Re Cvitkovic
[2022] VSC 571
•28 September 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S PRB 2016 19394
| IN THE MATTER of the Estate of ROBERT BOZO CVITKOVIC, deceased | |
| BETWEEN: | |
| DANICA CVITKOVIC | Plaintiff |
| and | |
| MARIO ZELJKO CVITKOVIC and CHERRY PEHAR | Defendants |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 28 September 2022 |
CASE MAY BE CITED AS: | Re Cvitkovic |
MEDIUM NEUTRAL CITATION: | [2022] VSC 571 |
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COSTS – Where defendants issued summons in finalised proceeding – Where summons dismissed – Where defendants are to seek similar relief in new proceeding – Where costs sought against defendants – Finality – Orders dependent on defendants issuing proper proceeding.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Macpherson Kelley | |
| For the Defendants | iWills Legal | |
| For the non-party | Mr RD Shepherd | Geoff Dillon & Co Lawyers |
HER HONOUR:
Introduction
Robert Bozo Cvitkovic (‘the deceased’) died intestate on 30 March 2016 in Zagreb, Croatia. The deceased was survived by the plaintiff, his alleged wife by marriage in Croatia on 24 October 2015, and the defendants, who are his adult children from two previous marriages.
On 21 November 2016, the plaintiff filed an application seeking a grant of representation in the estate of the deceased. By their grounds of objection filed 20 December 2016, the defendants dispute the validity of the deceased’s marriage to the plaintiff and thus contest whether the plaintiff has any interest in the estate. They assert that the deceased was domiciled in Croatia, with the consequence that his movable estate in Victoria passes according to Croatian law, but his immovable estate in Victoria passes pursuant to Victorian law. The defendants further claim that, even if the deceased’s marriage to the plaintiff was valid, they nevertheless have a greater interest in the deceased’s estate and therefore a better right to a grant of letters of administration.
There are currently three proceedings on foot in Croatia concerning the deceased. The first is an application by the first defendant seeking annulment of the deceased’s alleged marriage to the plaintiff; the second is an application by the defendants for a grant of administration in relation to the deceased’s assets in Croatia; and the third is a criminal proceeding alleging forgery by the plaintiff, the public notary who officiated the alleged wedding, and the witnesses thereto. The latter two proceedings are on hold until the first proceeding is resolved. The first proceeding was commenced on 24 October 2016, and according to the defendants’ solicitors in Croatia, will not be finalised earlier than March 2023. When that occurs, it is likely that the second proceeding will be determined within six months.
The deceased’s estate
According to the inventory of assets and liabilities filed by the plaintiff with her application, at the date of the deceased’s death, the total value of his estate was estimated at $16,189,430. The assets of his estate in Victoria were valued at approximately $15,807,282, and the assets of his estate in Croatia were valued at approximately $384,781. The deceased’s assets in Croatia comprise a property in which the plaintiff lives and a motor vehicle.[1]
[1]Two bank accounts of unknown amounts were also recorded in the inventory of assets and liabilities.
Besides a property and a motor vehicle, the majority of the deceased’s estate in Victoria is comprised of funds held by three entities controlled by him. First, the deceased was the sole shareholder and director of Bozic Investments Pty Ltd (‘Bozic Investments’), which acts as trustee of the Bozic Investments Trust (‘the trust’). The 2020 financial statements for the trust value its current assets at $17,057,477, and record that the sum of $14,691,384 in unpaid beneficiary entitlements is owed to the deceased’s estate.
The deceased was also the sole shareholder and director of Premier Crown Commercial Pty Ltd (‘Premier Crown’), the shares of which now form assets of the deceased’s estate. The main assets of Premier Crown are a number of loans allegedly made to the trust, which total over $2 million and are yet to be repaid.
Finally, the deceased was the sole shareholder and director of Antsig Pty Ltd, which acts as trustee of a self-managed superannuation fund, Antenna Signal Superannuation Fund (‘the superannuation fund’). There is a death benefit of approximately $4,200,000 payable from the superannuation fund, and no binding nomination was in place at the date of the deceased’s death. According to the 2019 financial statements, the assets of the superannuation fund are valued at $5,445,271.
Appointment of administrator pendente lite
On 17 February 2017, the parties agreed that a limited grant of representation was required to administer the assets of the deceased’s estate pending the resolution of the defendants’ grounds of objection to the plaintiff’s application, which was in turn pending the proceedings in Croatia. They subsequently agreed to the appointment of Geoffrey Dillon, a legal practitioner of the firm Geoff Dillon & Co Lawyers. By orders made on 12 May 2017, Mr Dillon was appointed administrator pendente lite of the estate of the deceased (‘the limited administrator’).
Four years later, in May 2021, the defendants’ solicitors contacted the limited administrator seeking documents and information concerning the estate and the entities controlled by the deceased, and inquiring whether the assets of the estate were invested in an appropriate income-producing manner. Thereafter further communications took place that concerned, inter alia, an overview of the investment portfolios held by the trust and the superannuation fund, unauthorised payments alleged to be made from the superannuation fund, certain unpaid loans owed by the trust to Premier Crown and to the deceased’s estate, as well as the title to a property in Queensland held by a further trust established by the deceased.
In June 2021, the limited administrator’s solicitor Jennifer Dillon (‘Mrs Dillon’) advised the defendants’ solicitors that an accountancy firm had been engaged to conduct a comprehensive review of the affairs and financial dealings of the entities controlled by the deceased, as well as to respond to some of the issues raised in the correspondence from the defendants’ solicitors. This report was subsequently produced and dated 23 August 2021, however the defendants depose that a copy was not provided to their solicitors until 17 February 2022.
Pursuant to a direction from the Registrar of Probates under r 6.03 of the Supreme Court (Administration and Probate) Rules 2014 (Vic), by affidavit sworn 20 January 2022, the limited administrator filed an interim administration account for the estate for the period from his appointment in 2017 to the end of 2021.
In March 2022, the defendants engaged Pitcher Partners Investment Services Pty Ltd to produce a report in respect of the financial position of the estate, which was provided on 12 April 2022 (‘the Pitcher Partners report’). On the basis of information contained in the Pitcher Partners report, the defendants contend that, had the limited administrator called in various loans and unauthorised payments in respect of the trust and the superannuation fund and the estate had invested the resulting funds of approximately $13,000,000, the value of the estate would have increased between $624,611 and $5,734,607 over the relevant period.
Subsequently, each of the defendants swore affidavits on 8 July 2022 deposing to their concerns that the limited administrator had not properly fulfilled his duties and obligations in administering the deceased’s estate. The defendants depose that the limited administrator failed to obtain financial advice until four years after his appointment, and that such advice does not appear to be for the benefit of the estate in any event. The defendants’ affidavits set out many issues of concern in the administration, including failures to call in various loans and debts, failures to investigate and call in unauthorised payments of around $210,000 from the superannuation fund, multiple discrepancies in the administration account, payments made to the limited administrator of around $85,000 since June 2017 without provision of invoices, and failure to provide other invoices. On the basis of the findings made in the Pitcher Partners report, the defendants contend that the failure of the limited administrator to call in the debts owed to the estate may have caused the estate a considerable loss.
Defendants’ summons
By summons filed 26 July 2022 (‘the summons’), the defendants sought orders that:
(a) pursuant to s 34, alternatively s 22, of the Administration and Probate Act 1958 (Vic), the limited administrator be removed as administrator pendente lite of the deceased’s estate, and the second defendant, alternatively Perpetual Trustee Company Limited, be appointed in his place;
(b) pursuant to O 54 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘the Rules’), the new administrator be authorised to recover the debt owing to the deceased’s estate by Bozic Investments in its capacity as trustee of the trust, and to invest those funds on behalf of the estate pending the determination of the Croatian proceeding regarding the validity of the deceased’s marriage to the plaintiff;
(c) alternatively, pursuant to O 54 of the Rules, the limited administrator recover the debt owing to the deceased’s estate by Bozic Investments in its capacity as trustee of the trust, and invest those funds on behalf of the estate pending the determination of the Croatian proceeding regarding the validity of the deceased’s marriage to the plaintiff; and
(d) the defendants’ costs be paid out of the deceased’s estate.
Upon receipt of the summons, the plaintiff’s solicitors held discussions with Mrs Dillon. The Court is informed that by email dated 9 August 2022, Mrs Dillon stated to the defendants’ solicitor, copied to the plaintiff’s solicitors:
In the proceeding your clients are the defendants and the plaintiff is Danica Cvitkovic. We note that your clients in the summons have sought relief under O 54 of the Supreme Court (General Civil Procedure) Rules 2015 and ss. 22 and 34 of the Administration and Probate Act 1958 (Vic) but they are not plaintiffs in the proceeding. Would you please advise us of the basis upon which your clients seek the relief whilst not having filed a proceeding in which they are plaintiffs? In the usual course a party seeking relief under a rule or statute is required to file a proceeding.
Included with this email were proposed minutes of consent, and signed consent orders were provided to the Court on 10 August 2022. The consent orders provided for the filing and serving of affidavits by the plaintiff, the defendants and the limited administrator, for the summons to be adjourned to 9 September 2022, and for costs to be reserved.
On 11 August 2022, the Court informed the practitioners it was content to make the proposed orders, with minor amendments on the papers. The plaintiff submitted that she thereupon commenced acting in accordance with the proposed consent orders, including by preparing affidavit evidence and briefing counsel.
By email dated 19 August 2022, the Court informed the practitioners that it had reviewed the summons and noted as follows:
The summons is filed in the extant proceeding that sought the appointment of Danica Cvitkovic as administrator upon intestacy. Subsequently, Geoffrey Dillion was appointed as limited administrator pendente lite. No further relief can be sought in that proceeding as the appointment was made and the proceeding finalised.
As the defendants seek to remove the limited administrator, the usual procedure is for the plaintiffs i.e. the children of the deceased, to issue a fresh originating motion and summons against the limited administrator seeking the orders that he be removed as limited administrator and for the appointment of a new limited administrator.
The further relief sought at paragraphs 2 and 3 pursuant to Order 54 of the Supreme Court (General Civil Procedure) Rules 2015 relate to matters that affect a replacement limited administrator, alternatively, the current limited administrator. Having regard to Order 54 you may wish to re-consider whether it is appropriate for this relief to be sought in a removal proceeding.
The Court proposes dismissing the summons filed 26 July 2022 with no orders as to costs. If there are any objections to the proposal, please inform the Court within 7 days of the date of this email and the Court will ensure that the hearing at 10 am on 9 September 2022 before the Honourable Justice McMillan remains on foot. At this stage, no orders for the filing of affidavits will be made.
Accordingly, the summons was dismissed by orders made on 25 August 2022. As the plaintiff and the limited administrator sought to be heard on the costs of the summons, orders were also made that short written submissions be filed and served by 2 September 2022.
Submissions
Defendants’ submissions
The defendants submit that the costs of the summons should be determined by the Court after the hearing of a fresh originating motion, to be issued by the defendants in the future, in which orders will be sought for the removal of the limited administrator and the appointment of his replacement.
Alternatively, the defendants submit that the costs of the plaintiff and the limited administrator in respect of the summons should be paid from the deceased’s estate and then deducted from, or set off against, the defendants’ respective entitlements to the estate ‘in due course’. As the defendants have a substantial interest in the deceased’s estate, they submit that there will be no prejudice to any party if such a course of action is to be adopted.
Plaintiff’s submissions
The plaintiff seeks that her costs of and incidental to the summons be paid by the defendants personally on an indemnity basis. She rejects the defendants’ position that the costs of the summons ought be determined after the hearing of a future originating motion, and submits the defendants should have initiated a proceeding by way of originating motion whereby they were correctly named as plaintiff and the limited administrator as defendant. The plaintiff submits that, had this been done, she would not have been named a party and would not have incurred the relevant professional fees. The plaintiff further submits that the defendants should have corrected their application at the time of Mrs Dillon’s email of 9 August 2022. Had that been done, the subsequent costs of the plaintiff and the limited administrator would not have been incurred.
The plaintiff also rejects the defendants’ alternative submission that the costs of the plaintiff and the limited administrator be paid from the defendants’ entitlement to the deceased’s estate ‘in due course’. She submits that it is likely to be some time before a full grant of administration will be obtained, given that significant litigation remains on foot in Croatia which must be resolved prior to any such grant. Until that occurs, the plaintiff submits that it is unreasonable and inappropriate for her to personally fund proceedings relating to the deceased’s estate such as the present application.
Limited administrator’s submissions
The limited administrator submits the defendants should pay his costs of the summons on an indemnity basis. However, the limited administrator accepts that not all costs incurred by him should be ordered to be paid by the defendants at this time, and submits that in the event that the defendants commence another proceeding, his claim for costs should be limited to his costs thrown away.
If the defendants do not commence a separate proceeding seeking the same or similar relief, the limited administrator submits he ought be entitled to other costs incurred by him, pursuant to the orders by which he was appointed as limited administrator.
The limited administrator likewise rejects the defendants’ submission that the costs of the summons ought be determined by the Court after the determination of a future originating motion. He submits that the question of costs should be determined now, as the Court is best placed to do so given that the summons has been dismissed, and the Court should not proceed on the basis that another proceeding will necessarily be commenced.
In response to the defendants’ alternative submission that the costs of the plaintiff and the limited administrator be paid from the deceased’s estate, the limited administrator submits that this is largely consistent with his submission that he should be entitled to his costs from the estate other than those thrown away. He submits that an order made in such form could later be considered in the estate administration, when the distributions to be made are quantified.
The limited administrator further submits that, in the exercise of the Court’s costs discretion, the costs of the summons should follow the event, in relation to which he has succeeded. In the limited administrator’s submission, there are no special circumstances or other reasons to depart from that ordinary position, and there has been no conduct on his part sufficient to displace the ordinary principle. The limited administrator submits that his costs should be awarded on an indemnity basis, taking into consideration the fact that he acts in a representative capacity, as well as the fact that his solicitor raised the point upon which the Court ultimately dismissed the summons.
On the basis of the above submissions, the limited administrator seeks the following itemised orders as to costs:
1.The defendants pay the costs of the administrator thrown away by reason of the service of the Summons, such costs to be limited to the costs which are the reasonable and proportionate costs of and incidental to:
(a)reading and careful examination of the facts and matters deposed to in the affidavit of [the second defendant] sworn 8 July 2022 and the exhibits thereto;
(b)drawing, engrossing and perusing correspondence between the parties necessitated by the issue of the summons and drawing and engrossing minutes of proposed draft consent orders as appropriate;
(c)briefing counsel in relation to the appearance on 12 August 2022;
(d)seeking, obtaining and considering counsel’s advice in relation to whether the Summons was competent for the relief it sought and in relation to defence of the Summons and the affidavit material;
(e)drawing and engrossing submissions as to costs and perusing the parties’ submissions on costs
such costs to be on an indemnity basis and paid by the defendants without recourse to the estate of the deceased.
2.The further costs of the administrator if any, related to the application by summons be reserved to the Judicial Officer hearing and determining a proceeding by the defendants in which they seek the same or similar relief to that sought in the Summons and if there be none, then the administrator’s costs shall be paid and retained out of the estate of the deceased on an indemnity basis.
Applicable principles
Costs are a matter for the discretion of the Court, unless otherwise provided by an act or the Rules.[2] The usual order as to costs is that a successful party in litigation is entitled to an award of costs in its favour, and an unsuccessful party bears the liability for the costs of the litigation.[3] That is, costs follow the event. The relevant ‘event’ is success in the action or on particular issues.[4] The discretion must also be approached from the perspective of civil procedure reforms, the main object of which is the quick, cheap and efficient resolution of the real issues in dispute.[5]
[2]Supreme Court Act 1986 (Vic) s 24(1).
[3] Oshlack v Richmond River Council (1998) 193 CLR 72, 97 [67] (McHugh J).
[4]Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622, 624 (McHugh J); Seng Hpa v Walker [2017] VSC 320, [77] (McMillan J).
[5]GE Dal Pont, Law of Costs (LexisNexis Australia, 5th ed, 2021) 163 [6.15].
The prima facie position in respect of costs in litigation is for standard costs to be ordered by the Court, with the Court having the discretion to award costs other than on the standard basis.[6] A special order for costs will only be made where there is some special or unusual feature in the proceeding, or special circumstance, which justifies it. Each proceeding must be considered on its own facts, specifically whether those facts support the making of a special order for costs.
[6]Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.28.
Costs ordered out of a trust fund or deceased estate in favour of a trustee or executor are commonly quantified on an indemnity basis. This is the position at common law, and is also reflected in the Trustee Act 1958 (Vic)[7] and the Rules.[8] The basis for the principle is that persons engaged in litigation in a representative capacity should not, if a costs order is made in their favour, be out of pocket because of the litigation.
[7]Trustee Act 1958 (Vic) s 36(2).
[8]Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.26.
Where a trustee or executor fails in litigation, his or her costs may be allowed out of the estate. Where a trustee or executor succeeds, his or her costs would ordinarily be allowed out of the estate. However, the basis of quantification of costs remains in the discretion of the Court. The Court may deny or reduce the quantification of an indemnity by reference to, for example, the size of the estate, the parties’ conduct in the litigation, any offers of settlement that were made, or the effect a costs order may have on a beneficiary. Any indemnity ‘must be given effect to in such a way as to make the burden fall upon the beneficiaries equitably having regard to the circumstances under which the costs, charges and expenses were incurred’.[9]
[9] National Trustees Executors and Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268, 279 (Williams J).
Consideration
It is clear from the defendants’ affidavits that they have lost confidence in the limited administrator. The defendants’ error in attempting to ventilate these issues by summons in the probate proceeding is best characterised as a procedural irregularity. It may be rectified easily by commencing a new proceeding.
The plaintiff’s position that she should not be a party to a new proceeding is ultimately a matter for her. In the ordinary course, the plaintiff would be a necessary party given that her contingent interest in the estate remains to be determined. If the plaintiff were not named as a party in a new proceeding, the Court would likely require that notice be given to her and possibly make orders for her joinder.
Given the short time between the consent orders and the dismissal of the summons, any work allegedly undertaken by the limited administrator and the plaintiff will not be lost, as the same issues would be heard and determined in the new proceeding. In these circumstances, it is appropriate that no orders be made as to costs.
In the unlikely event that the defendants do not issue a new proceeding, the position of the costs of the limited administrator and the plaintiff should be determined presently. This is in the interests of finality with respect to the summons, such that all parties are clear as to their respective positions. In the circumstances, the defendants must now make an election to determine whether or not to issue the new proceeding based on the allegations raised in the summons. Such new proceeding should be capable of being issued promptly, as the basis of the application has already been somewhat articulated.
There is merit to the defendants’ submissions that, given the size of their entitlements to the deceased’s estate, the costs of the summons ought to be set off against their entitlements, irrespective of the question of how the estate is to be finally distributed. Those costs should otherwise not be deferred. In the event that the defendants do not issue the new proceeding by 28 October 2022, the reasonable and proportionate costs of the plaintiff and the limited administrator thrown away by reason of the summons are to be paid from the estate of the deceased on an indemnity basis, with those costs ultimately being set off against the defendants’ share of the estate upon final distribution, to be taxed in default of agreement.
Other considerations
The legal proceedings in Croatia will determine, inter alia, the identity of the intestacy beneficiaries. Where there is a dispute as to the beneficiaries of an estate, an independent person must be appointed as administrator pendente lite. This is so the estate is managed and preserved for the benefit of those eventually found to be entitled to it.[10] For these reasons, as the foreshadowed removal application will be disputed by the limited administrator, the defendants cannot be appointed in his place. The defendants’ alternative proposal of appointing Perpetual Trustee Company Limited as administrator pendente lite may be more appropriate, as it is an independent entity.
[10]Henderson v Executor Trustee Australia Ltd (2005) 93 SASR 337, 354 [44] (Debelle J), 363 [82] (Sulan J).
The foreshadowed removal application will be heard and determined in a new proceeding, where the defendants would be the plaintiffs and the limited administrator and the plaintiff would be the defendants. In acting as an administrator pendente lite, the limited administrator is undertaking a personal role and not acting as a solicitor. As the proceeding is contentious, the limited administrator will be a material witness. In such circumstances, it is preferable that he instruct independent solicitors to represent him, and not his own law firm as he did when responding in this proceeding.[11]
[11]Lissenden v Dellios [2021] VSC 520, [71]–[74] (Englefield JR).
Orders
The Court orders that:
(a) In the event that the defendants do not issue a new proceeding seeking the same or similar relief sought in the summons by 28 October 2022, the reasonable and proportionate costs of the plaintiff and the limited administrator thrown away by reason of the summons filed 26 July 2022 be paid from the estate of the deceased on an indemnity basis, with those costs ultimately set off against the defendants’ share of the estate of the deceased upon final distribution of the estate, to be taxed in default of agreement, and there be no orders as to the defendants’ costs.
(b) In the event that the defendants do issue a new proceeding seeking the same or similar relief sought in the summons by 28 October 2022, there be no orders as to costs thrown away by reason of the summons filed 26 July 2022.
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