Re Haliem
[2024] VSC 400
•10 July 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2022 00865
BETWEEN:
| MARIAM HALIEM | Plaintiff |
| v | |
| SARAH HALIEM (who is sued personally and as executor and trustee of the estate of Amal Haliem and as executor and trustee of the estate of Taher Haliem and as trustee of the Haliem Family Trust) | Defendant |
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JUDGE: | Moore J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 14 November 2023 |
DATE OF JUDGMENT: | 10 July 2024 |
CASE MAY BE CITED AS: | Re Haliem |
MEDIUM NEUTRAL CITATION: | [2024] VSC 400 |
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TRUSTS – Where estates not distributed in accordance with terms of testators’ wills –Establishment of a discretionary family trust – Declaration that transfers of estate properties to family trust void – Properties held on constructive trust – Judicial advice in relation to questions arising in the administration of the deceaseds’ estates - Removal of executor and trustee – Appointment of independent administrator and trustee – Remuneration of administrator – Administration and Probate Act 1958, s 34 – Supreme Court Act 1986, s 36 – Supreme Court (General Civil Procedure) Rules 2015, r 54, 63 – Trustee Act 1958, ss 48, 51, 66, 67 – Nissen v Grunden (1912) 14 CLR 297; National Trustees Executors and Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268; Bass v Permanent Trustee Co Limited (1999) 198 CLR 334; Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; Morris v Smoel [2013] VSCA 11; Perpetual Trust Ltd v Capital + Merchant Finance Ltd & Ors (2013) NZHC 2320.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms R Grayson Morison | Aitken Partners |
| For the Defendant | Mr N Baum | Hicks Oakley Chessell Williams |
TABLE OF CONTENTS
Background......................................................................................................................................... 1
Taher’s will..................................................................................................................................... 2
Amal’s will..................................................................................................................................... 2
The Haliem Family Trust............................................................................................................. 3
The Proceeding................................................................................................................................... 6
Transfer of the estate properties to the Trust............................................................................ 7
Judicial advice: Taher’s estate..................................................................................................... 9
Judicial advice: Amal’s estate.................................................................................................... 11
Removal of defendant as executor and trustee of the estates.................................................. 13
Payment of the independent administrator/trustee’s remuneration................................. 14
Costs.................................................................................................................................................... 18
HIS HONOUR:
These are the reasons of the Court for the making of certain orders and declaratory relief in relation to the estates of Taher Haliem and Amal Haliem who died on 13 December 2009 and 7 May 2013 respectively.[1] The relief granted by the Court generally accorded with the agreed position adopted by the parties at the commencement of the trial of the proceeding. Given the novelty and complexity of the circumstances of the case, this outcome has avoided substantial costs and court time and reflects positively on the efforts of the parties’ counsel and solicitors in aiding the efficient resolution of the real issues in dispute between the parties.
[1]Without intending any disrespect to the parties and witnesses in the proceeding, in the interests of clarity, other than the plaintiff and the defendant, I will generally refer to members of the Haliem family by their first names.
Background
The plaintiff and the defendant are two of the five children of Taher and Amal, their other children being Nada Haliem, Ahmed Haliem and Yusuf Haliem.
Taher and Amal were born in Egypt and raised in devout Muslim households; they were very religious. They migrated to Australia in about the mid-1980s and established a life here. They unfortunately both died at unduly young ages; Taher was 56 years when he passed away, and Amal was 46 years old when she passed away less than four years later.
After Amal passed away, with no other close relatives in Australia, sole responsibility for the care of her children fell to her eldest child, the defendant, who was then only 21 years of age. The plaintiff was 16, Ahmed was 12 and Yusuf was 8 years of age. Although Nada was 19 years of age, she has an intellectual disability, and the defendant also became responsible for her care. The defendant had married the year before Amal passed away, but in 2014 she and her husband returned to live in the family home to care for her siblings.
Taher’s will
Taher left a will dated 13 March 2007 in which he appointed Amal as executor. Under clause 4(ii)(a) of his will, Taher directed that, after payment of debts, duties and expenses, the residue of his estate be distributed as follows:
For my said wife and such of my children namely, SARAH HALIEM, NADA HALIEM, MARIAM HALIEM, AHMED HALIEM and YUSUF HALIEM as shall survive me and attain the age of twenty-four years and if more than one as tenants in common in equal shares absolutely and beneficially.
Taher’s estate was valued at approximately $1.6 million as at the date of his death. It was comprised of five properties in Preston, Reservoir and Coburg North (the estate properties).[2]
[2]20 Roxburgh Street, Preston (Certificate of Title Volume 5470 Folio 881); 6 Newton Street, Reservoir (Certificate of Title Volume 8986 Folio 238); 10 Malcolm Street, Preston (Certificate of Title Volume 8528 Folio 198), 82 Elizbeth Street, Coburg North (Certificate of Title Volume 8556 Folio 016); and 1/148 Elizabeth Street, Coburg North (Certificate of Title Volume 10136 Folio 638).
Amal obtained probate of Taher’s will on 5 April 2010. She registered two of the five estate properties in her capacity as legal personal representative of his estate. However, when she died some four year later, the three other estate properties remained registered in Taher’s name.
Amal’s will
Amal left a will dated 18 April 2012 in which she named the plaintiff as executor. However, because the plaintiff was a minor when Amal died, the defendant obtained probate of the will as a substituted executor.
Under her will, Amal directed that her residuary estate, being all her real and personal property after payment of debts and expenses, be held by her trustees upon trust to be distributed:
… strictly in accordance with the Islamic Law of distribution as outlined in the Quran in compliance with Sunni tradition.
An important issue in this proceeding is to determine the proper construction of this provision of Amal’s will.
Amal’s estate was valued at approximately $2.5 million as at the date of her death.[3]
[3]Which valuation included all of the estate properties, although three remained registered in Taher’s name and the remaining two properties were registered in Amal’s name in her capacity as the legal personal representative of Taher’s estate.
The Haliem Family Trust
The defendant gave evidence that, after Amal passed away, she sought help from the Egyptian community in Australia to help with administering her estate and managing the estate properties. A trusted family friend recommended that she approach an Egyptian-Australian bookkeeper, Mohamed El-Masri, who she met (together with a local imam) in about mid-2013, shortly after she obtained probate of Amal’s will.
Mr El-Masri assisted the defendant with keeping records of the management of the estate properties between 2013 and 2016. The defendant estimates that, over that period, she spoke to Mr El-Masri about the administration of her parents’ estates approximately 20 – 25 times. The defendant’s evidence was that Mr El-Masri told her that the ‘setup’ of the property in her parents’ estates was ‘not correct’ and that she would need to establish a family trust. Mr El-Masri also told the defendant that she could not distribute Taher’s estate in accordance with the terms of Taher’s will because it did not comply with Islamic law. The defendant trusted and accepted Mr El-Masri’s advice.
Consistent with Mr El-Masri’s advice, in late 2015 the defendant commenced taking steps towards the establishment of a family trust. In mid-2016, she met with a lawyer who Mr El-Masri had recommended: Mr Mohamed Ragab of Viclaw Lawyers (Viclaw). The defendant provided Mr Ragab with details of her parents’ estates, including copies of their wills, the grants of probate, and told him that Mr El-Masri had advised her to establish a family trust.
The defendant’s evidence was that Mr Ragab advised her that she should establish a discretionary family trust and that he did not advise her that the establishment of a family trust was not provided for under either of her parents’ wills, or that the creation of a trust might have adverse tax consequences.
Mr Ragab prepared a deed providing for the creation of a trust. The Haliem Family Trust (the Trust) was established by trust deed dated 1 July 2016 with Viclaw the settlor, and with the defendant the trustee and appointor. The Trust is a discretionary family trust and all of Taher and Amal’s children are named as objects.
In August 2016, the defendant transferred the two estate properties which had been registered in Amal’s name (in her capacity as legal personal representative of Taher’s estate) into her name in her capacity as legal personal representative of Amal’s estate, and then to herself in her capacity as trustee of the Trust. A week later, she transferred the remaining three properties which remained registered in Taher’s name into her name as legal personal representative of Taher’s estate, and then to herself in her capacity as trustee of the Trust.
Although the consideration for each of these transfers was described as being ‘devise in a will’, and despite the transfers being effected with the assistance of Viclaw, neither Taher’s will nor Amal’s will provided for the establishment of a discretionary family trust.
In her capacity as trustee of the Trust, the defendant has made resolutions as to the Trust’s income, although the plaintiff disputes that the named beneficiaries of the Trust have received income distributions. The defendant’s evidence was that the income from the Trust has been used to pay for her siblings’ living expenses, to make distributions of income to them, and to pay expenses associated with the estate properties.
Clause 4 of the Trust Deed deals with income and capital and provides as follows:
4. Income and capital
(a)The trustee may in their absolute discretion determine whether any receipt, profit or gain or payment, loss, or outgoing or any sum of money or investment however characterised is or is not to be treated as being on income or capital account, and further whether the income of the trust fund is to be calculated as including any actual or deemed capital gain arising during that period under the provisions of the Income Tax Assessment Act.
(b)The trustee may in their absolute discretion determine that any income, however characterised, whether it be franked or unfranked dividends, capital gains, trading revenue, interest, royalties, foreign income or any other kind of income, is a separate class of income for the purposes of this trust and divide that income into different parts including differences in the nature or character or source of that income. When dealing with the income of the trust fund in parts only or differently between or amongst parts of it the trustee may in their absolute discretion:
(i)Pay, apply, place to the credit in the books of account of the trust fund or otherwise deal with the whole or any part of income of any nature, character or source in such a manner as to preserve and pass on the nature, character or source of the income for the purposes of the Income Tax Assessment Act to, for or towards the maintenance, advancement or benefit of all or such one or more of the specified class then living or in existence as to the trustee in its absolute discretion may determine and in such shares and proportions that the trustee in their absolute discretion may determine, whether to the exclusion of any one or more of them or otherwise;
(ii)Determine how the outgoings and allowable deductions of the trust fund shall be applied or apportioned in calculating the income of any such nature, character or source; and
(iii)Determine how tax credits, inclusive of foreign tax credits and franked dividend credits as applies under the Income Tax Assessment Act, shall be applied or apportioned.
(c)Until the vesting day the trustee shall hold the income of the trust fund upon trust, as far as it has not decided to accumulate it, to distribute it within a reasonable time at the end of each financial year, as the trustee thinks fit among one or more of the specified class, in any shares and proportions which the trustee may in their absolute discretion think appropriate, and may decide to pay a class of income to one or more of them. The trustee may make distributions from gross income before deducting expenses and may apply expenses to such classes of income as the trustee deems appropriate.
(d)Income which has not been either accumulated or distributed in a year must be divided between the members at that time of the specified class in equal shares.
(e)The trustee may transfer property to a beneficiary instead of distributing cash to them, after deciding the value of the property.
(f)The trustee will hold the trust fund on the vesting day in trust for any number of the specified class in the shares and proportions which the trustee in its absolute discretion has decided within the period of one month before the vesting day. If the trustee does not make this decision in that time, it will hold the trust fund on trust for all members of the specified class in equal shares.
(g)The trustee may at any time prior to the vesting day transfer any part of the trust fund to any member of the specified class.
The Proceeding
By late 2016, the relationship between the plaintiff and the defendant had deteriorated such that it became difficult for them to continue living together in the family home. The defendant and her husband moved out, and the plaintiff and her siblings remained living in the family home until about 2019, at which time the plaintiff married and moved out.
By April 2021, the plaintiff had developed concerns in relation to the defendant’s administration of Amal’s estate. She retained solicitors who wrote to the defendant’s solicitors, Viclaw, outlining her concerns.
On 17 March 2022, the plaintiff commenced this proceeding seeking orders providing for the following relief:
(a) the defendant’s removal as executor of Taher and Amal’s estates (referred to collectively hereafter as ‘the estates’) and the appointment of the plaintiff in her place;
(b) the removal of the defendant as trustee of the Trust and the appointment of the plaintiff in her place;
(c) the provision of accounts of the administration of the estates and in relation to the Trust;
(d) the delivery up of documents relating to the administration of the Trust;
(e) a declaration that the property held by the Trust is held upon constructive trust for the estates;
(f) declarations pursuant to r 54.02(2)(a) of the Supreme Court (General Civil Procedure) Rules 2015 (the Rules) as to questions said to have arisen in the administration of the estates;
(g) a declaration that the defendant is not entitled to indemnity from the assets of the estates or the Trust in respect of any matter, action or transaction that resulted in the assets of Amal’s estate being transferred to the Trust; and
(h) that the plaintiff’s costs of the proceeding be paid personally by the defendant on an indemnity basis without indemnity from the estates or the Trust.
In support of her application, the plaintiff tendered into evidence the following affidavits: affidavit of Mariam Haliem dated 17 March 2022, affidavit of Rama Abdul Sultan dated 4 September 2023, affidavit of Lachlan McKenzie dated 31 October 2023, and affidavits of Jack Conway dated 2 November 2023 and 13 November 2023. The defendant relied upon affidavits of Samantha Schnabel dated 12 August 2022, 2 November 2023 and 13 November 2023, and an affidavit of Sarah Haliem dated 25 July 2022. None of the deponents of the affidavits were required for cross examination.
Transfer of the estate properties to the Trust
The parties jointly proposed that the Court make declarations that the transfers of the estate properties from the estates to the Trust are void and of no effect.
Section 36 of the Supreme Court Act 1986 is a source of power for the Court to grant declaratory relief; this remedy is conferred in terms which makes clear that its grant or refusal is within the discretion of the Court.[4] Ordinarily, declaratory relief requires the Court to be satisfied of the declared issue by evidence, not merely by the consent of the parties.[5] The rationale for this approach was explained by the plurality of the High Court in Bass v Permanent Trustee Co Limited:[6]
As the answers given by the Full Court and the declaration it made were not based on facts, found or agreed, they were purely hypothetical. At best, the answers do no more than declare that the law dictates a particular result when certain facts in the material or pleadings are established. What those facts are is not stated, nor can they be identified with any precision. They may be all or some only of the facts. What facts are determinative of the legal issue involved in the question asked is left open. Such a result cannot assist the efficient administration of justice. It does not finally resolve the dispute or quell the controversy. Nor does it constitute a step that will in the course of the proceedings necessarily dictate the result of those proceedings. Since the relevant facts are not identified and the existence of some of them is apparently in dispute, the answers given by the Full Court may be of no use at all to the parties and may even mislead them as to their rights. Courts have traditionally declined to state - let alone answer - preliminary questions when the answers will neither determine the rights of the parties nor necessarily lead to the final determination of their rights. The efficient administration of the business of courts is incompatible with answering hypothetical questions which frequently require considerable time and cause considerable expense to the parties, expense which may eventually be seen to be unnecessarily incurred.
[4]See McDonald J in Pitard v One Managed Investment Funds Limited [2020] VSC 666, [17].
[5]See McMillan J in Re Di Giovine; Di Giovine v Bini [2020] VSC 330, [10].
[6](1999) 198 CLR 334, 357 [49].
It is uncontroversial that, on various dates in August 2016, the defendant transferred each of the estate properties to herself in her capacity as trustee of the Trust. Each of those transfers was beyond power. Taher’s will does give any power or authority to his legal personal representative to transfer property to Amal’s estate, the Trust, or any discretionary trust. Amal’s will likewise does not contain any provision which would allow the transfer of estate properties into the Trust or any other discretionary trust. Where an executor or trustee transfers trust property other than in compliance with the terms of the will or trust instrument, the transfer is void; it cannot take effect in the absence of a source of power.[7]
[7]Owies v JJE Nominees Pty Ltd [2022] VSCA 142 [140]–[146]; Pitt v Holt [2013] 2 AC 108 [60]–[94] (Lord Walker of Gestingthorpe); Ramsden v Federal Commissioner of Taxation [2004] FCA 632 [45]–[47].
There was accordingly a proper factual basis for the Court to declare that the transfers of any and all property from the estates to the Trust and, in particular, the transfers of each of the estate properties, are void and of no effect. A declaration would have clear utility in aiding an independent executor and trustee, who the Court has appointed to the estates for the reasons dealt with below,[8] in unwinding the transactions by which the transfers were effected so that the estates can be properly administered in accordance with the terms of Taher and Amal’s wills, and to seek to avoid any additional taxes or duties that would otherwise apply to capital transfers from a discretionary trust in circumstances where the estate properties should never have been transferred into the Trust from the estates. The Court accordingly made a declaration in relation to the transfer of the estate properties of the Trust in the form proposed by the parties.
[8]See [47]–[50] below.
Judicial advice: Taher’s estate
The plaintiff sought judicial advice pursuant to r 54.02(2)(a) of the Rules in relation to four questions said to arise in the administration of Taher’s estate.
In Morris v Smoel,[9] the Court of Appeal stated that the purpose of r 54.02 of the Rules is to:[10]
… [establish] a procedure … to enable a trustee or executor to obtain the direction or opinion of the Court on a matter of administration or management, or as to the construction of the will or trust instrument, without the need to commence an administration suit with all its attendant delay and cost. …
The procedure invoked by the executors is thus a summary procedure, intended to enable questions arising in the administration of an estate or a trust to be resolved cheaply and simply. …
[9][2013] VSCA 11.
[10]Ibid [22]–[23].
The majority of the High Court in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand[11] held that there were no implied limitations on the Court’s power to give judicial advice under an equivalent jurisdiction to r 54.02, and that the only jurisdictional bar to the provision of advice is that an applicant must ‘point to the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument’.[12] That requirement is clearly satisfied in this case.
[11](2008) 237 CLR 66 (‘Macedonian Orthodox Church’).
[12]Ibid [58].
The first question raised in relation to the administration of Taher’s estate was:
In the events that have happened and in the circumstances that have occurred, are the estate assets to be administered in accordance with clause 4 of the Haliem Family Trust Deed dated 1 July 2016 without regard to the terms of the will of Taher Haliem dated 13 March 2007?
The question must be answered in the negative. Taher’s estate is required to be administered in accordance with his will. This has not occurred. As I have explained, under Taher’s will, Taher’s legal personal representative did not have power to make distributions of estate property into the Trust.
The remaining questions posed in relation to the administration of Taher’s estate correctly assumed a negative response to the above question. On that premise, the second question posed for consideration was:
In the events that have happened and on a true construction of the will of Taher Haliem does the residuary estate pass in its entirety to Amal pursuant to clause 4(ii)(a) of the will of Taher Haliem dated 13 March 2007?
The answer to this question is self-evidently ‘no’. Clause 4(ii)(a) of Taher’s will identifies six beneficiaries, being Amal as well as her five children, all of whom survived Taher and who receive a vested interest in Taher’s estate upon obtaining the age of 24 years.
Assuming (correctly) a negative answer to this second question, the third question posed in relation to the construction of Taher’s will was:
Is the residuary estate to be held on trust for Amal, Sarah Haliem, Nada Haliem, Mariam Haliem, Ahmed Haliem and Yusuf Haliem, all of whom survived the deceased as tenants in common in equal shares to be paid to each of them attaining the age of 24 years in accordance with clause 4(ii)(a) of the will of Taher Haliem dated 13 March 2007?
On a plain reading of the words of clause 4(ii)(a) of Taher’s will considered in the context of the will as a whole, this question must be answered in the affirmative.
It is unnecessary to answer the fourth question posed in respect of the administration of Taher’s estate as it assumed a negative response to the third question referred to above.
Judicial advice: Amal’s estate
The plaintiff also sought judicial advice pursuant to r 54.02(2)(a) of the Rules in relation to three questions concerning the administration of Amal’s estate.
The first question posed was:
In the events that have happened and in the circumstances that have occurred, are the estate assets to be administered in accordance with clause 4 of the Haliem Family Trust Deed dated 1 July 2016 without regard to the terms of the will of Amal Haliem dated 18 April 2012?
As with the first question raised in relation to the administration of Taher’s estate, this question must be answered in the negative: Amal’s estate has not yet been administered in accordance with her will and there is no power under Taher’s will or Amal’s will for the defendant to make distributions of the estate properties to the Trust.
The second question relating to the administration of Amal’s estate assumed (correctly) a negative answer to the above question referred and was as follows:
In the events that have happened and on a true construction of the will of Amal Haliem what is the meaning of the clause that directs the trustees to ‘hold my residuary estate upon trust which shall be distributed strictly in accordance with the Islamic law of distribution as outlined in the Quran in compliance with Sunni tradition’?
In order to assist the Court in answering this question, the parties jointly engaged an expert in Islamic succession law, Ramia Abdo Sultan, who prepared a report dated 1 September 2023 for use in the proceeding. Ms Sultan is a solicitor who was admitted to practice in New South Wales in 2006 and whose main areas of practice include wills and estates, property law and family law. She has also undertaken post-graduate studies in Islamic succession law, an area in which she has developed a professional practice over a number of years. She deposed to having substantial experience in drafting ‘Islamically compliant wills which conform to the Australian legal system’. Since August 2019, Ms Sultan has been a community relations adviser with the Australian National Imams Council, in which role she has dealt with inheritance issues and disputes involving members of the Muslim community in Australia.
I am satisfied that Ms Sultan is appropriately qualified to give evidence in relation to the second (and third) question raised in relation to the administration of Amal’s estate. In considering these questions, I am also satisfied that Ms Sultan properly considered Amal’s personal and familial circumstances, including that she practiced in accordance with the Sunni tradition.
On the basis of Ms Sultan’s expert opinion, the second question posed in relation to the administration of Amal’s estate is to be answered as follows:
The trustees must hold Amal Haliem’s residuary estate upon trust to be distributed:
(a)to the husband of the deceased, a half share of the inheritance if there are no children or a one quarter share if there are children;
(b)to the children of the deceased, if male, a portion equal to that of two females, and if only daughters, two or more, their shares is two thirds;
(c)to the parents of the deceased, a sixth share of the inheritance to each if the deceased left children; if there are no children, and the parents are the only heirs, the mother receives one third.
The third question raised in relation to Amal’s estate is as follows:
In the events that have happened and on a true construction of the will of Amal Haliem what is the identity of the beneficiary or beneficiaries that are entitled to receive a distribution from the residuary estate and in what proportions?
It follows from the answer to the second question applied to Amal’s family circumstances, and it was not controversial between the parties, that there are seven beneficiaries under Amal’s will: her five children, her mother (Fayza Shamikh) and her father (Abdel Fattah Ali Taha). I accept Ms Sultan’s evidence that, in accordance with the Islamic law of distribution as outlined in the Quran in compliance with Sunni tradition as provided by paragraph 5 of Amal’s will, these beneficiaries are entitled to receive a distribution from her residuary estate in the following proportions:
(a) as to 12/126th for Sarah Haliem, the defendant;
(b) as to 12/126th for Nada Haliem;
(c) as to 12/126th for Mariam Haliem, the plaintiff;
(d) as to 24/126th for Ahmed Haliem;
(e) as to 24/126th for Yusuf Haliem;
(f) as to 21/126th for Abdel Fattah Ali Taha; and
(g) as to 21/126th for the estate of Fayza Shamikh.
Removal of defendant as executor and trustee of the estates
Before the trial of the proceeding, the plaintiff and defendant consented to the defendant being discharged as executor and trustee of the estates and for an independent and suitably experienced solicitor, Lachlan McKenzie, to be appointed in her place. Mr McKenzie consented to being appointed in those capacities and proffered the usual undertakings to the Court.
The position of the other four[13] beneficiaries under Amal’s will in relation to this proposal was as follows. Nada (through her litigation guardian) and Amal’s father, Abdel, consented to the defendant being discharged as executor of Amal’s estate and Mr McKenzie being appointed in her place. Ahmed and Yusuf were given written notice of the application and informed that they could seek to be heard in relation to it. Neither sought to appear before the Court, but each conveyed their position in emails which were tendered into evidence.
(a) Ahmed rejected the appointment of Mr McKenzie on the basis that his appointment would be contrary to the terms of Amal’s will and would further increase the losses incurred by the estate. Ahmed stated his belief that the plaintiff would be capable of acting as executor.
(b) Yusuf expressed similar concerns as Ahmed, but provided a conditional acceptance of Mr McKenzie’s appointment. Yusuf indicated he would agree to Mr McKenzie’s appointment provided that his share of the estate was only invested in an ‘Islamically compliant manner’ and that Mr McKenzie’s costs were to be borne solely by the defendant.
[13]One of the beneficiaries, Amal’s mother, Fayza, passed away in 2014.
These concerns were largely misdirected. The desire for the plaintiff to act as executor because it accords with Amal’s wishes ignores the fact that the plaintiff has consented to Mr McKenzie’s appointment. The concerns about the costs associated with the appointment of an independent person, while understandable in a general way, are overstated: Mr McKenzie has indicated that he will charge in accordance with the relevant Court scale and otherwise pursuant to the Practitioners Remuneration Order. Concerns about the manner in which the estate is to be administered are not to the point as to whether an independent person should be appointed; any particular preferences a beneficiary may have in that regard can be raised by them with the independent administrator for their consideration.
In all of the circumstances, I was satisfied that it was appropriate to appoint an independent person to administer and be trustee of the estates and that Mr McKenzie was suitably qualified and experienced to undertake that role in place of the defendant. The Court accordingly made orders pursuant to s 34 of the Administration and Probate Act 1958 and ss 48(1) and 51 of the Trustee Act 1958 giving effect to this proposal as agreed by the parties, as well as orders vesting the estates’ assets in Mr McKenzie and various ancillary matters.
Payment of the independent administrator/trustee’s remuneration
The parties were in dispute as to whether Mr McKenzie’s remuneration as administrator and trustee of the estates should be paid from the estates generally (as the defendant proposed), or from the defendant’s entitlement to a distribution from the estates (as the plaintiff proposed).
The plaintiff submitted that Mr McKenzie’s remuneration should be borne by the defendant’s entitlement to a distribution from the estates because, so it was contended, it had been her (unremedied) breaches of trust which had caused the circumstances giving rise to the proceeding and Mr McKenzie’s appointment. In those circumstances, having regard to the welfare of the beneficiaries, it would not be equitable if they were to bear the costs of the appointment of a new administrator/trustee to remedy the defendant’s breaches and to properly administer the estates according to law.
The plaintiff submitted that the Court had a supervisory role in respect of the administration of trusts and estates and that, pursuant to s 66 of the Trustee Act 1958, it may order that the costs and expenses of and incidental to any order appointing a new trustee be ‘borne and paid in such manner and by such persons as to the Court seems just’. Reliance was also placed upon the observations of Palmer J at first instance in Macedonian Orthodox Church in relation to the making of an ‘interim costs order’.[14] Further, generally speaking, an administrator/trustee has a right of indemnity or recoupment against the estate assets and may reimburse themselves out of the trust property for expenses properly incurred in the execution of their powers. However, as stated by Williams J in National Trustees Executors and Agency Co of Australasia Ltd v Barnes:[15]
… the 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.
[14]Re Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247, [67] . Referred to in the High Court as a ‘pre-emptive costs order’: see Macedonian Orthodox Church (n 11), [51].
[15](1941) 64 CLR 268, 279 (‘National Trustees v Barnes’).
I was unpersuaded by these submissions for the reasons which follow. The Court ordered that Mr McKenzie’s remuneration in his capacity as administrator and trustee of the estates be paid from the assets of the estates generally.
Since the decision of the High Court in Nissen v Grunden[16] it has been accepted that, upon the appointment of trustees, the Court may authorise the payment of remuneration to them for future services.[17] Reality requires an acceptance of the need to allow remuneration to professional persons who act as trustees.[18]
[16]Nissen v Grunden (1912) 14 CLR 297, 308.
[17]Re Moore (1956) VLR 132, 134; Re White (2003) 7 VR 219, 233.
[18]Olde and Anor Re Propestate Pty Ltd (in liquidation) [2009] NSWSC 859, [13].
Although the Court may authorise payment of a trustee’s remuneration in respect of future services, there is no relevant authority which establishes the Court’s power to prospectively authorise a trustee’s remuneration to be deducted from the distribution to which one of the beneficiaries of the trust is to become entitled in the future. The situation is entirely different to a Beddoe application with which Macedonian Orthodox Church was concerned as to whether a trustee is justified in bringing proceedings and expending trust monies for that purpose. Likewise, the observations of Williams J in National Trustees v Barnes are inapposite as they related to costs incurred by certain beneficiaries in previous proceedings; his Honour was not dealing with a prospective authorisation of the type here sought by the plaintiff.
The only arguable source of power for the Court to make an order of the type sought by the plaintiff is s 66 of the Trustee Act which provides:
66 Power to charge costs or to order payment
The Court may order the costs and expenses of and incident to any application for an order appointing a trustee, or for a vesting order, or of and incident to any such order, or any conveyance or transfer in pursuance thereof, to be raised and paid out of the property in respect whereof the same is made, or out of the income thereof, or to be borne and paid in such manner and by such persons as to the Court seems just.
Section 66 of the Trustee Act has not been the subject of any substantive judicial consideration.[19] Although the section speaks in apparently broad terms of the Court’s power to order costs and expenses ‘to be borne and paid in such manner and by such persons as to the Court seems just’, that power is tethered to the four matters to which the section previously refers: an application for an order appointing a trustee; a vesting order; an order of or incidental to any such order; or a conveyance or transfer pursuant thereof. Only the first of these categories might conceivably be engaged in the circumstances of this case. However that category concerns costs and expenses ‘of and incident to any application for an order appointing a trustee’. The authorisation sought by the plaintiff would not appear to me to be within the ambit of that description; it is an authorisation for the payment of a trustee’s remuneration in respect of unknown future activities undertaken in the discharge of their duties.
[19]In Re Application by D.J. Hughes; Richardson v Aileen Pty Ltd [2007] VSC 104, Mandie J at [56] noted in passing that at ‘first blush’ the power in s 66 ‘is a somewhat narrow one’, but that it was unnecessary to say anything further about it.
This is consistent with the judgment and reasoning of Woolford J in Perpetual Trust Ltd v Capital + Merchant Finance Ltd & Ors[20] which concerned s 71 of the Trustee Act 1956 (NZ), the analogue of s 66 of the Trustee Act 1958 and substantively in the same terms.[21] After undertaking a detailed examination of the proper construction of the relevant statutory provision, Woolford J concluded that it did not support the making of an order that a retiring trustee pay the ongoing costs of a replacement trustee.[22]
[20](2013) NZHC 2320 (‘Perpetual Trust v Capital + Merchant Finance’).
[21]Section 71 of the Trustee Act 1956 (NZ) provides as follows: ‘The Court may order the costs and expenses of and incidental to any application for any order under this Act, or of and incidental to any such order, or any conveyance or assignment in pursuance thereof, to be raised and paid out of the property in respect whereof the same is made, or out of the income thereof, or to be borne and paid in such manner and by such persons as to the Court may seem just.’
[22]Perpetual Trust v Capital + Merchant Finance (n 20), [23]–[31], [39].
It is, however, unnecessary to reach a concluded view about whether s 66 of the Trustee Act 1958 is a source of power for the order proposed by the plaintiff. Even if it is, in the exercise of my discretion I do not consider such an order would be appropriate or just in the circumstances of the case.
First, it would be inappropriate in resolving the controversy in relation to responsibility for payment of Mr McKenzie’s remuneration as administrator and trustee for the Court to adjudicate on the ‘moral culpability’ of the defendant, as it was described by counsel for the plaintiff. The proceeding does not contain any express claim that the defendant has acted in breach of trust, has caused loss to the estates, or that she should be ordered to compensate the estates for any such loss. The plaintiff accepts in her submissions that no findings of fact will be made in this proceeding as to the nature and extent of the defendant’s breaches of trust, or whether there are any defences to such breaches, and that there is no application to quantify the losses said to be attributable to any such breaches of trust. Counsel for the defendant has squarely indicated that, in the event that such claims are advanced, the defendant would seek to be relieved from liability under s 67 of the Trustee Act 1958. Given these matters, there is no proper foundation for the Court to exercise its discretion to order that Mr McKenzie’s remuneration in his capacity as administrator and trustee of the estates be paid from the defendant’s entitlement to a distribution from the estates.
Secondly, an order of the type sought by the plaintiff would impose potentially boundless liabilities on the defendant in relation to costs, including in relation to issues which may be unrelated to her conduct. It is clear that there are a number of potentially complex matters which are likely to arise in the further administration of the estates. It would be inappropriate to make the defendant responsible for the costs of those activities when their specific nature and their quantum is unknown, as well as whether responsibility for those costs are properly visited on the defendant.
Costs
The parties remained in dispute about liability for the costs of the proceeding. The plaintiff sought that: (a) the defendant pay the plaintiff’s costs of the proceeding personally on a standard basis or, alternatively, from the defendant’s interest in the estates; and (b) the defendant bear her own costs of the proceeding without recourse to the assets of the estates. The defendant sought that the plaintiff’s and her own costs of the proceeding be paid from the estates.
A significant feature of counsel for the defendant’s submissions on costs concerned the defendant’s reliance upon legal advice provided to her by her then solicitors Viclaw.[23] This advice was said to be wrong in a number of important respects. Having considered these submissions, I consider that a real question arises as to whether the advice provided by the relevant solicitors with Viclaw, and their associated acts and omissions, caused costs to be incurred without reasonable cause, or to be wasted by a failure to act with reasonable competence. On the basis of that preliminary view, I intend to give consideration to making orders under r 63.23 of the Rules that the solicitors concerned be liable for the defendant’s costs and/or the costs of any other party (within the meaning of Order 63 of the Rules). Consistent with principles of procedural fairness and the requirements of r 63.23(3), the Court will make orders to afford the solicitors concerned a reasonable opportunity to be heard in respect of the matter.
[23]Viclaw ceased acting for the defendant on 7 June 2022, the proceeding having commenced on 17 March 2022.
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