Re Koroneos; Koroneos v Koroneos & Anor

[2021] VSC 734

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

TRUSTS, EQUITY AND PROBATE LIST

S ECI 2021 01896

IN THE MATTER of the will and estate of MANUEL KORONEOS, deceased

-and-

IN THE MATTER of an application pursuant to s 34 of the Administration and Probate Act 1958 (Vic)

-and-

IN THE MATTER of an application pursuant to the inherent jurisdiction of the Court and s 51 of the Trustee Act 1958 (Vic)

BETWEEN:

KATE LEANE KORONEOS	Plaintiff
v
LOUISE KORONEOS	First defendant
-and-
MATTHEW KORONEOS	Second defendant

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JUDGE:	McMillan J
WHERE HELD:	Melbourne
DATE OF HEARING:	On the papers
DATE OF RULING:	10 November 2021
CASE MAY BE CITED AS:	Re Koroneos; Koroneos v Koroneos & Anor
MEDIUM NEUTRAL CITATION:	[2021] VSC 734

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COSTS – Removal application – Appointment of independent administrator – Defendants in situation of conflict – Plaintiff’s offer of compromise not accepted – Indemnity costs – Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 26.08(2)(b).

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APPEARANCES:	Counsel	Solicitors
For the plaintiff	Ms C M Symons	Melbourne Legal Chambers
For the defendants	Mr J W McCoy	Flood Chambers Meade

HER HONOUR:

Introduction

1. On 16 September 2021 the Court heard an urgent application by the plaintiff seeking removal of the defendants as administrators with the will annexed of the estate of Manuel Koroneos, deceased, and for the appointment of an independent administrator by the Court.  The parties were informed that oral reasons would be delivered the next day.

1. On 17 September 2021 the following oral reasons were delivered:

I am dealing today with the removal application by the plaintiff and the summons by the defendants for a stay of the plaintiff’s removal application pending the determination of the plaintiff’s Part IV proceeding, and alternatively the plaintiff’s removal application and the Part IV proceeding will be heard together.

In the Part IV proceeding the plaintiff seeks further provision from the estate and the sole legal issue in the Part IV proceeding is what provision should be made for the plaintiff and in that estate the defendants are the residuary beneficiaries.  Both the removal proceeding and the Part IV proceeding, concern the ongoing administration of the estate and the ultimate distribution of the estate of the deceased.  It is now more than three years since the death of the deceased and the grant of probate of the will.  Over that time the parties were in dispute on many issues and while agreement has now been reached on certain issues there remains substantial disagreement over a wide number of issues, which includes the amount of further provision for the plaintiff.

If the defendants remain as administrators of the estate they will be defending the plaintiff’s Part IV proceeding in their capacities as administrators of the estate and also as the residuary beneficiaries of the estate.  The Part IV legislation imposes a duty on a testator to make adequate and proper provision for eligible persons and as administrators, the defendants must not ignore this duty.  As administrators, it is incumbent on them to assess the evidence in an impartial and objective manner, act properly and reasonably in conducting the litigation and if appropriate, compromise the proceeding.[1]  This is consistent with their fiduciary duties as administrators conducting litigation affecting an estate.  As the residuary beneficiaries of the estate, the defendants do not have such a duty[2] and would be predisposed to advance their own interests.

The authorities demonstrate that an administrator will not necessarily be removed where there is a conflict between duty and interest but in some cases it may be sufficient.  Ultimately the decision to discharge a personal representative depends on the facts and circumstances of the particular case and is a determination to be made at the discretion of the Court after the consideration of the interests of the beneficiaries, the security of the estate property, the efficient and satisfactory exercise of the trust and a faithful and sound exercise of the powers by an administrator.  Each case depends on the relevant facts and the determination of what is best for the welfare of the estate as a whole.[3]

A stay of the plaintiff’s removal application pending the determination of the Part IV proceeding, alternatively the concurrent hearing of the plaintiff’s removal application and the Part IV proceeding, will not solve the conflict of the defendants between interest and duty.  On that basis, I will order that the defendants summons filed [12] July 2021, be dismissed.  As the part IV proceeding is to be heard on 7 December, it is imperative that an independent administrator of the estate be appointed as soon as possible.  I will be in touch shortly regarding the identity of the proposed administrator.  Otherwise, that I [sic] propose that the costs of this proceeding including the summons be reserved.  And we will come back to that at a later time.

[1]Collett v Knox [2010] QSC 132, [167] (McMeekin J).

[2]Underwood v Sheppard [2010] QCA 76, [16] (Holmes, Fraser JJA and P Lyons J).

[3]See, eg, Manocchio v Wilson [2012] VSC 76, [38] (Habersberger J).

1. Subsequently orders were made, inter alia, appointing Mr Mark Maier of McNab McNab & Starke as the independent administrator of the estate of the deceased and for the parties to file written submissions as to the costs of the proceeding.  The parties were unable to agree on costs.

Applicable principles

1. The jurisdiction of the Court as to costs is conferred by s 24(1) of the Supreme Court Act 1986 (Vic). This general discretion must be exercised in accordance with ord 63 of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’).[4] 

   [4]Sunland Waterfront (BVI) Ltd v Prudential Investments Pty Ltd (No 3) [2012] VSC 399, [11] (Croft J); see also Coombes v Ward (No 2) [2002] VSC 84, [7] (McDonald J).

1. The ‘usual order as to costs’ is that ‘costs follow the event’ and a successful party in litigation is entitled to an award of costs in its favour.[5]  The relevant ‘event’ is success in the action or on particular issues.[6]  The corollary is that ordinarily the unsuccessful party bears the liability for the costs.[7]. 

   [5]Northern Territory v Sangare (2019) 265 CLR 164, [25] (Kiefel CJ, Bell, Gageler, Keane and Nettle JJ); Oshlack v Richmond River Council (1998) 193 CLR 72, [67] (McHugh J).

   [6]Priestley v Priestley (No 2) [2016] NSWSC 1259, [49] (White J).

   [7]Oshlack v Richmond River Council (n 5).

1. In civil proceedings the usual 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.[8]

   [8]See Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; Ugly TribeCo Pty Ltd v Sikola [2001] VSC 189, [6]–[8] (Harper J); Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) (n 4) [12]–[18] (Croft J).

1. In estate proceedings the position is generally that persons engaged in litigation in a representative capacity should not be out of pocket because of the litigation, provided their expenses are properly incurred.[9]  Costs of an executor or administrator are commonly quantified on an indemnity basis and are paid out of the estate.[10] 

   [9]Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.26; GE Dal Pont, Equity and Trusts in Australia (Lawbook Co, 7^th ed, 2019) 682 [23.135], citing Turner v Hancock (1882) 20 Ch D 303, 305 (Jessel MR); Re Beddoe [1893] 1 Ch 547, 558 (Lindley LJ); Nolan v Collie (2003) 7 VR 287, 303–10 (Ormiston JA); Dimos v Skaftouros [2004] VSCA 141, [165] (Dodds-Streeton AJA).

   [10]Re Buckton; Buckton v Buckton [1907] 2 Ch 406, 414 (Kekewich J); Murdocca v Murdocca (No 2) [2002] NSWSC 505, [71]–[78] (Campbell J); Steel v Ifrah (No 2) [2013] VSC 167, [2]–[5] (Dixon J); Warton v Yeo [2015] NSWCA 115, [4]–[6] (Basten JA).

Plaintiff’s position

1. On 18 August 2021 the plaintiff’s solicitor served an offer of compromise on the defendants in accordance with ord 26 of the Rules. The offer invited the defendants to consent to their being discharged as administrators and provided for Mr Lachlan Vallance of Hicks Oakley Chessell Williams to be appointed administrator in their place. Each party was to bear their own costs of the proceeding.

1. The defendants did not accept the offer.

1. The plaintiff submits that as she was successful in the proceeding she ought be entitled to her costs in accordance with r 26.08(2)(b) of the Rules, that is, that the defendants should pay her costs of the proceeding from the commencement of the proceeding to 11am on 20 August 2021 being the second business day after the offer was made on a standard basis; and from 11am on 20 August 2021 on an indemnity basis.

Defendants’ position

1. The defendants seek that there be no orders as to costs, alternatively, the costs be reserved until the end of the  Part IV proceeding, this being the approach adopted in an earlier related proceeding between the parties.[11]If the Court does make an order for costs, the defendants seek that payment of the costs be stayed until after the resolution of the Part IV proceeding.

   [11]Proceeding number S ECI 2018 02502.

1. The defendants submit that despite the numerous allegations made against them by the plaintiff, the Court made no adverse findings of the conduct of the defendants as administrators of the estate in the preceding two years, nor did it rely on the defendants’ past conduct as administrators to justify their removal or the fact that the conflict had caused the defendants to act unreasonably in any aspect of the administration.  Rather the Court concluded that  the defendants’ conflict between their personal interests and the interests of the estate justified their removal.

1. In circumstances where the defendants’ conduct has not been held to be unreasonable and where the parties are engaged in related unresolved litigation, the defendants submit that an order that the defendants pay the plaintiff’s costs of the proceeding would not give due regard to these factors and would not be ‘fair and just’ in the circumstances of this case.

1. In respect of the offer of compromise the defendants submit that while the defendants have ultimately been removed as administrators, the Court appointed its own preferred practitioner as their replacement, rather than  Mr Vallance.  In such circumstances, it is difficult to assess whether the outcome of the plaintiff’s application is ‘no less favourable’ to her than the terms of the offer.  The nature of the  application and the terms of the offer do not lend themselves to a simple comparison of favourability, as might a claim for damages or some other monetary sum.  Although the plaintiff obtained relief in the proceeding, it is not in the precise terms of the offer and is not definitive either way.  They submit that the offer should be considered as part of the rubric of the reasonableness of the conduct of the parties in the proceeding generally.

Consideration

1. The defendants were in an obvious conflict situation between interest and duty.  In those circumstances, it was unnecessary for the Court to make any findings as to their conduct as administrators.  Accordingly, the defendants’ reliance on there being no adverse findings as to the conduct of the defendants as administrators is irrelevant.

1. In removal applications, it is usual for an applicant to provide evidence of an independent person prepared to take on the task.  To avoid any controversy between the parties as to the person to be appointed as independent administrator, the Court wished to remove any unconscious perception by the defendants that the person appointed was linked somehow to the plaintiff.  In such circumstances, Mr Maier was approached for the appointment.  Both Mr Vallance and Mr Maier are appointed regularly by the Court as independent administrators.  In taking on such a role, their work is valued highly by the Court. 

1. The plaintiff made an early attempt to resolve the proceeding prior to the hearing.  Her offer was reasonable and provided for the appointment of an appropriate independent administrator with each party to bear their own costs.  The offer was not difficult or complicated and the defendants had ample opportunity to consider it.  Further, the plaintiff’s conduct accords with the policy and objectives behind the costs rules and is consistent with the overarching obligations of litigants and practitioners under the Civil Procedure Act 2010 (Vic) aimed at encouraging settlement and ensuring costs are reasonable and proportionate.

1. There are no special, compelling or exceptional circumstances that warrant the exercise of the Court’s discretion to otherwise order, as provided by r 26.08(2) of the Rules, with respect to the plaintiff’s costs of the proceeding. Accordingly, the plaintiff is entitled to her costs in accordance with r 26.08(2)(b) of the Rules.

1. This proceeding is a discrete application and should now be finalised.  There is no reason for the payment of the costs of the proceeding to be stayed until after the resolution of the Part IV proceeding.  At the date of the hearing, the Part IV proceeding was listed for trial on 7 December 2021.  Since then the trial date has been vacated by consent and the proceeding is listed for further directions on 4 March 2022. 

1. Although the defendants were the administrators of the estate, the dispute as to the appointment of an independent administrator does not fall within the rubrick of estate litigation in the true sense.  It bears all the hallmarks of adversarial litigation of a  personal nature and the estate should not be depleted further by paying the costs of such litigation.

Orders

The Court will order:

(a)   the defendants personally pay the costs of the plaintiff of and incidental to the proceeding up to 11am on 20 August 2021 on the standard basis and from 11am on 20 August 2021 on an indemnity basis;

(b)  the defendants bear their costs of the proceeding personally without recourse from the estate of the deceased; and

(c)   the proceeding otherwise be dismissed.

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