Re Bogdanov; Atkins v Drummond (No 3)
[2020] VSC 425
•13 July 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2018 02722
IN THE MATTER of the estate of VICTOR BOGDANOV, deceased
-and-
IN THE MATTER of an application pursuant to Order 54 of the Supreme Court (General Civil Procedure) Rules2015 and/or Section 28 of the Administration and Probate Act1958 and/or the Court’s inherent jurisdiction
| ANASTASIA BOGDANOV ATKINS | Plaintiff |
| v | |
| JOHN JOSEPH DRUMMOND and BASIL BOGDANOV (who are sued in their personal capacity and in their capacity as executors of the estate of VICTOR BOGDANOV, deceased) | Defendants |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF RULING: | 13 July 2020 |
CASE MAY BE CITED AS: | Re Bogdanov; Atkins v Drummond (No 3) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 425 |
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COSTS — Equity and probate — Account — Costs to follow the event — Standard basis — Whether plaintiff issued proceedings in appropriate court — Supreme Court (General Civil Procedure) Rules 2015 (Vic) rr 63.24, 63.25.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Scammell Black Mileo | |
| For the First Defendant | In person | |
| For the Second Defendant | Felton Farquhar & Co |
HER HONOUR:
Introduction
Victor Bogdanov (‘the deceased’) died on 22 September 2015. He was survived by three adult children, including the plaintiff and the second defendant.
Probate of the deceased’s will dated 12 April 2011 was granted on 29 July 2016 to the plaintiff, the second defendant, and the first defendant, who is a former solicitor. The administration of the deceased’s estate was primarily undertaken by the first defendant, with neither the plaintiff nor the second defendant taking an active role.
The deceased left his estate to the plaintiff and the second defendant in equal shares as tenants in common. The value of the estate in the inventory of assets and liabilities filed with the probate application was $440,000.
The plaintiff commenced this proceeding on 12 December 2018 after the defendants failed to accede to the plaintiff’s requests for information as to the administration of the estate and refused to provide a true and just account, verified by affidavit in accordance with a request of the Registrar of Probates, pursuant to r 6.03 of the Supreme Court (Administration and Probate) Rules 2014. The background to the dispute and the procedural history of this proceeding were set out in Re Bogdanov; Atkins v Drummond,[1] and Re Bogdanov; Atkins v Drummond (No 2).[2]
[1][2019] VSC 70.
[2][2019] VSC 836.
At trial, the plaintiff contended that the first and second defendants had failed to account properly for a number of expenses paid out of the estate. The Court ordered the first defendant to repay a total of $64,349.34, including a sum of $16,200 paid to him as a commission, to the estate. The Court also ordered the second defendant to repay the sum of $20,492, being the amount paid to him in purported reimbursement of expenses. However, the plaintiff was unsuccessful in her claim that the second defendant was also liable for the amount of $16,200 paid as commission to the first defendant.
Costs of the proceeding
The parties were unable to agree on costs. Pursuant to orders, the parties provided written submissions on costs.
The plaintiff submitted that the ordinary course should be followed and costs should follow the event. Accordingly, the plaintiff sought an order that the defendants pay her costs on a standard basis, to be taxed in default of agreement.
The submissions of the defendants raised three issues:
(a) Should the first defendant pay the plaintiff’s costs?
(b) Should the second defendant pay the plaintiff’s costs?
(c) Should the plaintiff’s costs be assessed on the Supreme Court scale?
Costs principles
Section 24(1) of the Supreme Court Act 1986 provides that costs are a matter for the discretion of the court, unless otherwise provided by an Act or the Rules. The central principle is to make an order that is fair and just between the parties in the circumstances of each case.[3]
[3]Earnshaw v Loy (No 2) [1959] VR 252, 253 (Sholl J).
The usual order as to costs is that a successful party in litigation is entitled to a costs order in its favour.[4] Costs are prima facie awarded on a standard basis,[5] with the Court maintaining a discretion to award non-standard costs where the proceeding exhibits a special feature or unusual circumstance.
[4]Oshlack v Richmond River Council (1998) 193 CLR 72, 97 (McHugh J).
[5]Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.31.
Should the first defendant pay the plaintiff’s costs?
The first defendant filed two sets of submissions on costs. The first set was said to be made in his capacity as executor of the deceased’s estate, while the second set of submissions were said to be made in his personal capacity.
In his first set, the first defendant submitted that the only costs the plaintiff is entitled to are those costs incurred between December 2018 and February 2019. This was submitted on the basis that he filed the account sought by the plaintiff in February 2019 and that these accounts were filed ‘to the best of his abilities having never before completed such a task’.
As an executor of the estate, the first defendant was personally obligated to hold and deal with the estate property for the benefit of the beneficiaries and to account to them and provide them with complete and accurate information as to the administration of the estate.[6] From November 2017, the first defendant failed to accede appropriately to the plaintiff’s requests for information in relation to the administration of the estate and the proceeding was commenced after the first defendant provided an account in response to the letter from the Assistant Registrar of Probates dated 13 July 2018.
[6]See, eg, Re Hutchinson [2019] VSC 495, [33] (McMillan J); Re Buckingham (2016) 51 VR 453, 462 [43] (McMillan J); Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (2011) 195 FCR 318, 368 [93]–[94] (Keane CJ, Lander and Foster JJ); Re Simersall; Blackwell v Bray (1992) 35 FCR 584, 588–9 (Gummow J).
While the first defendant did file an account in February 2019, the account filed did not comply with r 6.03(2) of the Supreme Court (Administration and Probate) Rules 2014 and was not in the required Form 3–6AA. By orders made 7 May 2019, the first defendant was given the opportunity to file any further account in Form 3–6AA, but failed to do so. The first defendant’s inexperience in these matters provides no excuse for his failure to provide complete and accurate information as to the administration of the trust, particularly in circumstances where the first defendant has previously practiced as a solicitor.[7]
[7]Mr Drummond formerly carried on practice under his former name, Joseph Lo Presti. Mr Drummond’s name was removed from the roll of legal practitioners held by the Supreme Court in 1993 following his conviction and imprisonment for offences arising out of his practice as a solicitor.
Contrary to the first defendant’s submissions, the case was not ‘over’ once he filed an account in February 2019. The plaintiff’s originating motion sought not only an account from the first defendant but also sought orders that the first defendant repay any amount paid to him from the estate as commission or other remuneration. Furthermore, the result of the taking of accounts may be, as it was in the proceeding, that an amount is found to be due.[8]
[8]See, eg, Valimi Pty Ltd v Maniotis [2003] VSC 357, [29] (Nettle J); Doss v Doss [1843] 18 ER 464, 472.
In his submissions, the first defendant also made various complaints about the conduct of the plaintiff. These included three issues raised by the plaintiff throughout the proceeding, which do not properly bear on the exercise of the Court’s discretion as to costs.
First, the first defendant complained that the plaintiff did not personally give evidence and did not file her own affidavit. These concerns are misconceived. For the purposes of this proceeding, it was sufficient that the plaintiff’s solicitor filed affidavits exhibiting the relevant correspondence.
Secondly, the first defendant complained that he was not compensated for his efforts in the administration of the estate. This complaint goes to the substance of the proceeding and cannot have any proper bearing on costs. An executor has a fiduciary duty not to profit from the estate unless: (i) the will includes a clause entitling them to a commission; (ii) the affected beneficiaries give their informed consent; or (iii) the Court authorises a commission, pursuant to s 65 of the Administration and Probate Act 1958. In the reasons for judgment, the Court explained that the first defendant was not entitled to a commission. He was therefore ordered to repay the amount of $16,200 he paid from the estate as a commission.
The first defendant also submitted that the plaintiff should be estopped from claiming any legal costs because she agreed with the actions of the first defendant prior to the commencement of the proceeding. This submission was not developed in detail and appears to relate to the first defendant’s grievances with the result of the proceeding rather than matters that properly bear on the exercise of the Court’s discretion as to costs.
The first defendant also complained that the plaintiff and second defendant were executors of the estate but chose not to take positive steps in the administration of the estate. The plaintiff’s failure, as an executor of the estate, to take positive steps in the estate’s administration is a matter relevant to the Court’s discretion as to the appropriate costs orders.
Finally, in adopting the approach of filing two sets of submissions, it appears that the first defendant is seeking to have any costs ordered against him paid out of the estate rather than by himself personally.
Where expenses in or about the administration of a trust are incurred, a trustee is entitled as of right to indemnity out of the trust for expenses properly incurred — that is, all costs except to the extent that they are of an unreasonable amount or have been unreasonably incurred. The concept of proper expenditure excludes conduct demonstrating want of prudence or diligence. Expenses and liabilities that are improperly incurred, such as when acting beyond power, in bad faith or exercising power ‘with an absence of the care and diligence that a person of ordinary prudence should exercise’, are not caught by the right of indemnity and shall be borne by the trustee personally.[9]
[9]Re Hutchinson [2019] VSC 495, [41] (McMillan J) (citations omitted). See also Re Buckingham (2016) 51 VR 453, 460 [33]–[34] (McMillan J).
The failure of an executor to keep proper accounts and to provide such accounts when called upon to do so is a serious matter that can render the usual indemnification from the estate inappropriate and leave an executor personally liable to pay costs.[10]
[10]Re Buckingham (n 9) 462 [43] (McMillan J).
The first defendant failed to provide the plaintiff with information about the administration of the estate as requested by the plaintiff in November 2017. The first defendant also refused the request of the Assistant Registrar of Probates for a true and just account of the estate, verified by affidavit pursuant to r 6.03 of the Supreme Court (Administration and Probate) Rules 2014. It was the failure of the first defendant to accede to these requests, as he was obligated to do, that led to the plaintiff commencing the proceeding.
The plaintiff was wholly successful in her claims against the first defendant. In the circumstances, it is appropriate that costs should follow the event. Accordingly, the first defendant should pay the plaintiff’s costs of the proceeding personally, without recourse from the deceased’s estate.
Should the second defendant pay the plaintiff’s costs?
The second defendant submitted that no costs whatsoever should be payable by him. In particular, the second defendant submitted that:
(a) The claim in the sum of $20,492 was not made against the second defendant until the particulars dated 7 October 2019 were filed, no letter of demand or compliance with the provisions of the Civil Procedure Act 2010 was made and, accordingly, the plaintiff breached the overarching objectives contained in that Act.
(b) The appropriate course of action that the plaintiff should have taken was to commence a proceeding in the Magistrates’ Court to obtain the appropriate order, having received all receipts and not accepting them as deductable from the estate. The second defendant says that obtaining an order in the Supreme Court for such a small amount is an abuse of process and, accordingly, no costs whatsoever should be payable by the second defendant.
The second defendant’s submissions that the plaintiff breached the overarching obligations in the Civil Procedure Act 2010 and that commencing the proceeding in this Court was an abuse of process are rejected.
The proceeding was brought pursuant to the Administration and Probate Act 1958 and concerned the administration of an estate and the filing of an administration account for the estate. These are matters that fall within the exclusive jurisdiction of the Supreme Court. Accordingly, the proceeding could only have been brought properly in this Court.
Furthermore, if the second defendant truly believed that the proceeding should have been in the Magistrates’ Court, he could have considered the Courts (Case Transfer) Act 1991, which provides a system for the transfer of civil proceedings between courts. No application was made by the second defendant under that Act in this proceeding.
The plaintiff made numerous requests of the defendants to provide an accounting for the proceeds of the estate. It was the refusal of the first and second defendant to accede to those requests that resulted in the plaintiff commencing the proceeding.
The plaintiff’s originating motion filed 12 December 2018 included claims that the defendants be restrained from making or receiving any distribution from the estate otherwise than in accordance with the deceased’s will and that the defendants provide the plaintiff all bank statements and other records relating to the funds of the estate.
On 1 February 2019, the Court ordered by consent that the defendants be restrained from making or receiving any distribution from the estate pending the hearing and determination of the proceeding.
On 29 March 2019, the Court made further orders, including that the second defendant account for the sum of $20,492.44 received by him from the estate said to be by way of ‘reimbursement to Basil’s expenses as per list $36,819.97’. The Court also granted the plaintiff leave to amend the originating motion by adding a paragraph 4A seeking orders to the effect that the second defendant:
(a) repay to the estate the amount paid to the first defendant from the estate of the deceased as commission; and
(b) account to the estate for all sums received by him other than as a beneficiary.
On 2 May 2019, the plaintiff filed an amended originating motion adding a paragraph in accordance with the leave granted by the Court.
On 7 May 2019, the Court made orders requiring the second defendant to provide to the plaintiff’s solicitor copies of all receipts referred to in the letter dated 30 October 2017 from Felton Farquhar & Co. to the first defendant.
The evidence does not support a finding that the plaintiff failed to use reasonable endeavours to resolve any disputes or that she otherwise breached the overarching obligations. The plaintiff commenced the proceeding in order to obtain information about the administration of the estate. She was unable to provide particulars to the second defendant due to the failure of the defendants to provide adequate accounts of the estate to her.
Following the trial, the Court found that the second defendant failed to account properly for the sum of $20,492.44 received by him from the estate said to be by way of ‘reimbursement to Basil’s expenses as per list $36,819.97’. In relation to the second defendant’s liability for the commission paid to the first defendant, the Court found that the second defendant acted unreasonably in consenting to the payment of the commission to the first defendant. However, the Court found that the second defendant was indemnified from liability for the funds received by the first defendant pursuant to s 36(1) of the Trustee Act 1958.
In the circumstances, it would not be fair and just between the parties for the second defendant to be jointly liable for the entirety of the plaintiff’s costs of the proceeding. The majority of the plaintiff’s claims were made against the first defendant and the plaintiff was not wholly successful in her claims against the second defendant. The plaintiff also acknowledged in February 2019 that, as the administration of the estate was undertaken by the first defendant, the second defendant did not have the accounts.[11] It was not until the first defendant filed an account that the plaintiff was able to ascertain the potential liability of the second defendant to reimburse funds into the estate.
[11]See Re Bogdanov; Atkins v Drummond [2019] VSC 70, [17] (McMillan J).
The second defendant made no submissions on the proportion of costs that he should be liable for in the event that the Court were to order he should pay the plaintiff’s costs. In the absence of such submissions, it is appropriate that the second defendant pay the plaintiff’s costs from 29 March 2019, being the date on which the Court ordered that the second defendant account for the sum of $20,492.44 received by him from the estate and granted leave for the amendment of the originating motion to make additional claims against the second defendant.
Should the plaintiff’s costs be assessed on the Supreme Court scale?
Both the first and second defendant submitted that, by application of r 63.24 of the Supreme Court (General Civil Procedure) Rules 2015, the plaintiff should be limited to recovery of costs to which the plaintiff would be entitled had the proceeding been brought in the County Court.[12] The second defendant further submits that, had the proceedings been brought in the County Court, the plaintiff would only be entitled to costs on the Magistrates’ Court scale by virtue of r 63A.24 of the County Court Civil Procedure Rules 2018.
[12]The first and second defendants’ submissions both referred to r 63.34, however, it is apparent that they were intending to refer to r 63.24.
As stated, the proceeding concerned the administration of an estate and the filing of an administration account for the estate, pursuant to Order 54 of the Supreme Court (General Civil Procedure) Rules 2015, s 28 of the Administration and Probate Act 1958 and/or the Court’s inherent jurisdiction. The plaintiff sought, inter alia, that the first defendant file and serve a true and just account of the administration of the estate in Form 3–6AA of the Supreme Court (Administration and Probate) Rules 2014, verified by affidavit, and that the defendants provide to the plaintiff all bank statements and other records relating to the funds of the estate. These are matters that are justiciable by this Court and it is appropriate for the proceeding to be in this Court.
Notwithstanding, it is appropriate that the submissions of the defendants be considered. Rule 63.24(1) of the Supreme Court (General Civil Procedure) Rules 2015 relevantly provides:
[W]here in a proceeding for debt or damages the plaintiff recovers by judgment or otherwise an amount (exclusive of costs) not exceeding $100,000, the plaintiff shall, unless the Court otherwise orders, be entitled only to the costs to which the plaintiff would have been entitled if the plaintiff had brought the proceeding in the County Court less an amount equal to the additional costs properly incurred by the defendant by reason of the proceeding having been brought in the Supreme Court instead of the County Court, but shall not be required to pay to the defendant any amount by which the additional costs exceed the costs payable to the plaintiff.
As explained by Menhennitt J in O’Doherty v McMahon:
The object of the rule is to protect the defendant against the unnecessary expense of higher costs in a court which is not appropriate for the case. The plaintiff, however, is left free to select his court.[13]
[13][1971] VR 625, 628.
Where r 63.24 applies, the Court will generally not make an order ‘otherwise’ unless there are special circumstances.[14] However, the Court of Appeal has emphasised that the general discretion invested in the Court remains ‘relevantly unfettered’ and ‘in the end, is to be exercised to achieve justice between the parties in accordance with principles’.[15]
[14]See ibid.
[15]Insurance Australia Ltd v HIH Casualty & General Insurance Ltd (in liq) (No 2) [2007] VSCA 258, [7] (Chernov, Ashley and Redlich JJA). See also Burgoyne Real Estate Pty Ltd v Dutt [2017] VSCA 372, [108] (Beach and Ashley JJA).
Rules 63.24 applies to ‘a proceeding for debt or damages’. In this proceeding, the plaintiff sought an account of the estate. In the result, the first and second defendants were ordered to repay certain amounts into the estate so that those funds could be distributed in accordance with the deceased’s will.
As observed by Nettle J in Valimi Pty Ltd v Maniotis:
A claim for accounts is not a claim in debt or damages, even if the result of the taking of accounts may be that [an] amount is found to be due. It is a claim for a decree which affirms a plaintiff’s rights at law or in equity, leaving to be inquired into how much is ultimately due.[16]
Accordingly, r 63.24 has no direct application to this proceeding.
[16][2003] VSC 357, [29].
However, r 63.25 provides:
Rule 63.24 applies, with any necessary modification—
(a)where the plaintiff obtains by judgment or by the acceptance in accordance with Rule 26.03(4) of an offer of compromise relief other than for the recovery of a debt or damages; and
(b) any amount in dispute in the proceeding or the value of any property to which the relief relates does not exceed $100,000.
In Valimi Pty Ltd v Maniotis, Nettle J also considered the application of this rule:
In Lesiac v Foggenberger, Hedigan J held that the ‘value of the property to which the relief relates’ refers to the value of the property the subject of the proceeding and not to the value of the proprietary relief that may be granted. With respect, I do not think that can be doubted.
I also think it plain that the expression ‘any amount in dispute’ is to be construed as referring to the amount in dispute as alleged in the pleadings and not the amount in which relief may be granted.[17]
[17]Ibid [34]–[35] (citations omitted).
The plaintiff’s claim was primarily for information regarding the entirety of the trust property. The value of the deceased’s estate, of which the account and records were sought, was $440,000. That amount is properly considered as the ‘amount in dispute in the proceeding’ for the purposes of r 63.25.
Had the defendants provided an account and records relating to the funds of the estate to the plaintiff, and had that information revealed that the estate property had been properly distributed, then it would have been unnecessary for the plaintiff to seek to recover any amounts. That as a consequence of the taking of accounts the defendants were found liable to replenish the estate with various amounts totalling less than $100,000 does not serve to enliven r 63.25.
As a result, r 63.24 does not apply to the proceeding and the plaintiff’s costs should be assessed on the Supreme Court scale.
Even if r 63.24 were to apply to this proceeding, it would be appropriate in the circumstances for the Court to make an order otherwise than in accordance with r 63.24. The proceeding was commenced after the defendants refused to comply with a request of the Assistant Registrar of Probates of this Court for them to provide a true and just account, verified by affidavit pursuant to r 6.03 of the Supreme Court (Administration and Probate) Rules 2014. In those circumstances, it was appropriate for the plaintiff to issue the proceeding in the Trusts, Equity and Probate List of this Court. As stated in Ribbera v Artusa, ‘[a]s a specialist list that primarily deals with the administration of estates, the Trusts, Equity and Probate List is generally able to assist in an efficient, timely and cost effective result for the parties’.[18]
[18][2018] VSC 233, [27] (McMillan J).
Orders
The Court orders as follows:
(a) the first defendant personally pay the plaintiff’s costs of the proceeding, without recourse from the deceased’s estate, such costs to be assessed on the standard basis, to be taxed in default of agreement;
(b) the second defendant personally pay the plaintiff’s costs of the proceeding as from 29 March 2019, without recourse from the deceased’s estate, such costs to be assessed on the standard basis, to be taxed in default of agreement;
(c) no orders as to the costs of the first and second defendant.
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