant's entitlements as determined by the Court pursuant to paragraph 1 above; and
c. such charge has priority over:
i. any later incurred expenses of the estate; and
ii. the beneficiaries' interests in the estate.
3. In respect, and to the extent of, any funds paid out of the estate to the first defendant or on her behalf pursuant to the first defendant's entitlements as determined by the Court pursuant to paragraph 1, a DECLARATION that:
a. the first defendant holds the legal rights in any relevant costs orders and causes of action on trust for the estate; and
b. the trustees of the estate from time to time are entitled to subrogate themselves to exercise the first defendant's relevant legal rights.
4. A DECLARATION that each of the plaintiff's and the second defendant's beneficial share in the estate stands charged to the trustees' favour to the extent of his respective unpaid liabilities under the "Costs Order" identified in the Schedule"
Mrs Juul also seeks recovery of the costs of her June 2013 motion. The "Heads of Loss" referred to in the Schedule to Mrs Juul's June 2013 Motion are various legal costs she has incurred throughout the litigation, administration costs, funding costs, costs associated with Mr Henry Northey's caveat, and the costs of these proceedings. These individual claims are identified in the course of the Court's reasons below.
Mrs Juul's primary contention on her June 2013 motion is that she was one of two executors and trustees of Mrs Northey's estate who has successfully defended unmeritorious accusations against her, which proceedings have resulted in her incurring legal costs in the order of some $460,000. Having been exonerated in respect of her conduct, she seeks to be reimbursed and indemnified for her expenses incurred as executor and trustee of the estate. She contests the decisions of the present trustees to deny her that entitlement. Moreover, she contests their request for her to refund some reimbursements made to her several years ago.
Before first considering Mrs Juul's motion, one procedural issue arises. Mr James Northey did not attend the hearing that took place on 17 and 18 September 2013. But I am satisfied from affidavits of service of both motions upon him that he had adequate notice of the proceedings against him. The present trustees read an affidavit of service of Mark Norman Smith of 28 May 2013, and Mrs Juul read an affidavit of service of James Bernard McGuinness of 28 June 2013. Both deposed to service of the motions on Mr James Northey at the same home address. Several directions hearings took place after the first return date of the motions and Mr James Northey did not attend any of those directions hearings.
Although no specific notice of the hearing date of 17 September 2014 was given to Mr James Northey after service of the motions upon him, the Court requested the parties to attempt to contact him during the hearing. A number of attempts were made to contact him but all were unsuccessful.
All the other parties were legally represented at the hearing. Mr J. Drummond of counsel appeared for the Present Trustees. Ms R. Winfield of counsel appeared for Mr Henry Northey. And Mr R. Lovas of counsel appeared for Mrs Juul. The legal representatives of these parties efficiently conducted a hearing with its many sub issues, within the allotted two days for hearing.
Mrs Juul's Motion
Mrs Juul's Contentions
Mrs Juul has sought a declaration that she is entitled to an indemnity and to reimbursement out of the estate of her expenses particularised in the Schedule to her notice of motion.
The Quantum of Mrs Juul's Costs. Mrs Juul's costs are substantial. But that is not surprising after 10 years of litigation. Her claimed costs as co-executor and co-trustee of Mrs Northey's estate are $459,963.16. This sum is broken up into its component parts later. But Mrs Juul's claim for this sum does not include: (1) any interest Mrs Juul has had to pay from her own resources to fund the payment of these costs; nor (2) the costs she incurred in the present applications.
None of Mrs Juul's claims for costs have yet been referred for assessment. She first submits that there is no challenge to her claim to an indemnity from the estate for this $459,963.16 in costs on the basis that: (1) it was not "reasonably as well as honestly incurred"; and therefore (2) falls outside the principle of reimbursement in National Trustees Executors and Agency Company of Australasia Limited v Barnes (1941) 64 CLR 268 ("Barnes") at 277 per Williams J and Dawson v Clarke (1811) 18 Ves 247, at 254; (1811) 34 ER 311.
But that is not correct. The other parties certainly do not dispute the quantum Mrs Juul claims or that she actually incurred legal costs and disbursements for which she is liable to her legal representative. The time to challenge the quantum of legal costs she claims by the usual processes as costs assessment has not yet arisen, as the costs have not been referred for assessment. But the Present Trustees and Mr Henry Northey are nevertheless contending, that recovery of any part of Mrs Juul's costs of $459,963.16 would be unreasonable, because although they may be characterised as incurred as expenses of a co-executor/co-trustee, the application of other legal principles bars Mrs Juul from reimbursement for these expenses from the estate.
Allowing Mrs Juul recovery of her costs from the estate has a substantial effect on the entitlements of the seven beneficiaries of the estate. At the time of hearing the estate had a net distributable value of $757,495, subject to the further deduction of the Present Trustees' costs associated with these motions. Each of the seven beneficiaries would be entitled to a distribution of $108,213.57, if there were no further deductions from the estate. But if Mrs Juul's claimed costs of $459,963.16 were to be allowed out of the estate in full, each beneficiary's entitlement would reduce to $42,504.55 (being $757,495 less $459,963.16 divided by 7), a figure only approximately 39 per cent of the $108,213.57 entitlement that each beneficiary would otherwise receive.
In addition to seeking a charge over estate assets for the payment of these costs, Mrs Juul also seeks in her motion a charging order over Mr Henry Northey's share and Mr James Northey's share of the estate. But the costs figures in the previous paragraph show that their combined entitlements to the estate of $216,427.14 would be insufficient to meet all Mrs Juul's liabilities for costs of $459,963.16; the short fall would be $243,536.02, which would have to be shared by the remaining five beneficiaries.
Four Sources of a Trustee's Indemnity. Mrs Juul puts her claim to an indemnity from the estate in four ways. First, the right of indemnity is said to be an incident of her office as trustee of the estate: Barnes, at 277. Secondly, Trustee Act 1925, s 59(4), restating the position at general law, permits a trustee to "reimburse himself or herself or to pay or discharge out of the trust property all expenses incurred in or about execution of the trustee's trust or powers": Gatsios Holdings v Kritharas Holdings (In Liquidation) [2002] NSWCA 29 ("Gatsios"), [9] and [45]. Thirdly, Uniform Civil Procedure Rules ("UCPR"), r 42.25(1) provides that a person who has been a party to proceedings in the capacity of trustee "is entitled to be paid his or her costs of the proceedings, in so far as they are not paid by any other person, out of the fund held by the trustee" (UCPR, r 42.25(1)) unless the trustee "has acted unreasonably" or "has in substance acted for his or her own benefit rather than for the benefit of the fund" (UCPR, r 42.25(2)). And fourthly, Mrs Northey's will itself provides (in clause 8) that "no Trustee of this my Will shall be liable for any loss not attributable to: (a) wilful neglect or default; or the commission by him of any act known to him to be a breach of trust". On that scenario each of the other beneficiaries would receive the slightly greater amount of $59,506.37, being $108,213.57, less $48,707.20 ($243,536.02 divided by 5).
The application of each of these four sources of Mrs Juul's claimed right to indemnity produces the same result. Although the language of each source is different, as the reasoning below shows, there is no circumstance here in which the choice of one or other source of the claimed right to indemnify will lead to a different outcome.
The Will as a Source of Indemnity. But Clause 8 of the Will as a source of indemnity was a point of particular contention. Mr Henry Northey took issue with the extent of the indemnity that clause 8 affords, submitting that it only refers to losses of the estate, not to the executor's personal losses.
But this submission is not persuasive. For Mr Henry Northey's construction of clause 8 to work additional words of limitation need to be added to the expression "any loss", additional words that the testatrix did not use. And the will should be construed in the context of the law prevailing at the time it was made (Re March; March v Harris (1884) 27 Ch D 166), which law includes the first three sources of the right to indemnity described above. In my judgment the testatrix's words do not evince any intention to derogate from those rights, which would be the effect of Mr Henry Northey's claimed construction.
A Charge Over the Estate's Assets. Mrs Juul also claims that the present trustees hold the value of her entitlements to an indemnity or reimbursement out of the estate, on trust for her. She claims that she has a charge over the estate for her entitlements which has priority over any later incurred expenses of the estate and over the beneficiaries' interests in the estate.
Once a trustee's right to indemnity/reimbursement is recognised, the trustee's right to the recovery of this entitlement against the estate in priority to the rights of beneficiaries is well established. The High Court stated the applicable principles in Octavo Investments Pty Limited v Knight (1979) 144 CLR 360 ("Knight"), at 367 in the following terms:
"We do not understand the general principles concerning the bankruptcy of a trading trustee to be in dispute. It is common ground that a trustee who in discharge of his trust enters into business transactions is personally liable for any debts that are incurred in the course of those transactions: Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319. However, he is entitled to be indemnified against those liabilities from the trust assets held by him and for the purpose of enforcing the indemnity the trustee possesses a charge or right of lien over those assets: Vacuum Oil Co Pty Ltd v Wiltshire, supra. The charge is not capable of differential application to certain only of such assets. It applies to the whole range of trust assets in the trustee's possession except for those assets, if any, which under the terms of the trust deed the trustee is not authorised to use for the purposes of carrying on the business: Dowse v Gorton [1891] AC 190; [1891-4] All ER Rep 1230.
In such a case there are then two classes of persons having a beneficial interest in the trust assets: first, the cestuis que trustent, those for whose benefit the business was being carried on; and secondly, the trustee in respect of his right to be indemnified out of the trust assets against personal liabilities incurred in the performance of the trust. The latter interest will be preferred to the former, so that the cestuis que trustent are not entitled to call for a distribution of trust assets which are subject to a charge in favour of the trustee until the charge has been satisfied: Vacuum Oil Co Pty Ltd v Wiltshire,supra."
The priority of the trustee's charge over the beneficiaries' interest in the trust fund means it can truly be said, that until the right to reimbursement or exoneration has been satisfied "it is impossible to say what the trust fund is": Dodds v Tuke (1884) 25 Ch D 617, at 619, and Commissioner of Stamp Duties v Buckle (1998) 192 CLR 226 ("Buckle"), at [48]. The entitlement of the beneficiaries is confined to so much of the trust assets as are available after the liabilities to the trustee have been discharged, or provision has been made for them: Kemtron Industries Pty Limited v Commissioner of Stamp Duties (Qld) [1984] 1 Qd R 576, at 587, and Barnes, at [48]. To the extent that the assets held by the trustee are subject to their application to reimburse or exonerate the trustee, they are not "trust assets" or "trust property" in the sense that they are held solely upon trusts imposing fiduciary duties which bind the trustee in favour of the beneficiaries: Knight at 370 and Buckle at [48]. The rationale for giving this priority to the trustees' entitlement to reimbursement or exoneration was identified by Lindley LJ as being "the price paid by cestuis que trust for the gratuitous and onerous services of trustees": In re Beddoe [1893] 1 Ch 547, at 558 and Buckle at [49].
In summary, Mrs Juul argues that the Present Trustee hold the remaining fund of $757,495: (i) to satisfy Mrs Juul's equitable charge to secure her right to exoneration and reimbursement, (ii) to satisfy their own equitable charge to the same effect, and then (iii) to pay the residue to the beneficiaries. She further submits that if the fund were to be insufficient to satisfy the financial obligations represented in both (i) and (ii), that satisfaction of (i) would take priority over (ii) in the application of the conventional principles of giving priority to the interest created earlier in time: Heid v Reliance Finance Corporation (1983) 154 CLR 326.
The Present Trustees' and Mr Henry Northey's Issues and their Resolution
The Present Trustees and Mr Henry Northey attack Mrs Juul's case for indemnity out of the estate through arguments of two principal types: the first type are arguments of general application to all Mrs Juul's legal expenses; and the second type are arguments that have application only to particular expenses that Mrs Juul claims. Each of the non-Juul parties' arguments will be dealt with in this section. The non-Juul parties' arguments do not take any issue with the statements of legal principle above about a trustee's general entitlement to exoneration or of reimbursement and a trustee's charge over estate assets in priority beneficiaries to secure this entitlement. But the non-Juul parties seek to distinguish the present case from general applications of these principles.
Trustee or Executor? But there is one preliminary issue. Mr Henry Northey argued that Mrs Juul is not entitled to an indemnity because she never administered the estate as a trustee, only as an executor. The Present Trustees do not advance this argument.
The argument is not persuasive. First the distinction between Mrs Juul acting as an executor and acting as a trustee is a distinction without a relevant difference for the issues under present consideration. One of the bases on which Mrs Juul rests her claim to an indemnity is Trustee Act, s 59(4). The term "trustee" in the Trustee Act includes "legal representative", which in turn includes "executor": see Trustee Act, s 5. Thus, Mrs Juul's right of indemnity does not depend on establishing that administration of the estate had concluded. But in any event, by 5 April 2004 Mrs Juul and her co-executor Mr James Northey held sufficient funds on trust for the beneficiaries that they were able to make a partial distribution from the estate. There is nothing in this point.
The parties' submissions about Mrs Juul's entitlement to reimbursement of her costs from the estate present the following sequence of questions for the Court's consideration.
(a) What is the proper basis in principle of any entitlement Mrs Juul may have to reimbursement of her costs from the estate?
(b) Is her entitlement to be assessed on the basis that she was successful in the litigation?
(c) Do any of the recognised exceptions to trustees' entitlements to reimbursement for their costs apply here?
(d) As an order for reimbursement was not made in the Court of Appeal, is it now too late for such an order to be made?
(e) If reimbursement were ordered, should the whole or some lesser part of Mrs Juul's costs be reimbursed?
(f) If reimbursement were ordered, should it be on condition that Mrs Juul first attempts recovery of her costs?
(g) If reimbursement were ordered, should any person(s) share of the estate first bear the burden of the reimbursement?
Some facts that are central to the contest require emphasis at the outset. All the costs for which Mrs Juul is seeking reimbursement have already been incurred, other than the costs of this application. Mrs Juul never at any time before they were incurred sought judicial advice as to whether she was entitled to reimbursement of her costs from the estate. Some of the costs Mrs Juul claims were incurred when she was a trustee of the estate and some only after she retired as a trustee in July 2008. In the result at first instance, when Mrs Juul and Mr James Northey were co-trustees of the estate, she was unsuccessful as to part of her claim. But Mrs Juul was found to be wholly successful on appeal, although only after she retired as a co-trustee of the estate, and by reason of her expending her own resources on an appeal. The costs for which she now claims reimbursement span the period both before and after her co-trusteeship. She has not attempted to enforce the costs orders she gained against Mr Henry Northey from the Court of Appeal.
(a) The Proper Basis of any Entitlement?
Mrs Juul's submissions as to the principles that justify her claimed entitlement to reimbursement are generally well founded and were not in contest. The main area of contention was in applying the principles. The contest offered by the non-Juul parties brings two subjects into immediate focus: (1) the indemnity consequences of a trustee's success in estate litigation; and (2) the three classes of trustee litigation. Before fully examining the non-Juul parties' arguments it is useful briefly to state some applicable law in relation to these subjects.
(1) A Trustee's Successful Defence of Litigation Justifies Indemnity. The non-Juul parties argued that prior to retiring as a co-trustee Mrs Juul had failed in the litigation Mr Henry Northey had brought against her. As she had not sought a Beddoe order before defending herself in these proceedings the non-Juul parties argued that she was therefore not entitled to recover any of her defence costs from the trust fund. The Court has not ultimately found this argument persuasive.
The applicable principles may be shortly stated. Trustees are entitled to a lien on the trust fund for the costs of successfully defending themselves against an action for breach of trust, as the cases involving successful trustees in litigation show: Walter v Woodbridge (1878) 7 Ch D 504, Re Spurling's Will Trusts [1966] 1 WLR 920 and Armitage v Nurse [1988] Ch 241 at 262 C-D, per Millett LJ. Just because trustees are defending themselves against a claim to recover money from them for the benefit of the trust is not of itself sufficient to deprive the trustees of their right to recoup their costs out of the trust fund; if the trustees are successful, then the claim against them was not well founded and the defence was shown to be beneficial to the estate, even though the trustees were also defending their own character and they cannot be denied their right to recoupment: Walter v Woodbridge (1878) 7 Ch D 504 per James LJ at 510, and In Re Spurling's Will Trusts [1966] 1 WLR 920, at 932 H-933A, 935-936, per Ungoed-Thomas J; and Frost v Bovaird [2012] FCAFC 60, at [71]. And as Williams J said in Barnes (at p 279) of a trustee defending his or her conduct, "even if he fails in the suit he may be allowed his costs out of the estate, but if he succeeds, as in this case, he is clearly entitled thereto".
In contrast, there is no entitlement for trustees to recoup themselves out of the trust fund for the costs of unsuccessfully defending themselves against an action for breach of trust: Armitage v Nurse [1988] Ch 241, at 262 E-F, per Millett LJ. Even if a claim for an account or for money succeeds against trustees, they may nevertheless be found not to have misconducted themselves so as to lose their right of recoupment: Armitage v Nurse [1988] Ch 241, at 263 A, per Millett LJ. Given the comparatively small expense with which trustees can obtain the opinion of an Equity judge if a trustee brings or defends an action unsuccessfully and without leave it is for the trustee to show that the costs so incurred were properly incurred; and the fact that the trustee acted on counsel's opinion is no indemnity to the trustee even on a question of costs: Stott v Milne (1884) 25 Ch D 710 and In Re Beddoe, Downes v Cottam 547, at 558 per Lindley LJ, and at 562 per Bowen LJ.
(2) The Three Classes of Trust Litigation. The Present Trustees also argue that this is trust litigation of a particular kind, a hostile beneficiaries dispute, in which the applicable rule is that all parties, including trustees must bear their own costs. For reasons that are later explained in my judgment this argument misconstrues relevant authority. But it is first necessary to understand these various categories of litigation.
The relevant law may be shortly stated. For the purposes of assessing the proper incidence of costs Kekewich J explained in In Re Buckton; Buckton v Buckton [1907] 2 Ch 406 at 414 to 415 that trust litigation may be divided into three classes: (1) trustees applications to construe the trust instrument to ascertain the interests of the beneficiaries or to have a question determined that has arisen in the administration of the trusts, a class in which costs will be necessarily incurred for the benefit of the estate or should be taxed as between solicitor and client and paid out of the estate; (2) applications made in form by a beneficiary but which are in substance the same as the first class of application and could have been brought by the trustees (to this class the same costs rule applies as the first class as the costs of all parties are necessarily incurred for the benefit of the estate regarded as a whole); and (3) for applications made by beneficiaries who make adverse claims against other beneficiaries, whether by originating Summons or Statement of Claim, the rule in adverse litigation applies that the unsuccessful party bear the costs of all who that party has brought before the Court, although sometimes the unsuccessful party may not be ordered to pay the costs of the trustees: see also McDonald and others v Horn and others [1995] 1 All ER 961, at 970h - 971b, per Hoffman LJ.
In a beneficiaries dispute, where misconduct is alleged against a trustee, the trustee is, pending the determination of that claim, not prima facie entitled, without more to an In Re Beddoe order to use the trust funds to meet legal costs incurred in defending the claim: Frost v Bovaird [2012] FCAFC 60, at [79]. But the Court may sometimes feel confident in a beneficiaries dispute that the case is nearly within the first or second class, so as to be able to make a prospective order (usually with the support of the trustee) that parties other than the trustees may have costs out of the fund in any event; but such cases are rare: Re Exchange Securities and Commodities Ltd (No. 2) (1985) BCLC 392, at 395 and McDonald v Horn [1995] 1 All ER 961, at 971 E-G.
(b) Was Mrs Juul Successful in the Litigation?
The non-Juul parties argued that Mrs Juul was: not successful in the litigation when she was a co-trustee, so in the absence of a Re Beddoe order she was not entitled to reimbursement; and if she was ultimately successful, she was only successful in the litigation by orders that were operative by which time retired as a co-trustee, so she was still not entitled to reimbursement. In response Mrs Juul argued that her entitlement to reimbursement should be assessed on the basis that she had been wholly exonerated ex post facto for her conduct as a co-trustee and that she was therefore entitled to reimbursement of all her legal expenses when performing her role as co-trustee before 23 July 2008 and also to reimbursement of all her legal expenses of later vindicating her role as co-trustee.
These competing contentions raise three questions: (1) at what point in time should Mrs Juul's success in the litigation be assessed; (2) was Mrs Juul successful in the proceedings in the sense required by the authorities so as to justify her reimbursement from the estate of the charges and expenses associated with her defence; and (3) if the time for assessment of her success is after Mrs Juul retired as a co-trustee, is she entitled to reimbursement for the legal costs she incurred after her retirement in establishing that she should have been successful in the litigation when she was a trustee.
(1) The time to assess success. The first question is at what point in time should Mrs Juul's success in the litigation be assessed. Both authority and general principle indicate the answer: a trustee who successfully litigates as a trustee does not have to achieve that success before retiring as a trustee in order to be entitled to reimbursement of the trustee's charges and expenses of the litigation from the estate.
Authority provides examples of trustees defending litigation as trustees, who were only ultimately proven successful after they retired as trustees but who were nevertheless permitted to be reimbursed from the trust fund for their charges and expenses in the litigation. The solicitor-trustee in In Re Spurling's Will Trusts [1966] 1 WLR 920, at 924, whose costs were in question had retired from his office and been replaced by a new trustee once he was sued by beneficiaries in the principal action. The principal proceedings were defended by a replacement trustee, rather like the latter part of these proceedings after 23 July 2008. The precise issue before Ungoed-Thomas J in Spurling was whether the solicitor-trustee was entitled to have his costs out of the trust fund after he (and a co-trustee) had successfully seen off a challenge to their administration of the trust by the two beneficiaries. Ungoed-Thomas J held (at p936) that he was so entitled. The report in Spurling shows that the solicitor-trustee's retirement from office was not suggested as an obstacle to his recovery from the fund. Ungoed-Thomas J in Spurling (at p936) allowed him to recoup from the fund in accordance with the formula in In re Grimthorpe decd [1958] Ch 615, at 621 "Costs and expenses of and incident to this action".
Considerations of general principle lead to the same result. The effect of the Court of Appeal's decision on 26 August 2010 was to set aside all the substantive orders Macready AsJ made on 23 July 2008 in favour of Mr Henry Northey and to substitute therefor new orders dismissing Mr Henry Northey's summons and requiring Mr Henry Northey to pay Mrs Juul's costs of the proceedings at first instance: Juul v Northey [2010] NSWCA 211 at [250]. The Court of Appeal's order wholly replaces Macready AsJ's order. At all times after 26 August 2010 the result of the proceedings before Macready AsJ is the result that the Court of Appeal pronounced. Macready AsJ's original 23 July 2008 orders are no longer operative. When the Court is now asked to assess Mrs Juul's success or failure in the proceedings it must have regard to the outcome of those proceedings as the Court record now stands. To do otherwise would be to indulge in an unacceptable fiction: pretending that the Court of Appeal's decision never occurred and accepting a result of these proceedings based on (Macready AsJ's) reasoning which is inconsistent with the Court of Appeal's decision.
(2) Was Mrs Juul successful in the requisite sense? By every available measure Mrs Juul was successful in the Court of Appeal. No adverse findings as to her conduct as co-trustee survived her appeal. Her success on appeal was unpalatable to Mr Henry Northey - witness his application for special leave to appeal to the High Court - but success it was nevertheless.
Short analysis of the Court of Appeal's reasons in Juul v Northey [2010] NSWCA 211 demonstrates Mrs Juul's complete success on appeal. Mrs Juul succeeded on appeal not just because of the poorly articulated and imprecise pleading against her (at [183] and [184]), but because the case of wilful default sought to be made against her lacked a proper evidentiary and legal foundation.
The wilful default case was defective in many respects. The Court of Appeal concluded: (at [221]) that the trial judge "did not identify a jurisprudential basis upon which he held...Mr and Mrs Juul were obliged to account to the estate" so as to demonstrate even "one instance of wilful default...in the executor's failure to get in the amount due to be refunded"; (at [226]) that the objective evidence supported Mr and Mrs Juul's case that Mrs Northey was content for Mr Juul to carry out the work without requiring a detailed accounting or a refund; (at [234]) that the primary judge erred in finding Mr and Mrs Juul owed any moneys to the estate; and (and [246]) that the primary judge's finding of wilful default should not have been made.
The Court of Appeal's decision removed the sole basis of the primary judge's findings against Mrs Juul as a trustee and wholly justified Mrs Juul's decision to defend herself against an unmeritorious claim against her as trustee. She was completely successful.
(3) Mrs Juul's charges and expenses after retirement. The Present Trustees submit that Mrs Juul's liability for legal expenses incurred after she retired as a co-trustee by the Court's orders on 23 July 2008 fall into a special category: she was not then a trustee, and was no longer litigating in that capacity but took up her appeal in her personal capacity. Her retirement came at the conclusion of the first instance hearing before Macready AsJ. So this argument potentially affects the recovery of the costs she incurred in the Court of Appeal and the High Court.
Mrs Juul's answer on this issue is persuasive. The issue is whether the questioned expenses were "properly incurred by the trustee as an incident of his administration of the state": Barnes, at 279 per Williams J. She submits it is not axiomatic that such expenses must be incurred whilst the trustee is in office.
Indeed a moment's reflection provides simple examples of expenses that naturally arise after a trustee has retired, which would be commonly regarded as "incidental" to the administration of an estate: a trustee may have to travel to Court to consent to orders for his or her retirement as trustee, as part of the trusts' efficient administration; it could not readily be argued that the expense of the trustee's return journey after retirement was not an expense "incidental" to the administration of the estate.
But Mrs Juul's legal costs and other expenses are of a far more substantial nature than this example: they involve the whole of Mrs Juul's costs of conducting the appeal in the Court of Appeal, to overturn Macready AsJ's judgments against her and then defending that result in the High Court special leave application. They also include various financial costs, which are separately considered later in these reasons. Yet subject to consideration of the several possible exceptions to reimbursement, the fact that many of these expenses and charges were only incurred after Mrs Juul's retirement is not in itself, in my opinion, an obstacle to Mrs Juul recovering them from the estate, provided of course they can still be properly classified as an "incident" of the trustee's administration of the estate.
There are good reasons for this. It is open to a person in the position of a trustee, defending the trustee's own conduct as trustee in litigation, to expend, and so put at risk, the trustee's own personal financial resources in the event of the trustee's failure in the litigation, rather than for the trustee to apply for an In Re Beddoe order, and thereby place the trust fund at risk of the trustee's lack of success. If the trustee is ultimately successful in defending the trustee's conduct as trustee, then the trustee is treated retrospectively as being "in the same position as to indemnity, as if he had made that application": Bristowe v Needham (1847) 2 Ph 190, 191, quoted in In re Dunn [1904] 1 Ch 648, at 657. Ungoed-Thomas J vividly affirmed this principle in In Re Spurling (at p436B) "To me, it would be a topsy-turvy Alice in Wonderland law if it were otherwise."
But if this choice is open to the trustee to act independently of the trust with the trustee's own resources to defend (and if successful, thereby to retrospectively validate) the trustee's own conduct as trustee, there seems to be no principled basis for revoking the trustee's clear right of independent action in self defence or for recoupment just because the trustee happens to cease to be trustee. Despite retirement the trustee still in justice should have an indemnity for properly incurred past administration expenses.
The trustees are entitled to approach these payments in my judgment on the basis that they are likely to be genuine payments for estate related purposes which were verified by competent professionals at the time, notwithstanding the lack of extant documentation to vouch for the underlying purposes of the payments. Not only is the absence of the vouchers now explicable but no other ground of suspicion falls upon the payments sufficient for the trustees to require Mrs Juul to repay these moneys to the estate. In my view the trustees would be justified in distributing the residual estate of the deceased without requiring Mrs Juul to repay to the estate the payments of 5 April 2004 of $4,313.20 and of 1 September 2004 of $7,776.41.
Mrs Juul argued that she was not obliged to repay this amount of $18,537.32 on a number of other bases which it is now not necessary to consider. She argued, for example, that the accounting hearing covered these same payments and resulted in either a res judicata, a cause of action estoppel, an issue estoppel or an anshun estoppel. Moreover she said that these claims were statute barred or affected by laches. None of these arguments now need to be considered.
(v)Henry's Costs of the April and July 2008 Motions - $4,049.50
On 23 July 2008 Macready AsJ made orders that the parties' respective costs of Mr Henry Northey's motion of 7 April 2008 and Mrs Juul's motion of 7 July 2008 should be paid out of the assets of the estate and assessed on the trustee basis. But the trustees encountered difficulties in agreeing upon the amount of costs to be deducted from the estate with each of Mr James Northey and Mr Henry Northey and Mrs Juul. But I accept on the evidence that the estate has now been able to agree upon a figure with Mr Henry Northey for his legal costs of the motion of $4,049.50. The figure was properly supported and has been the subject of negotiation. There is no reason why the executors will not be justified in distributing the residual estate of the deceased on the basis that it is liable to pay Mr Henry Northey the agreed sum of $4,049.50.
Mrs Juul does not make any submission on the question of whether the estate is liable to pay Henry $4,049.50. She concedes that it is a claim within the trustee's power to accept.
(vi)James' costs of the 2008 April and July 2008 motions
Mr James Northey had the benefit of the same 23 July 2008 costs order for the April and July 2008 motions, as did Mr Henry Northey and Mrs Juul. But Mr James Northey has not communicated a final bill of legal costs to the estate for his legal costs for these motions. He seems to have lost interest in the proceedings in recent times.
Mr James Northey was legally represented by a solicitor on these motions, although not by counsel. In the absence of a memorandum of legal fees from Mr James Northey's solicitors the best that can be done is to estimate what is a reasonable amount that should be set aside to account for the legal fees that Mr James Northey probably incurred. It should be inferred in my judgment that he must have incurred some legal fees for these motions.
The fees agreed with Mr Henry Northey are a reasonable guide to what is proper for Mr James Northey. As Mr Henry Northey's fees were a little over $4,000 in my view the Present Trustees would be justified in making an allowance in the distribution of the estate of $2,500 to Mr James Northey on account of his legal costs of these two motions and would be justified in distributing that sum to him on this account.
(vii)Mrs Juul's costs of the April and July 2008 motions
As a result of the Court's reasons on Mrs Juul's motion, she stands in a stronger position than the other parties on the question of the costs of the two 2008 notices of motion. Apart from the terms of the orders made on 23 July 2008 Mrs Juul has now successfully contended that she has a right to be indemnified by the Present Trustees for her expenses incurred in this litigation. She contends her costs in these two notices of motion are costs incurred by her in her capacity as trustee in the estate successfully defending an unmeritorious allegation of breach of trust. The Court's reasoning on Mrs Juul's motion means that her claim for reimbursement from the estate of the costs of these two 2008 notices of motion should be accepted.
But in addition she has the benefit of the same arguments as Mr Henry Northey and Mr James Northey on this issue, as Macready AsJ also made an order in her favour on 23 July 2008 that her costs of these motions be paid out of the estate.
The difficulty at the hearing was separating out these costs from all other costs incurred by Mrs Juul. She had not separated out these amounts during the hearing. The parties were given liberty to provide further material to the Court by 4 October 2012 to show that the quantum of these costs have been agreed. That liberty does not appear to have been taken up. But that problem of separation may no longer exist in light of the result of Mrs Juul's motion. She will be able to recover all her legal costs from this period anyway. If the parties still want to isolate these costs they can raise this matter at the time that final orders are settled.
Costs of the Present Trustees motion. The Present Trustees should have their costs of this under Trustee Act, s 63 motion out of the estate. This part of the parties' dispute is far less akin to a beneficiaries dispute. Authority therefore indicates that both Mr Henry Northey and Mrs Juul's costs of this motion should be paid out of the estate, albeit that Mrs Juul's entitlemnt will be limited in accordance with paragraph [119] above. But if that cost outcome is to be disputed then this issue can be briefly argued when the Court settles final orders in the proceedings.
Conclusion and Orders
The result of Mrs Juul's motion is that she is entitled as a co-trustee of the estate to costs out of the estate for her successful defence of Mr Henry Northey's litigation and for her costs in the Court of Appeal and the High Court and for other costs identified in these reasons, including the costs of this motion. But for the reasons given she is not entitled to the financial and other consequential costs of her litigation as trustee. The result of the Present Trustees for advice under Trustee Act, s 63 motion has been mixed, as these reasons indicate in detail.
In the course of these reasons, the Court has indicated that the parties should bring in short minutes of order to give effect to the Court's substantive findings. But a few procedural directions must nevertheless be made. Accordingly, the Court makes the following orders and directions:
(1) The parties are directed to bring in short minutes of order to give effect to these reasons;
(2) The proceedings are listed at 9.30am on Monday, 19 May 2014 for any argument about the appropriate form of final orders.
(3) If the parties wish to fix another date more convenient to the parties for the making of final orders they should contact my Associate with a new agreed date this week.
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Amendments
19 May 2014 - typo graphcal error and slip rule addition
Amended paragraphs: 155,202
Decision last updated: 28 April 2014
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