Re Coghlan; Merriman v Attorney-General (No 2)
[2020] VSC 668
•9 October 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2019 00896
IN THE MATTER of the estate of CHARLES CAMPBELL COGHLAN, deceased
| MARIE BERNADETTE MERRIMAN | Plaintiff |
| v | |
| ATTORNEY-GENERAL FOR THE STATE OF VICTORIA (and others according to the attached schedule) | Defendants |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 9 October 2020 |
CASE MAY BE CITED AS: | Re Coghlan; Merriman v Attorney-General (No 2) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 668 |
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EQUITY & TRUSTS — Charitable trusts — Where will named one entity but gave address of another — Previous finding that Court unable to determine proper recipient of gift — Whether gift made for a general charitable purpose — Whether administrative scheme appropriate to remedy defect in description of recipient — Identification of proper recipient of gift pursuant to administrative scheme — Royal North Shore Hospital of Sydney v Attorney-General (NSW) (1938) 60 CLR 396; Phillips v Roberts [1975] 2 NSWLR 207; Corish v Attorney-General’s Department of NSW [2006] NSWSC 1219; Re Niall (2019) 60 VR 1.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J McComish | Coulter Roache |
| For the First Defendant | Victorian Government Solicitor | |
| For the Second to Fourth Defendants | Ms E Konstantinou | Health Legal |
HER HONOUR:
On 26 June 2020, the Court delivered reasons for judgment on the plaintiff’s application for answers to questions in relation to the interpretation of clause 6(c) of the will of Charles Campbell Coghlan dated 5 June 2013.[1]
[1]Re Coghlan; Merriman v Attorney-General [2020] VSC 392 (‘Re Coghlan’).
The application concerned a gift of one third of the residue of the deceased’s estate to ‘Diabetes Australia of 26 Arundal [sic] Street Glebe New South Wales’. The plaintiff, as executor, wished to know which, if any, of three possible entities the clause referred to. The three entities (collectively, ‘the charities’) were as follows:
(a) the second defendant, Diabetes Australia (ACN 008 528 461) (‘Diabetes Australia’), the entity named in the will;
(b) the fourth defendant, Diabetes NSW (ACN 001 363 766) (‘Diabetes NSW’), which operates from 26 Arundel Street, Glebe, NSW; or
(c) the third defendant, Diabetes Australia – Victoria (ACN 005 239 510) (‘Diabetes Victoria’), an entity with which the deceased had substantial contact throughout his life.
The Court held that it was not possible to determine which entity was referred to in clause 6(c). This was so because the Court could not, on the evidence before it or upon the application of generally accepted construction principles, identify to which of the three entities the deceased intended to make the gift. The Court invited the parties to provide further submissions as to the appropriateness of an administrative scheme as a means of administering the gift, by 31 July 2020.
The charities filed written submissions on 31 July 2020. The plaintiff filed submissions on 25 August 2020. In light of the late filing of the plaintiff’s submissions, the charities were granted leave to file submissions in reply on 28 August 2020. The first defendant confirmed by letter to the Court dated 31 July 2020 that she does not propose to make any submissions.
The charities submit that the gift ought to be administered by way of administrative scheme in favour of Diabetes Victoria, alternatively Diabetes Australia. The plaintiff submits that, in light of the Court’s finding that the gift is void for uncertainty, an administrative scheme is not appropriate.
Background
The background to the proceeding is set out in detail in the Court’s reasons for judgment dated 26 June 2020.[2]
[2]Ibid [6]–[12] (McMillan J).
The deceased was a retired farmer and grazier who resided for most of his life in Ballarat. He left an estate valued at approximately $23,702,495. The deceased was widowed and had no children. The plaintiff, his niece, is executor and an intestacy beneficiary of the deceased’s estate.
The deceased lived with diabetes from about the late 1980s or early 1990s. According to the plaintiff, he managed his condition independently, with support from Diabetes Victoria and other unnamed diabetes organisations operating in Victoria. Diabetes Victoria’s internal records indicate that the deceased was a member of Diabetes Victoria from 30 October 2013 until the date of his death. The deceased was also a registered member of the National Diabetes Service Scheme (‘NDSS’) from at least 25 July 2006 until his death. It is possible that he in fact registered earlier than 2006, as that year marks when an old database of registrants was transferred to the current NDSS system. During his lifetime, the deceased also donated regularly to unspecified diabetes organisations operating in Victoria by purchasing raffle tickets during fundraising drives.
Each of the charities operates to provide services to people living with diabetes. Diabetes Australia is a federated body responsible for, inter alia, administration of the NDSS. The NDSS provides education, information, resources and support for people living with all types of diabetes. Diabetes Victoria is, and was during the deceased’s lifetime, the appointed agent for the delivery of NDSS resources to registrants living in Victoria. Diabetes NSW is also an affiliate of Diabetes Australia. At the time the will was drafted, Diabetes NSW was known as ‘Australian Diabetes Council’, and was not an affiliate of Diabetes Australia. There is no evidence that the deceased had any involvement or affiliation with Diabetes NSW or its predecessor.
The charities’ submissions
The charities’ submissions were supported by the affidavits of Mr Gary Johnson, CEO of Diabetes Australia and Mr Craig Bennett, CEO of Diabetes Victoria, both affirmed on 30 July 2020.
The charities submit that, having found the gift in clause 6(c) of the will otherwise void, the Court ought exercise its inherent jurisdiction to approve their proposed scheme in order to remedy the defect in the will (the ‘proposed scheme’). The proposed scheme provides for the one third of the residue of the deceased’s estate to be paid to either Diabetes Victoria or Diabetes Australia, in full satisfaction of the gift provided by clause 6(c) of the will.
The charities submit that the adoption of the proposed scheme would avoid a partial intestacy over one third of the residue of the deceased’s estate. They say that it is consistent with the construction principles espoused by the High Court in Fell v Fell that the Court should avoid construing a will in such a way that results in an intestacy.[3]
[3](1922) 31 CLR 268, 273–6 (Isaacs J).
It is submitted that the deceased’s will, read as a whole, indicates an intention to bequeath the majority of his estate to charities with which he had a close affiliation during his lifetime. That being the case, the charities say the disposition contained in clause 6(c) of the will was a charitable gift capable of administration by way of scheme. It is clear, in their view, that the deceased intended to benefit a charitable institution whose purpose was working with and supporting diabetes sufferers.
The charities’ primary submission is that the gift should take effect in favour of Diabetes Victoria. They say that Diabetes Victoria was the charity with which the deceased had most involvement throughout his life; hence the ‘essence’ of the deceased’s disposition was a gift in favour of diabetes charities working in Victoria. According to the charities, the evidence before the Court establishes that, notwithstanding that it was not named in the will, Diabetes Victoria is the proper recipient of the deceased’s charitable gift. They say that the fact that Diabetes Victoria is not named or referred to at all in the will is not a bar to that organisation taking the benefit of the gift by way of administrative scheme on the basis that the ‘threshold certainty’ of the deceased’s intent has been surpassed.
Alternatively, the charities submit that the gift should be administered by way of a scheme in favour of Diabetes Australia. The charities point to the fact that Diabetes Australia is named in the will and that the deceased would have had close contact with Diabetes Australia through his registration with the NDSS.
Mr Johnson’s evidence expanded upon the deceased’s likely contact with Diabetes Australia through the NDSS. According to Mr Johnson, the deceased would have had over one hundred episodes of contact with the products or services of Diabetes Australia based in Victoria throughout his lifetime. He says that some of those contacts would have been through Diabetes Victoria as agent for Diabetes Australia, and some by other providers. Included in the contacts would have been the provision of aides to the deceased for monitoring his blood sugar levels around four times per year. Mr Johnson also says that Diabetes Australia conducted various fundraising drives in Victoria throughout the deceased’s lifetime. Some of those may have been included in the deceased’s unspecified donations to diabetes organisations from time to time. As the national diabetes organisation, Mr Johnson said that, in his experience, Diabetes Australia is regularly the recipient of testamentary gifts. He says that often such gifts are made to Diabetes Australia generally or to the Diabetes Australia Research Trust rather than to state-based diabetes organisations.
The plaintiff’s submissions
The plaintiff opposes any further orders in relation to the gift contained in clause 6(c) of the will. She says that as the Court rejected the proposition that the deceased can be identified as having intended to benefit any one of the charities, more than one of the charities or some other entity, the result is that there is a partial intestacy. The plaintiff submits that an administrative scheme is not an appropriate means of remedying the defect in the will, as such a scheme presupposes the existence of a valid and enforceable charitable bequest.
The plaintiff expressly distinguishes this case from the decision of the Court in Re Niall[4] on the basis that, in that case, the relevant clause specified the purpose for which the gift was to be applied, being ‘work among the poor in India’, in addition to naming a donee. She says that, unlike in Re Niall, the problem in this case is not the means identified by the testator where the end was otherwise validly identified, but rather that the Court has found the end to be void for uncertainty. On that basis, the plaintiff submits that, aside from the question of costs, the Court’s existing findings are sufficient to resolve the proceeding.
[4](2019) 60 VR 1.
Applicable principles
Gifts for charitable purposes
Charitable trusts exist to benefit a particular purpose or purposes, rather than a specific person or entity.[5] In contrast to private trusts or private testamentary gifts, to be validly constituted a charitable trust is not dependent upon having named beneficiaries, provided that there is a clear indication of a general intention of charity.[6] The law ordinarily affords a flexible approach or attitude to the certainty of objects in the instance of charitable trusts, provided that certainty of intention and certainty of subject matter are satisfied.[7] Further, a charitable trust may overcome defects that would otherwise be fatal to a non-charitable gift through, for example, nomination of a successor entity or settlement of an administrative or cy-près scheme.[8]
[5]Attorney-General (NSW) v Perpetual Trustee Co (Ltd) (1940) 63 CLR 209, 222 (Dixon and Evatt JJ) (‘Perpetual Trustee’).
[6]Ibid 225 (Dixon and Evatt JJ).
[7]See, eg, Re Niall (n 4) 11 [46] (McMillan J), and authorities referred to therein.
[8]Re Tyrie (No 1) [1972] VR 168, 177–8 (Newton J).
Two requisite elements must be met to establish a charitable trust:
(a) it must identify some charitable object; and
(b) it must serve some public as opposed to private benefit.[9]
[9]Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297. See, for example, Re Evans; Union Trustee Co of Australia Ltd v Attorney-General (Qld) [1957] St R Qd 345.
In his well-accepted dicta in Commissioners for Special Purposes of Income Tax v Pemsel, Lord Macnaghten identified four broad heads of charity under which a recognisable charitable object may fall, namely:
(a) trusts for the relief of poverty;
(b) trusts for the advancement of education;
(c) trusts for the advancement of religion; and
(d) trusts for other purposes beneficial to the community, not falling under any of the preceding heads.[10]
[10][1891] AC 531, 583 (Lord Macnaghten).
Lord Macnaghten’s identified heads of charity are broadly in concert with the list of deemed charitable purposes identified in the preamble to the Statute of Elizabeth, which include, inter alia, ‘relief of the aged, impotent, and poor’.[11]
[11]Statute of Charitable Uses 1601 43 Eliz I, c 4.
It has since been well accepted that gifts directed towards the enhancement or efficiency of medical services, as well as improving and supporting the prospects of patients, may be considered gifts for charitable purposes.[12]
[12]See generally, Re McHenry; Thompson v Attorney-General [2020] VSC 211, [19] (McMillan J); Re Dubberke; Marshall v Attorney-General (Vic) [2019] VSC 86, [10] (McMillan J); Australian Executor Trustees Ltd v A-G (SA) (2010) 7 ASTLR 83; Royal College of Surgeons of England v National Provincial Bank Ltd [1952] AC 631, 654–5 (Lord Morton); Re White’s Will Trusts; Tindall v Board of Governors of the United Sheffield Hospitals [1951] 1 All ER 528, 530 (Harman J); Re Deans Will Trusts; Cowan v Board of Governors of St Mary’s Hospital, Paddington [1950] 1 All ER 882, 883 (Harman J).
Although a gift to a named charitable institution simpliciter may be construed as a gift outright to the relevant named entity, such a gift will usually be treated as a gift for the advancement of the charitable work or purpose of that institution.[13] Alternatively, a gift to a named charitable institution may be interpreted as a broader gift to a more general charitable purpose, with the named institution identified as the mechanism through which that general charitable purpose is carried out. That distinction is of importance to the availability of an administrative or cy-près scheme, as the Court will be more inclined to settle such a scheme to give effect to a general charitable purpose rather than to interfere with the specific charitable means identified by the deceased. In Royal North Shore Hospital of Sydney v Attorney-General (NSW) (‘Royal North Shore’), Dixon J described the relevant distinction as follows:
Sometimes the question is stated as a decision between regarding a particular plan as subordinate to the end and regarding it as the end in itself. Sometimes it is stated as an inquiry whether the particular means are essential or a necessary condition. Again, the question has been described as amounting to an inquiry whether the particular means prescribed should be considered as a direction engrafted upon a gift to a main purpose. But, however, it is stated, the matter to be considered is whether the will should be understood as meaning that the fund should be devoted to the attainment of the end, although the precise method directed should prove impracticable.[14]
[13]Re Tyrie (n 8) 177 (Newton J), citing Hardey v Tory (1923) 32 CLR 592; Smith v West Australian Trustees Executors and Agency Co Ltd (1950) 81 CLR 320; Re Godfree [1952] VLR 353; Re Inman [1965] VR 238; Sydney Homeopathic Hospital v Turner (1959) 102 CLR 188, 220–2 (Kitto J); Stratton v Simpson (1970) 125 CLR 138.
[14](1938) 60 CLR 396, 428–9 (Dixon J) (‘Royal North Shore’).
His Honour also observed that the construction of a specific bequest ‘depends less on the construction of language than upon an estimate of the relative importance attached to the particular and to the general by the author of the scheme’.[15]
Administrative and cy-près schemes
[15]Ibid 428 (Dixon J).
As observed, one way in which flexibility is afforded to a charitable trust is that an otherwise defective gift may be saved through the Court’s inherent jurisdiction to settle an administrative or cy-près scheme.[16]
[16]The Court also maintains statutory jurisdiction to settle a cy-près scheme pursuant to Part I of the Charities Act 1978 (Vic).
An administrative scheme is defined by the Encyclopaedic Australian Legal Dictionary as: ‘A scheme administered by a court of equity to give effect to a charitable trust where a charitable object is intended but the directions are indefinite, ambiguous or insufficient.’[17] Such a scheme enables the Court to settle a mechanism providing the means by which a gift is to be applied for charitable purposes in circumstances where the testator has expressed a general charitable intention but has failed to provide sufficient means for the practical application of those purposes.
[17]Encyclopaedic Australian Legal Dictionary (online at 5 October 2020) ‘administrative scheme’, citing Re Robinson; Besant v German Reich [1931] 2 Ch 122 and referred to in Re Niall (n 4) [46] (McMillan J).
By contrast, a cy-près scheme is concerned with applying a gift for a purpose as near as possible to that which was expressed by a donor.[18] A cy-près scheme may be considered by the Court where it is impossible or impracticable to carry out the charitable purpose for which the gift is made.[19]
[18]Mayor of Lyons v Advocate-General of Bengal (1876) 1 App Cas 91, 112–4 (Sir Smith); Biscoe v Jackson (1887) 35 Ch D 460; Re Rymer [1895] 1 Ch 19; Re Stemson [1970] Ch 16.
[19]Perpetual Trustee (n 5) 216–17 (Latham CJ).
In Corish v Attorney-General’s Department of NSW, Campbell J explained the difference between administrative and cy-près schemes as follows:
There is a clear conceptual difference between a cy près scheme and an administrative scheme for a charitable trust. It is the difference between ends and means. A cy près scheme can be directed when it is impossible or impractical to carry out the objects of the trust in all the details the settlor stipulated. An administrative scheme supplements and/or clarifies any provisions the settlor has stipulated concerning the manner in which the objects of the trust are to be pursued, when practical circumstances show that the settlor’s stipulation (if any) of the means is inadequate or impractical.[20]
[20][2006] NSWSC 1219, [9] (Campbell J).
In Phillips v Roberts, Mahoney JA identified several circumstances that his Honour considered to be typical of those in which an administrative scheme may be appropriate, including:
the case where the deceased has expressed her charitable intention in general terms (eg for the relief of poverty) and a scheme is necessary to provide a particular means by which the gift is to be applied for those purposes; the case where the deceased has indicated her purposes and the means by which those purposes are to be achieved, but the means indicated are not sufficient for the practical application of the gift for these purposes, and it is necessary to provide further and detailed machinery; and the case where there is a precisely detailed procedure provided by the deceased for the application of the gift for her general charitable purposes, but that procedure is inapplicable because, for example, the application of it in that way is impracticable.[21]
[21][1975] 2 NSWLR 207, 222–3 (Mahoney JA).
Consideration
Did the deceased display a general charitable intention?
The difficulty posed by clause 6(c) of the will is that it refers to two distinct charities involved in the care and support of people living with diabetes. The Court determined that it was not possible, on the construction of that clause, to identify which of those two charities the deceased meant to benefit by his words contained in the will. That conclusion does not preclude a finding that the words indicate a specific or general charitable intention in making the gift.[22]
[22]See Re Niall (n 4), where the Court was asked to determine the proceeding on the basis of construction or, alternatively, settle an administrative scheme. The Court determined that it could not grant relief upon construction of the will but nonetheless accepted that a scheme was appropriate in the circumstances.
The Court accepts the submission of the charities that the deceased evidenced a general charitable intention to benefit an institution whose purpose was working with and supporting people living with diabetes. That is so notwithstanding that the deceased did not specifically state a general charitable purpose in the will.
The essence of the disposition contained in clause 6(c) is to benefit a charitable institution whose purpose was working with and supporting diabetes sufferers. Both of the entities referred to in the will undertake that work, albeit at a national and a state level respectively. As observed, bequests to charitable organisations involved in the provision of medical services, or care and support for the ill, have been generally accepted to be charitable in nature.[23] Such gifts also generally serve a public, rather than private, benefit.[24] There is nothing in clause 6(c) to suggest that the deceased intended to make a gift outright to a particular entity, rather than a gift for the charitable purposes of that entity. The conclusion that the gift was for charitable purposes is consistent with the other bequests made in the will, in particular the gift of $1 million to St John of God Hospital Ballarat, as to which the deceased’s solicitor’s file note recorded that he wished to benefit ‘the charity that was involved in his care on a regular basis.’
[23]See above n 12.
[24]Ibid.
Contrary to the plaintiff’s submissions, the absence of any charitable purpose specified in clause 6(c) of the will does not preclude the conclusion that the gift was made for charitable purposes. Although there is no formal presumption of charitable intention, the policy of the Court is to readily infer such an intention, particularly where the alternative would lead to an intestacy.[25] The inclusion of a clause in the will in Re Niall specifying that the relevant gift was to be applied for ‘work among the poor in India’ was not of itself dispositive of the issue of the deceased’s intent in that case. Although the Court noted that that clause ‘distinguishes many of the cases in which the relevant dispositions simply describe the recipient without expressly designating the purposes for which the gift should be applied’, it then observed ‘[i]n those cases, the Court was required to infer charitable intent from the nature of activities undertaken by the named recipient’.[26] The Court thus acknowledged that terms of general intent are not necessary for the identification of a charitable purpose in every case.
[25]Re Constable [1971] VR 742, 746 (Pape J).
[26]Re Niall (n 4) [65] (McMillan J).
The absence of a specified charitable purpose is also not anathema to the conclusion that the gift displayed a general, rather than specific, charitable purpose. As was observed by Dixon J in Royal North Shore, the relevant enquiry depends less upon the construction of the specific language used by the deceased and more upon the Court’s impression of the particular attachment the deceased had to the specific mechanism provided in the will. In Re Niall, the Court placed significant weight upon the fact that the will identified a non-existent body as the recipient of the gift, observing that it ‘suggests that the recipient, that is, the instrument by which the charitable purposes were to be achieved, was of lesser importance to the deceased than the attainment of those purposes’.[27] Although both entities referred to in clause 6(c) of the will exist, naming two different entities indicates that the deceased was concerned to leave the bequest to an organisation in support of people with diabetes, and was less concerned with the specific mechanism through which those purposes are achieved. Also relevant is that, notwithstanding the evidence that the deceased had greater involvement with Diabetes Victoria throughout his lifetime, that entity is not referred to in the will at all. The inference to be drawn from that exclusion is that the deceased’s general charitable purpose was not limited to his specific geographic location.
Availability of an administrative scheme
[27]Ibid [69] (McMillan J).
Clause 6(c) reflects the general charitable intention of the deceased, however that intention cannot be carried out through the mechanism identified in the will. As reflected in the Court’s earlier decision, it is not possible to identify the entity to which the bequest should be paid — that is, the mechanism provided by the deceased through which his charitable intention was to be implemented is flawed. That situation falls squarely within the genus of case in which an administrative scheme is appropriate in order to give effect to the charitable bequest, as reflected in the examples described by Mahoney JA in Phillips v Roberts.
The plaintiff’s submission that no occasion for any administrative scheme arises where the purported gift is void is inconsistent with the multitude of cases in which a charitable gift made to a non-existent or misdescribed organisation is applied by way of administrative scheme.[28] It is not uncommon that a clause contained in a will that would be void on the application of general construction principles may nonetheless be construed as a gift for charitable purposes.[29] The question of whether the bequest was a gift for charitable purposes was not put to the Court by the plaintiff in her initial application, notwithstanding that the Court raised the possibility in correspondence.[30] The plaintiff’s submissions presuppose that the gift was not for charitable purposes, but do not address that issue in any meaningful detail save for distinguishing Re Niall. For the reasons stated above, the Court considers there to be no merit in that submission.
Settlement of the scheme
[28]See, eg, Armenian General Benevolent Union v Union Trustee Co of Australia Ltd (1952) 87 CLR 597; Re Webster; Pearson v Webster [1912] 1 Ch 106; Trustees Tasmania Ltd v A-G (Tas) [2002] TASSC 16.
[29]Royal North Shore (n 14), 428–9 (Dixon J).
[30]See Re Coghlan (n 1) [13]–[18] (McMillan J).
For the foregoing reasons, the Court has jurisdiction to settle an administrative scheme so as to achieve the charitable purpose of benefiting an organisation in support of people with diabetes. The charities’ proposed scheme presents two alternatives for the Court. Their primary submission is that the gift ought to be administered in favour of Diabetes Victoria, alternatively, in favour of Diabetes Australia. The Court considers that the gift ought to be administered to Diabetes Australia.
It is not uncommon for a draft scheme to be formulated by the parties prior to proceedings, and placed before the Court for approval. The Court has discretion whether or not to approve the proposed scheme, or whether to make modifications to its terms.[31] The object of the Court in settling the scheme is to resolve the fault in the mechanism so as to achieve the relevant charitable purpose.
[31]See, eg, Re Hanbey’s Will Trusts [1956] 1 Ch 264, 274–5 (Danckwerts J); Re WD Peacock’s Charity [1956] Tas SR 142, 145–6 (Gibson J).
The Court has no doubt that a bequest to either Diabetes Victoria or Diabetes Australia would have the effect of achieving the deceased’s general charitable purpose. It is not controversial that both organisations exist for the purpose of supporting people living with diabetes. It is also clear on the evidence that the deceased had significant contact with both entities throughout his lifetime. Although the evidence initially before the Court indicated that the deceased’s involvement with Diabetes Australia was limited to his registration with the NDSS, the further evidence of Mr Johnson and Mr Bennett explained that Diabetes Victoria acted as agent for Diabetes Australia in distributing NDSS services, and that further contact with unspecified diabetes organisations operating in Victoria may in fact have been contact directly with Diabetes Australia. However, even in light of that further evidence, there is no certainty as to which entity the deceased intended to benefit in his will. It is not uncommon in such circumstances for there to be a division between claimant institutions,[32] however that is not the relief sought by the charities.
[32]See, eg, Re Daniels (dec’d) [1970] VR 72; Re Constable (n 25).
Diabetes Australia is the national umbrella body for supporting Australians living with diabetes. It is also one of two entities named in the will. Had the deceased’s general charitable intention been limited to a specific geographic area, it is likely that he would have named Diabetes Victoria specifically in the will, but he did not do so. Diabetes Australia is the entity that better fits the deceased’s broad charitable purpose since it is not limited to a specific geographic location. In reaching that conclusion, the Court observes that, as affiliates of Diabetes Australia, Diabetes Victoria and Diabetes NSW are also likely to take some benefit from the deceased’s bequest. Accordingly, the Court will settle the charities’ proposed scheme to the extent that the gift of one third of the deceased’s residuary estate pass to Diabetes Australia in full satisfaction of clause 6(c) of the will.
Costs
The plaintiff seeks the following orders for costs:
(a) the costs of the plaintiff of and incidental to the proceeding be paid or retained out of the estate of the deceased and, in the first instance, be paid out of the bequest under clause 6(c) of the will;
(b) the costs of the first defendant, taxed on the indemnity basis unless otherwise agreed, be paid out of the estate of the deceased and, in the first instance, be paid out of the bequest under clause 6(c) of the will; and
(c) the second to fourth defendants bear their own costs.
The plaintiff submits that those orders are consistent with the standard orders for proceedings of this type and with an agreement reached between the parties prior to the plaintiff’s initial application that the charities would bear their own costs.
The charities submit that their costs of and incidental to the proceeding should also be paid out of the estate of the deceased and that all parties’ costs ought to be borne from the estate as a whole, not solely by the share in clause 6(c). They submit that their prior positon was taken at a time when they had minimal involvement in the proceeding. Before the Court’s first judgment, the charities relied upon the plaintiff in her role as executor of the estate and, they submit, in preserving the deceased’s charitable intentions under clause 6(c) of the will. As a result of the Court’s decision, the charities were compelled to seek independent legal advice as to the appropriateness of an administrative scheme. By 21 July 2020, the charities were represented by the same solicitors. They say that the utility in them doing so is justified by reference to the change in the plaintiff’s original position.
In circumstances where the necessity to come before the Court results from a defect in the will of a deceased person, the prima facie position is that costs of all necessary parties ought to be paid from the estate.[33] Applying that principle, it follows that the plaintiff’s and first defendant’s costs ought be retained from the estate.
[33]Murdocca v Murdocca (No 2) [2002] NSWSC 505, [47] (Campbell J).
While the plaintiff sought that her costs and the costs of the first defendant be paid out of the bequest in clause 6(c) of the will, she provided no reasons to support her position. In the ordinary course, the costs of the proceeding take priority in the administration of the estate and before payment to the residuary beneficiaries. The deceased’s will provides for such a course, with all testamentary expenses to be paid prior to payment of the bequests in clause 6 of the will. Accordingly, there is no basis for the costs of the proceeding to be paid out of the bequest in clause 6(c) of the will.
Costs of an executor or trustee are commonly quantified on an indemnity basis, sometimes termed as the ‘trustee basis’, when dealing with litigation over a trust fund or deceased estate.[34] This is the position at general law and is reflected in the Trustee Act 1958 and the Supreme Court (General Civil Procedure) Rules 2015.[35] This is because persons engaged in litigation in a representative capacity should not, be out of pocket because of litigation.
[34]Re Buckton; Buckton v Buckton [1907] 2 Ch 406, 414 (Kekewich J). See generally Murdocca v Murdocca(No 2)(n 33); Steel v Ifrah (No 2) [2013] VSC 167; Warton v Yeo [2015] NSWCA 115.
[35]Trustee Act 1958 s 36(2); Supreme Court (General Civil Procedure) Rules 2015 r 63.26.
Trustees are ordinarily entitled as of right to indemnity out of the trust for expenses properly incurred, that is, all costs except to the extent that they are of an unreasonable amount or have been unreasonably incurred. The concept of proper expenditure excludes conduct that demonstrates want of prudence or diligence.[36] However, the basis of the quantification remains in the discretion of the Court such that costs may be denied or reduced where appropriate, for example, where an estate is small or reasonable offers of settlement have been refused, or due to the parties’ conduct in the litigation or the effects a costs order may have on a beneficiary.
[36]GE Dal Pont, Equity and Trusts in Australia (Lawbook Co, 5th ed, 2011) 689, 679 citing Turner v Hancock (1882) 20 Ch D 303, 305 (Jessel MR); Re Beddoe; Downes v Cottam [1893] 1 Ch 547, 558 (Lindley LJ); Nolan v Collie (2003) 7 VR 287, 303–10 (Ormiston JA); Dimos v Skaftouros [2004] VSCA 141. Dodds-Streeton AJA referred to National Trustees Executors & Agency Company of Australasia Ltd v Barnes (1941) 64 CLR 268.
Expenses and liabilities that are improperly incurred by a trustee, such as where they have acted beyond power, in bad faith or ‘with an absence of care and diligence that a person of ordinary prudence should exercise’ are not caught by the right of indemnity and should be borne by the trustee personally.[37]
[37]Dal Pont (n 36) 679–80 [23.135] citing Re O’Donoghue [1998] 1 NZLR 116, 121 (Hammond J); Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) (2001) 188 ALR 566, 606 (Finkelstein J); and generally Nolan v Collie (n 36).
Prior to the proceeding being heard, the Court raised its concerns as to the position put forward by the plaintiff and invited submissions as to whether an administrative scheme was an appropriate means of applying the testamentary gift. The plaintiff simply repeated her earlier submissions and failed to address the Court’s concerns. This was imprudent on the part of the plaintiff and extended the proceeding. It also caused the second to fourth defendants to retain alternative representation. Although the plaintiff would ordinarily be entitled to her costs of the proceeding from the estate, her conduct is such that her costs should be awarded only on the standard basis.
The Attorney-General for the State of Victoria was named as the first defendant in her representative capacity, in which she represents both the charitable objects[38] and the interests of the public[39] in ensuring the proper administration of charities and application of charitable funds. Prior to the trial, the solicitor for the Attorney-General informed the plaintiff’s solicitors that the Attorney-General did not intend to be represented at the trial.
[38]Attorney-General v Bishop of Worcester (1851) 68 ER 530, 546–7.
[39]Solicitor-General v Wylde (1945) 46 SR (NSW) 83, 105–20 (Nicholas CJ).
The solicitors for the Attorney-General sought an order that her costs of and incidental to the proceeding be paid from the estate in accordance with, inter alia, paragraph 33 of the plaintiff’s submissions filed 4 October 2019, that is, the costs of the Attorney-General be taxed on the indemnity basis unless otherwise agreed and paid out of the estate and, in the first instance, be paid out of the bequest under clause 6(c) of the will. As payment of any costs from clause 6(c) has been disallowed, the costs of the Attorney-General will paid out of the residue of the estate, assessed on an indemnity basis.
The charities were necessary parties to the proceeding. Each defendant was a possible recipient of the bequest under clause 6(c) of the will and had an interest in the outcome of the proceeding. Following the Court’s first judgment, the charities collectively sought independent legal advice. It is accepted that the charities should not be held to their position on costs as stated before the first judgment. Since then the relevant landscape changed, and the other terms of their agreement were not accepted by the Court. Accordingly, the costs of the second to fourth defendants will be paid from the residue of the estate, assessed on the standard basis.
Orders
The parties are to file draft terms of a proposed administrative scheme in favour of Diabetes Australia by 23 October 2020.
The Court orders that:
(a) the costs of the plaintiff and the second to fourth defendants assessed on the standard basis be paid out of the estate of the deceased; and
(b) the costs of the first defendant assessed on an indemnity basis be paid out of the estate of the deceased.
SCHEDULE OF PARTIES
S ECI 2019 00896
| MARIE BERNADETTE MERRIMAN | Plaintiff |
| v | |
| ATTORNEY-GENERAL FOR THE STATE OF VICTORIA | First Defendant |
| DIABETES AUSTRALIA (ACN 008 528 461) | Second Defendant |
| DIABETES AUSTRALIA – VICTORIA (ACN 005 239 510) | Third Defendant |
| DIABETES NSW (ACN 001 363 766) | Fourth Defendant |
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