Re Aitken; Maier v Hearn
[2021] VSC 502
•17 August 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2019 04342
IN THE MATTER of an application pursuant to rule 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 for determination of questions arising in the administration of the estate
-and-
IN THE MATTER of the will and estate of MAVIS VIOLET AITKEN, deceased
| MARK ALBERT MAIER (as administrator of the estate of MAVIS VIOLET AITKEN, deceased) | Plaintiff |
| v | |
| CATHERINE MELISSA HEARN | First defendant |
| v | |
| NICHOLAS GIASOUMI (as trustee of the bankrupt estate of PATRICIA SUSANNE AITKEN-WELCH) | Second defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 17 August 2021 |
CASE MAY BE CITED AS: | Re Aitken; Maier v Hearn & Anor |
MEDIUM NEUTRAL CITATION: | [2021] VSC 502 |
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COSTS — Costs subject to terms of settlement and fixed by court order — Costs of investigation into alleged claims against the estate — Whether properly treated as costs of the administration of the estate — Whether costs claimed are reasonable and proportionate — Bankruptcy Act 1966 (Cth) s 58(1)(b) — Civil Procedure Act 2010 (Vic) s 24.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms U Stanisich | McNab, McNab & Starke |
| For the First Defendant | Ms C McOmish | Weir & Strempel Pty Ltd |
| For the Second Defendant | Ms G Grigoriou | MGA Lawyers |
HER HONOUR:
This judgment deals with remaining costs issues arising from terms of settlement (‘the terms of settlement’) entered into on 10 October 2018.
Background
Mavis Violet Aitken (‘the deceased’) died on 4 April 2017 died leaving wills dated 12 November 2012 (‘the final will’), 30 October 2012 (‘the penultimate will’), 15 June 2007 (‘the 15 June 2007 will’) and 5 March 2003. The final and penultimate wills appointed the deceased’s daughters Patricia Susanne Aitken Welch (‘Patricia’) and Robyn Ann Browne (‘Robyn’) executors and trustees. The 15 June 2007 will instead appointed the deceased’s granddaughter and first defendant, Catherine Melissa Hearn (‘Catherine’) as executor and trustee.
In proceeding S PRB 2018 06280 Patricia made an application for grant of letters of administration with the penultimate will annexed. However, disputes arose between the parties in relation to the validity of the will.
On 25 May 2018, Catherine made an application in proceeding S PRB 2018 08574 for a grant of probate of the 15 June 2007 will.
A mediation was held on 10 October 2018 between the interested parties to resolve the entitlements to the estate and the carriage of the administration. The mediation was attended by the majority of sui juris beneficiaries under each will, with the exception of Patricia. Nicholas Giasoumi (‘the second defendant’) attended in his capacity as trustee of the bankrupt estate of Patricia.[1]
[1]Patricia was discharged from bankruptcy by operation of law on 16 December 2017, although her bankruptcy has not been annulled due to the existence of unpaid creditors.
Terms of settlement were executed by the interested parties present at the mediation, contingent upon the making an application to have Patricia passed over as executor, the written consent of Patricia’s daughter, Elisabeth Poulson, and subject to the Court’s approval of the compromise.
Paragraphs 3 and 5 of the terms of settlement provide:
3. The Trustee will, after the expiration of 14 days, lodge a caveat against Patricia’s application for probate, file Grounds of Objection, make submissions to the Court that Patricia is not a fit and proper person to take out a grant of probate, nominate an independent administrator agreed between himself, Catherine, and Robyn (the Passing Over Application).
…
5. Upon a grant of representation being made, the parties agree that the estate of the deceased will be administered and distributed in accordance with the attached Schedule (the Administration and Distribution).[2]
[2]Emphasis omitted.
Paragraphs 1(c) and 1(d) of the schedule to the terms of settlement headed ‘The Administration and Distribution’ provide:
1. The legal personal representative of the estate of the Deceased will:
…
b. Pay the debts and liabilities of the estate, including but not limited to administration costs and the cost of the monument;
c. Pay the costs of the parties up to and including mediation (being Catherine’s costs of $72,000.00, Robyn’s costs of $37,000.00, and the Trustee’s costs of $45,000.00);
d. Pay the reasonable future costs of the parties incurred in the Passing Over Application and obtaining a grant of representation;
e. Distribute the balance of the estate as follows:
i. 12% to each of Elisabeth, Sarah, and Benjamin;
ii. 24.5% to each of Robyn and the Trustee; and
iii. 15% to Catherine.
On 20 December 2018, orders were made (‘the 20 December 2018 orders’) requiring that:
(a) Patricia be passed over as executor of the final will of the deceased (ord 2);
(b) Patricia bear her own costs of and incidental to the proceeding without indemnity from the estate (ord 3);
(c) the first and second defendants’ costs of and incidental to the proceeding be retained from the deceased’s estate (ord 4); and
(d) Patricia’s application for letters of administration be dismissed (ord 5).
Orders were also made that Patricia’s application for letters of administration of the estate of the deceased with the final will annexed be dismissed and letters of administration with the final will annexed were granted to the plaintiff.
On 31 January 2019 (‘the 31 January 2019 orders’) the terms of settlement were approved and orders were made, inter alia:
(a) that the costs of Catherine of and incidental to the application for approval and to proceeding S PRB 2018 06280 be fixed at $72,000 and paid from the estate of the deceased (ord 4);
(b) that the costs of Robyn of and incidental to the application for approval be fixed at $37,000 and paid out of the estate (ord 5);
(c) that the costs of the second defendant of and incidental to the application for approval be fixed at $45,000 and paid out of the deceased’s estate (ord 6); and
(d) that the proceeding be otherwise dismissed (ord 12).
By originating motion filed 23 September 2019 in this proceeding the plaintiff sought certain orders and directions in relation to issues that have arisen in relation to the administration of the estate.
The plaintiff sought an order that any claims by Patricia and/or the second defendant, other than in respect of his entitlement in his representative capacity to share in the residue of the estate, be for all purposes barred. In addition, the plaintiff sought an order that he be authorised to distribute or deal with the estate without regard to the claims by Patricia and/or the second defendant, other than in respect of his entitlement in his representative capacity to share in the residue of the estate.
The plaintiff sought directions as to whether the 31 January 2019 orders fixed the costs of the parties to the terms of settlement dated 10 October 2018:
(a) for the purposes of para 1(c) of the schedule to the terms of settlement only; or
(b) for the purposes of both paras 1(c) and 1(d) of the schedule to the terms of settlement; and
(c) if the order fixes the parties’ costs only for the purpose of para 1(c) of the schedule, whether the further costs claimed pursuant to para 1(d) of the schedule are approved by the Court.
The plaintiff also sought an order as to the costs of the estate in relation claims by Patricia and/or the second defendant, other than in respect of his entitlement in his representative capacity to share in the residue of the estate, inclusive of the costs of the present application. In particular, he sought an order that the costs be:
(a) borne by Patricia personally with an indemnity by the plaintiff out of the estate for any amounts which cannot be recovered from Patricia; or
(b) paid out of the second defendant’s share of the estate; or
(c) treated as an expense of the administration of the estate and therefore paid out of the estate before calculation of the residue of the estate.
By 23 September 2019 Patricia had forwarded over 350 emails to the plaintiff, laying claim to assets greater than the value of the estate. The size of her potential claims amounts to $3.265 million. By contrast the size of the estate available for distribution is estimated to be $1,231,332.81. She has made allegations that the estate has claims against State Trustees, the Office of the Public Advocate and Catherine and her husband. However, notwithstanding repeated requests from the plaintiff, Patricia has not provided him with evidence or particulars of her claims against the estate nor any satisfactory material to substantiate her claims.
The second defendant provided assistance to the plaintiff in investigating Patricia’s various claims. He advised the plaintiff that Patricia had no interest in the property at 37 Somerville Street, Doncaster, nor any claim to the proceeds of a $250,000 cheque which she claimed as a creditor of the estate. He also alerted the plaintiff that Insolvency Trustee Services Australia (now the Australian Financial Services Authority) had an offence referral claim that Patricia had altered documentation to support her position. His view was that any claims allegedly held by, or on behalf of, Patricia were ‘speculative at best’ and he did not intend to pursue them.
The 15 July 2020 judgment
In a judgment delivered on 15 July[3], the Court determined that the 31 January 2019 orders fixed the costs only up to and including the mediation, that is, only for the purposes of para 1(c) of the schedule to the terms of settlement. Paragraph 1(d) of the terms of settlement was found to be consistent with the fact that the parties intended post-mediation costs would come from the estate, that the approval of compromise was a necessary component of obtaining a grant of representation, and that such costs are also recoverable pursuant to the settlement.
[3]Re Aitken; Maier v Hearne [2020] VSC 432.
The costs of the plaintiff in relation to the administration of the estate in the amount of $24,126.19 plus disbursements of $1,298.91, inclusive of GST, were ordered to be paid from the estate of the deceased. The plaintiff’s costs in the amount of $25,259.08 for the investigation of alleged claims by Patricia were ordered to be deducted from the share of the estate payable to the second defendant.
The Court raised concerns with the quantum of costs of the first and second defendants and those of Robyn. These parties together claim approximately $134,194.35 (plus GST in respect of Catherine’s claim), which is in addition to their amounts fixed and totalling $154,000 under the 31 January 2019 orders for costs up to and including the mediation. Together these parties have claimed over $288,194 in costs. The Court observed that their costs claimed are on the high side and may not be reasonable and proportionate to the issues in dispute.
The Court also raised concerns that the invoices provided did not adequately categorise the costs relating to each of the passing over application, obtaining the grant of probate or the approval of the settlement. The basis on which costs were calculated was not disclosed. The defendants and Robyn were asked to provide details of costs in accordance with the three categories and to set out the basis for the quantum of costs claimed for the purpose of the Court assessing the reasonableness and proportionality of costs.
The second defendant was also asked to provide further information on his costs of investigating Patricia’s claims against the estate and to set out the basis for the quantum of the costs claimed for the purpose of further directions.
Outstanding cost issues
Catherine
Catherine’s position is that her further costs after the terms of settlement were signed should be allowed from the estate, including the costs of the passing over application, obtaining a grant of representation, and approval of the settlement, as contemplated by para 1(d) of the schedule to the terms of settlement.
Catherine claims that her post-mediation costs are reasonable and proportionate, particularly given the quantum of the costs claimed by the plaintiff and second defendant.
Catherine submits that the costs of the second defendant in relation to Patricia’s claims, and in the current application, should not be paid for from the estate.
In support of this Catherine submits, first, that para 1(d) of the schedule to the terms of settlement provides for reasonable future costs in the passing over application and obtaining a grant of representation, and reasonable costs incurred in giving effect to the terms. According to her, there is no agreement that costs incurred by Patricia’s claims and this application be paid from the estate.
Secondly, Patricia’s interest in the estate is vested in the second defendant. Patricia’s claims, being choses in action, can revert to her if the second defendant has not needed to call on them for the purposes of the bankruptcy. If Patricia’s creditors are all paid out, her bankruptcy will be annulled and the claims will revert to her. It is not in the interests of Catherine personally and as a beneficiary, the other beneficiaries, and the plaintiff for Patricia’s bankruptcy to be annulled by paying out creditors.
Thirdly, if the costs incurred by Patricia’s claims and the costs of this application are paid from the estate, the other beneficiaries will have suffered financially in order to pay out Patricia’s creditors.
Lastly, the deceased’s estate is not yet fully administered. The second defendant therefore cannot claim Patricia’s interest in the estate as part of her bankrupt estate, as she does not yet have any beneficial interest in the estate. At this stage all that is vested in the second defendant is a right to due administration and the ‘expected fruits’ of that chose in action.[4]
[4]Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694; Official Receiver in Bankruptcy v Schultz (1990) 170 CLR 306; Barns v Barns (2003) 214 CLR 169; Romano v Romano [2004] NSWSC 775.
Catherine submits that the appropriate way to deal with any reasonable and proportionate costs incurred by the first and second defendants in Patricia’s claims and in this application is to deduct those costs from the second defendant’s ‘expected fruits’ pursuant to clause 1(e)(ii) of the schedule to the terms of settlement.
Catherine’s claims
In response to the Court’s concerns about costs, Catherine provided itemised costs in relation to the following:
(a) the second defendant’s passing over application in proceeding S PRB 2018 06280 from the date of the mediation — $11,795.87 (exclusive of GST);
(b) Catherine’s application for approval of compromise in proceeding S PRB 2018 08574 from the date of the mediation — $24,147.43 (exclusive of GST); and
(c) the plaintiff’s application for a grant of administration in proceeding S PRB 2018 20789 from the date of the mediation — $6,713.29 (exclusive of GST).
A costs certificate was produced in relation to S ECI 2019 04342, all costs in which are post-mediation costs. This gives a costs figure of $23,850.00 (exclusive of GST).
In total Catherine has incurred $66,506.00 (exclusive of GST) in post-mediation costs. All costs are said to have been charged on a standard basis.
The second defendant
According to the second defendant it was agreed by all parties and at all times it was the unassailable position that all the costs of the estate, including costs of the passing over application, the appointment of an independent administrator and the administration of the estate moving forward were to be treated as an expense of the administration of the estate and therefore be paid out of the estate before the calculation of the residue of the estate.
The second defendant submits that the terms and the schedule, as regards to where the costs of the various proceedings lie are clear, concise and unambiguous. All the parties with the exception of Patricia agreed at para 5 of the terms of settlement that upon a grant of representation being made, the estate of the deceased would be administrated and distributed in accordance with the schedule.
The second defendant also submits that the 20 December 2018 orders are clear and precise. Those orders stipulated that costs that the second defendant (and Catherine) incurred of and incidental to that proceeding were to be paid or retained out of the estate. No order was made that the second defendant’s costs incurred in that proceeding were to be borne by the bankrupt estate. It is the submission of the second defendant that there is no logical reason to depart from the costs orders made in S PRB 2018 06780.
The second defendant highlights the assistance he provided to the plaintiff by briefing him and gathering and providing him with relevant material to enable him to properly investigate all claims and allegations made by Patricia. He submits that his intervention resolved the disputes between the executors of the wills and the members of the deceased’s family and resulted in a successful outcome and mediation. In addition, he submits that the assistance he provided the plaintiff in investigating Patricia’s claims and allegations substantially reduced costs associated with the administration of the estate.
He submits that at no stage was it envisaged that any costs relating to Patricia’s conduct should be retained from the second defendant’s share of the estate and effectively borne by her creditors. If the second defendant’s costs were to be retained from the second defendant’s share of the estate this would be to the potential disadvantage of unrelated unsecured credits in the bankrupt estate and further enhance returns of the other beneficiaries.
The second defendant highlights that Patricia and the bankrupt estate of Patricia are distinct and separate entities.[5] It is unfair and inequitable to suggest that the independent ‘white knight’ who has effected a commercial settlement which advantages all beneficiaries should have to meet additional costs associated with the conduct of Patricia, when her persistent nature as well as her propensity to make threats and unfounded allegations is well-known to all beneficiaries and their lawyers prior to and post the deceased’s death.
[5]Bankruptcy Act 1966 (Cth) s 58(1)(b)(‘Bankruptcy Act’).
He submits that the he and his lawyers made reasonable endeavours to ensure that legal costs and other costs incurred in connection with the civil proceedings were reasonable and proportionate to the characteristics of the beneficiaries, the complexity of the issues in dispute and the amount in dispute ensuring that at all times he and his lawyers acted expeditiously and in a timely manner.
The second defendant’s claims
The second defendant’s solicitors charged total post-mediation costs of $54,808.70 (inclusive of GST) for professional fees, acting on behalf of the second defendant in the proceedings generally and in proceeding S ECI 2019 04342. They provided two accounts pursuant to a costs agreement and disclosure statement dated 14 June 2018. Their costs agreement and disclosure statement were provided to the Court.
The second defendant’s solicitors’ first account headed ‘Passing over application and Probate application’ totals $38,675.20 (inclusive of GST) and relates to the period 11 October 2018 to 21 December 2018. This account reflects costs incurred in relation to the passing over application, appointment of the administrator and grant of representation over the will of the estate.
The second account headed ‘Probate & Administration’ totals $16,133.00 (inclusive of GST) and relates to the period 7 January 2019 to 14 October 2019. This account is said to reflect costs incurred in relation to residual matters that required finalisation and the assistance provided to the plaintiff in administering the estate.
The second defendant was charged in accordance with his solicitor’s standard costs agreement. The costs disclosure statement and costs agreement are both dated 14 June 2018. The charges are based on hourly rates with the partner charging $550 per hour, inclusive of GST.
Robyn
Robyn’s position, as the deceased’s daughter, is that if Catherine’s costs are paid out of the estate, she also seeks payment of her costs.
Robyn’s claims
Robyn’s costs are $12,879.65 (inclusive of GST), which can be broken down as follows:
(a) $4,638.20 (inclusive of GST) in relation to the second defendant’s passing over application (made post-mediation) in proceeding S PRB 2018 06280;
(b) $31.35 (inclusive of GST) in relation to the plaintiff’s application for a grant of administration in proceeding S PRB 2018 20789;
(c) $6,530.40 (inclusive of GST) in relation to both the above proceedings; and
(d) $1,679.70 (inclusive of GST) in relation to work carried out not directly in relation to any of the proceedings listed in the judgment.
On the information provided, the basis of charging is unclear.
Consideration
The 31 January 2019 orders fixed the costs only up to and including the mediation on 10 October 2018 and for the purposes of para 1(c) of the schedule to the terms of settlement. The result is that the costs of Catherine, the second defendant and Robyn are fixed up to the date of the mediation and payable from the estate, irrespective of the proceeding in which they were incurred.
The outstanding issues to be determined therefore include what further expenses in S PRB 2018 06280 should be allowed for the first and second defendants and Robyn, what of these parties’ further expenses should be allowed in S PRB 2018 08574, including the costs of obtaining a grant of representation and approval of the settlement and their costs in S PRB 2018 20789 and this proceeding.
The second defendant’s claims
The second defendant’s position is that pursuant to the terms of settlement and ord 4 of the 20 December 2018 orders his post settlement costs should be allowed from the estate before the calculation of the residue of the estate. He claims costs in this regard relating to the passing over application and obtaining the grant of representation, as well as in the further administration of the estate, including costs incurred in assisting the administrator by briefing him and gathering and providing him with relevant material to investigate Patricia’s claims and allegations.
Paragraph 1(d) of the schedule of terms of settlement reflects an agreement between the parties that any further costs incurred by Catherine, the second defendant and Robyn in respect of the passing over application and obtaining the grant of representation are not fixed and, if reasonable, are payable from the estate. The second defendant’s position in respect of these costs is supported by the 20 December 2018 orders which provide that costs of the second defendant (and Catherine) incurred of and incidental to that proceeding were to be paid or retained out of the estate.
According to para 3 of the terms of settlement, the second defendant was obliged to make an application to have Patricia passed over as executor of the deceased’s estate in S PRB 2018 06280. He was also obliged to nominate and presumably make arrangements for the appointment of an independent administrator. Pursuant to para 3 and para 1(d) of the schedule, the parties clearly agreed that the second defendant would perform these tasks and that any associated costs would be paid from the estate, provided they are reasonable. It follows that the costs associated with the performance of these tasks and which are itemised in the second defendant’s first account, if reasonable, should be paid from the estate.
In addition, the Court is satisfied that the costs incurred by the second defendant associated with the passing over application and obtaining the grant of representation were of and incidental to proceeding S PRB 2018 06780 as contemplated by ord 4 of the 20 December 2018 orders. However, it is unclear whether ord 4 of the costs order may be narrower in scope than para 1(d) and therefore extend to all items in the first account. That said, it is unnecessary to make a determination on this point when pursuant to para 1(d) of the schedule to the terms of settlement it was agreed that the costs of the passing over application and obtaining the grant of representation, if reasonable, would be paid from the estate.
Given the agreement in para 1(d) of the schedule to the terms of settlement, the Court is satisfied that the costs itemised in the second defendant’s first account, if reasonable, should be paid from the estate before the calculation of the residue of the estate.
In respect of the second defendant’s further costs incurred in relation to residual matters and assistance provided to the plaintiff in administering the estate, the situation is less straightforward. Paragraph 5 of the terms of settlement reflects an agreement that the estate would be administered and distributed in accordance with the schedule to the terms of settlement. Pursuant to para 1(b) of the schedule to the terms of settlement the parties agreed that the legal personal representative of the estate would pay the administration costs of the estate. As stated, there was also an agreement reached in para 1(d), and supported by the 20 December 2018 orders, that the costs of the passing over application and obtaining the grant of representation would be paid from the estate.
However, the difficulty with the second defendant’s position is that the terms of settlement cannot be read so widely as to include the further costs incurred in relation assistance provided to the plaintiff in administering the estate. Paragraph 5 of the terms of settlement and para 1(b) of the schedule refer to the administration of the estate and payment of costs incurred in the administration of the estate. They most apparently relate to that role to be fulfilled by the deceased estate’s legal representative, with administration costs being those expenses incurred by the estate’s legal representative in the proper performance of their duties.[6] It is too far a stretch to say that para 5 of the terms of settlement, presumably read with para 1(b) of the schedule to the terms of settlement, reflected an agreement in respect of the second defendant’s costs in assisting the plaintiff.
[6]Marcus Katter, Halsbury’s Laws of Australia, (at 27 Nov 2014), ‘Testamentary and administration expenses’ [395-4260], citing Sharp v Lush (1879) 10 Ch D 468, 470 (Jessel MR); Murdocca v Murdocca (No 2) [2002] NSWSC 505, [42] (Campbell J).
By contrast, the 20 December 2018 orders and para 1(d) clearly apply to the second defendant’s costs. However, the second defendant’s costs in assisting the plaintiff cannot be described as being ‘of and incidental to’ the proceeding S PRB 2018 06280. In other words, the costs incurred by the second defendant in assisting the plaintiff in investigating Patricia’s claims and allegations and incurred as a consequence of this application were not sufficiently related to Patricia’s initial application for grant of probate.
Likewise, para 1(d) cannot be read so widely as to cover all further costs which have been incurred in the administration and distribution of the estate, irrespective of whether they may be considered reasonable. Paragraph 1(d) on its face only applies to ‘costs incurred in the Passing Over Application and obtaining a grant of representation’, although it may be that it does apply to limited reasonable further costs associated with carrying out the terms of settlement.
In addition, it is not clear that the parties contemplated the future costs incurred as a result of investigating Patricia’s claims and allegations and this application at the time of signing the terms of settlement, including whether these might be paid from the estate. In an email dated 17 October 2019 sent on behalf of Robyn, Aughtersons Lawyers say in relation to the agreed terms of settlement that:
while it was the parties’ intention at mediation that the reasonable future costs of the parties and the administration costs be paid from the estate the persistence and insistence of Ms Aitken Welsh’s claims were not apparent at the time of mediation and should not be allowed to diminish the size of the estate to the prejudice of other beneficiaries.
This is disputed by the second defendant who claims that Patricia’s persistence was well-known at the time of the mediation. It does not follow, however, that the actions subsequently taken by Patricia and the substantial costs incurred by the second defendant in investigating her claims and of this application were in the contemplation of the parties when they signed the terms of settlement.
As such, no agreement exists between the parties in relation to the costs of investigating Patricia’s claims and this application.
In the absence of any agreement concerning the costs of investigating Patricia’s further claims and allegations and this proceeding, the starting point is that any additional administration costs, including the costs of necessary parties to this application, should be considered testamentary expenses payable from the estate.[7] However, the circumstances of the case should also be taken into account.
[7]Ibid.
Following the appointment of the plaintiff, the second defendant and his lawyer provided assistance to the plaintiff, briefing him and gathering and providing him with relevant material to enable him to investigate properly all claims and allegations made by Patricia in relation to the estate of the deceased. The assistance of the second defendant benefitted the plaintiff in marshalling the background facts and documentation concerning Patricia’s alleged claims and culminated in a successful application and relief taken before the Court in the present proceedings. The second defendant submits that in the absence of his assistance the plaintiff’s fees would have been substantially higher.
Catherine’s submits that the further costs incurred by the second defendant in assisting the plaintiff should not be paid from the estate as Patricia’s interest in the estate is vested in the second defendant, meaning that Patricia’s claims can revert to her if the second defendant has not needed to call on them for the purposes of the bankruptcy. According to Catherine, it is not in her interests personally and as a beneficiary, or the interests of the other beneficiaries for Patricia’s bankruptcy to be annulled, presumably for the reason that this would benefit Patricia above themselves.
Given Patricia’s behaviour is to largely blame for the significant escalation in costs there is an understandable reluctance to annul Patricia’s bankruptcy and potentially deliver her a share of the residue of the estate. The reality is, however, that Patricia and Patricia’s bankrupt estate are two distinct entities.[8] That Patricia may benefit in the event that all creditor claims against her bankrupt estate and costs of her bankrupt estate are paid is not a sufficient reason for disallowing the second defendant’s costs from the estate. In any event, the evidence suggests there is likely to be little, if any, residual funds left in Patricia’s bankrupt estate that might revert to her in the event that her bankruptcy is annulled.
[8]Bankruptcy Act (n 5).
Catherine also submits that if the costs incurred by Patricia’s claims and the costs of this application are paid from the estate, the other beneficiaries will have suffered financially in order to pay out Patricia’s creditors. By contrast, the second defendant submits that if his costs were to be retained from his share of the estate this would be to the potential disadvantage of unrelated unsecured creditors in the bankrupt estate and further enhance returns of the other beneficiaries.
In relation to these submissions, the interests of the creditors of the bankrupt estate in the deceased estate cannot weigh more heavily than the interests of the beneficiaries of the deceased’s estate. Nor is it the Court’s role to weigh the creditors’ interests in the bankrupt estate against the interests of the beneficiaries in the deceased’s estate. Rather, from the Court’s perspective, Patricia’s bankrupt estate exists as a separate entity and her claim in the deceased estate is simply a chose in action.[9]
[9]Ibid.
The main difficulty with the second defendant’s position is that the costs of investigating Patricia’s claims are more properly viewed as costs of the bankrupt estate rather than administration costs. The deceased died before Patricia was discharged from bankruptcy. Patricia’s beneficial interest in the deceased estate is therefore after acquired property that vests in her bankrupt estate and will continue to do so until such time as all creditors and costs are paid for the period of her bankruptcy.[10] Patricia’s claims against the estate should therefore be viewed as claims of the bankrupt estate; the corollary of this being that the costs of investigating these claims should be viewed as liabilities of the bankrupt estate.
[10]Ibid.
In addition, it should be noted that the second defendant’s duty as trustee in pursuing Patricia’s claims was owed to the bankrupt estate, while it was the duty of the plaintiff to investigate claims in furtherance of the beneficiaries’ interests in the deceased’s estate.[11] The second defendant owed no duty to investigate claims on behalf of the beneficiaries of the deceased estate. It follows that the second defendant’s itemised costs in the second account should be paid for out of the second defendant’s share of the estate.
[11]Samootin v Official Trustee in Bankruptcy (No 2) [2012] FCA 316, [26](Katzmann J).
Accordingly, the Court is satisfied that the costs itemised in the second defendant’s first account, if reasonable, should be paid from the estate before the calculation of the residue of the estate. By contrast, the second defendant’s costs itemised in the second account should be deducted from his share of the estate, provided they are reasonable and proportionate.
Reasonableness and proportionality
The costs of all matters before the courts 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 extend costs are to be paid.[12] The Court has inherent and general jurisdiction to ensure that legal practitioners are remunerated properly.[13]
[12]Supreme Court Act 1986 (Vic) s 24.
[13]Pryles & Defteros (a firm) v Green [1999] 20 WAR 541, [22]–[23] (Parker J), citing Harrison v Tew [1989] 1 QB 307, 320 (Dillon LJ); Electrical Trades Union v Tarlo [1964] 1 Ch 720, 723–4 (Wilberforce J); Sutton v Sears [1960] 2 QB 97, 102 (obiter dictum of McNair J).
Section 24 of the Civil Procedure Act 2010 (Vic) provides that a person to whom the overarching obligations apply must use reasonable endeavours to ensure that legal costs incurred in connection with a proceeding are reasonable and proportionate to:
(a) the complexity or importance of the issues in dispute; and
(b) the amount in dispute.
Section 172(1) of the Legal Profession Uniform Law Application Act 2014 (Vic)[14] similarly provides that a law practice must, in charging legal costs, charge costs that are no more than fair and reasonable in all the circumstances and that are in particular:
(a) proportionately and reasonably incurred; and
(b) proportionate and reasonable in amount.
[14]The Legal Profession Uniform Law Application Act 2014 (Vic) (‘the LPUL’) is set out at sch 1 of the Legal Profession Uniform Law Application Act 2014 and pursuant to s 4 of that Act, applies as if it were an Act.
Of particular concern to the Court in considering the second defendant’s costs is the overall quantum claimed. The second defendant’s costs up to and including the mediation were fixed at $45,000 pursuant to ord 6 of the 31 January 2019 orders and ordered to be paid out of the deceased’s estate. The second defendant’s post-mediation costs itemised in the first and second accounts amount to $54,808.70 (inclusive of GST), which he claims from the deceased’s estate. In total he claims a total of $99,808.70 (inclusive of GST) from the deceased’s estate.
The second defendant submits that the costs he incurred were reasonable and proportionate to the characteristics of the beneficiaries, the complexity of the issues in dispute and the amount in dispute. Indeed, the complexity of proceedings is a factor that must be taken into account in deciding whether costs are reasonable and proportionate.[15] The amount in dispute is also of importance.[16]
[15]Civil Procedure Act 2010 (Vic) s 24(a) (‘the CPA’) and LPUL s 172(2).
[16]CPA s 24(b).
It is accepted that Patricia made a significant number of claims and allegations and in lodging her ‘appeal’ added a level of complexity to the proceedings, which required resolution by the parties and contributed significantly to costs. In addition, while the value of the estate is not large the claims made against the estate are significant. Concerns surrounding the total value of Patricia’s claims motivated the present application and escalated the costs.
In light of these circumstances, the Court accepts that on balance it is unnecessary to adjudicate on the reasonableness and proportionality of the second defendant’s costs. Order will be made that the second defendant’s costs itemised in the first account be paid from the deceased’s estate before calculation of the residue of the estate, and the second defendant’s costs itemised in the second account be paid from the second defendant’s share of the deceased’s estate.
Catherine’s and Robyn’s claims
Catherine and Robyn both claim costs in respect of the passing over application. Catherine also claims costs in respect of her application for an approval of compromise. The Court is satisfied that the associated costs, if reasonable, fall within the ambit of the agreement in para 1(d) of the schedule to the terms of settlement that any further costs incurred by the parties in respect of the passing over application and obtaining the grant of representation are payable from the estate.
Catherine also claims $6,713.29 (exclusive of GST) in costs in relation to the plaintiff’s application for a grant of administration in proceeding S PRB 2018 20789 from the date of the mediation. By contrast, Robyn claims only $31.35 (inclusive of GST) in relation to the plaintiff’s application for a grant of administration. However, Robyn also claims $6,530.40 (inclusive of GST) which she attributes to both the passing over application and the plaintiff’s application for a grant of administration.
Catherine submits para 1(d) could be read to include other reasonable costs incurred in giving effect to the terms of settlement. The Court is satisfied that these costs were incurred in giving effect to the terms of settlement.
In respect of costs associated with this proceeding, the Court is satisfied that Catherine was a necessary party to this application, as she was present at the mediation and in the reaching of the conditional settlement, in which she has an interest and the terms of which the plaintiff seeks to clarify.[17]
[17]Murdocca v Murdocca (No 2) (n 6).
However, an order that the costs of Catherine and Robyn be deducted from the second defendant’s share of the estate will not be made as Patricia and the second defendant should be recognised as separate entities and the bankrupt estate should not be penalised for Patricia’s conduct.[18] Accordingly, an order will be made that Catherine and Robyn’s costs, if reasonable, be paid for from the estate before the calculation of the residue of the estate.
Reasonableness and proportionality
[18]Bankruptcy Act (n 5).
The 31 January 2019 orders fixed Catherine’s pre-mediation costs at $72,000 (ord 4) and Robyn’s costs pre-mediation costs at $37,000 (ord 5) and order that these costs be paid from the estate of the deceased. Catherine’s post-mediation costs amount to $66,506.00 (exclusive of GST), while Robyn’s post-mediation costs amount to $12,879.65 (inclusive of GST). Catherine has therefore incurred $138,506 (GST to be finalised) in costs, while Robyn has incurred $49,880 (inclusive of GST).
The Court maintains its concerns about the quantum of costs claimed by both Catherine and Robyn. The costs incurred by Catherine in particular are exceptionally high in quantum. The difficulty faced by the Court, however, is that the costs escalated with the number of proceedings and due to the acrimony between family members. It is difficult to ‘blame’ Catherine and Ms Browne for costs that may have been incurred in responding to Patricia.
However, in these unusual circumstances of this litigation, the Court will not adjudicate on the reasonableness and proportionality of Catherine and Robyn’s costs and will make an order that Catherine and Robyn’s costs be paid from the deceased’s estate before the calculation of the residue of the estate.
Orders
The Court orders that:
(a) Catherine’s costs be paid from the deceased’s estate before the calculation of the residue of the estate;
(b) the second defendant’s costs itemised in the first account relating to the period 11 October 2018 to 21 December 2018 be paid from the deceased’s estate before the calculation of the residue of the estate;
(c) the second defendant’s costs itemised in the second account relating to the period 7 January 2019 to 14 October 2019 be paid from the second defendant’s share of the deceased’s estate after calculation of the residue of the estate; and
(d) Robyn’s costs be paid from the deceased’s estate before the calculation of the residue of the estate.
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