Re Lidgett (No 2)
[2024] VSC 364
•26 June 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2023 01502
| ANNA ELIZABETH LIDGETT (In her capacity as the trustee of the Lidgett Property Trust) | Plaintiff |
| v | |
| SIMON JOHN LIDGETT | First Defendant |
| TRENA LIDGETT | Second Defendant |
| ERICA LIDGETT | Third Defendant |
| JILLIAN LIDGETT | Fourth Defendant |
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JUDGE: | Moore J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | Written submissions |
DATE OF JUDGMENT: | 26 June 2024 |
CASE MAY BE CITED AS: | Re Lidgett (No 2) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 364 |
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COSTS – Trusts – Following application for judicial advice – Where it was justified and appropriate for the plaintiff to play no active role in related proceedings in her capacity as trustee – Plaintiff’s right as trustee to indemnity out of trust assets – Plaintiff and first defendant’s costs be paid out of the assets of the trust - Supreme Court (General Civil Procedure) Rules 2015 r 54.02, 63 – Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 – Wales v Wales [2015] VSCA 345 – Di Benedetto v Kilton Grange Pty Ltd [2017] VSCA 119 – Hopkins v Edwards [2020] VSC 456 – Re Evans; Marks v Evans (No 2) [2023] VSC 158.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T Wodak | Heinz Law |
| For the First Defendant | Mr D Clough | Cinque Oakley Bryant Lawyers |
| For the Second, Third and Fourth Defendants | No appearance |
HIS HONOUR:
Introduction
This proceeding concerns an application by the plaintiff, Anna Lidgett, in her capacity as the trustee of the Lidgett Property Trust (the Trust), for judicial advice pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (the Rules). The plaintiff sought advice that it would be appropriate and justified for the Trust to defend claims brought against her as trustee in a proceeding commenced by the first defendant, Simon Lidgett (the related proceeding). The plaintiff also sought an order that it would be appropriate and justified for her, in her capacity as trustee of the Trust, to pay out of the assets of the Trust the costs associated with defending that proceeding.
I determined that it would be justified and appropriate for the plaintiff, in her capacity as trustee, to play no active role in the related proceedings and that it would not be appropriate or justified for her to pay the costs of defending the related proceeding out of the assets of the Trust.[1] This judgment is in relation to costs.
[1]See Re Lidgett [2023] VSC 673 (the reasons for judgment).
The plaintiff seeks an order that her and the first defendant’s costs of this proceeding be paid out of the assets of the Trust, save for the costs thrown away of and incidental to a hearing in the Court on 12 September 2023 (the 12 September hearing). The plaintiff seeks an order that her solicitors, Heinz Law, pay her and the first defendant’s costs in respect of the 12 September hearing on an indemnity basis.
The first defendant seeks an order that the plaintiff, in her personal capacity, pay his costs of this proceeding on a standard basis, save for the costs thrown away of and incidental to the 12 September hearing, which he seeks that the plaintiff’s solicitors pay on an indemnity basis.
There is no dispute between the parties in relation to the liability of Heinz Law for the parties’ costs thrown away of and incidental to the 12 September hearing on an indemnity basis.[2]
[2]An administrative error by Heinz Law caused the adjournment of the 12 September hearing. Mr Simon French, a partner at Heinz Law, swore an affidavit in which he undertook that his firm would pay the costs thrown away by the adjournment. The basis upon which those costs would be determined was not clear. My chambers subsequently informed Heinz Law that, if the firm opposed the Court making orders requiring it to pay the costs thrown away on an indemnity basis, as sought by the parties, short submissions were to be filed. No such submissions or other correspondence were subsequently provided by Heinz Law.
Principles
Unless expressly provided by an Act or by any rules, the Court has a general discretion in respect of costs, including in relation to the administration of estates and trusts.[3] The usual rule is that a successful party to litigation is entitled to an award of costs in its favour, with the unsuccessful party bearing the liability for the costs of the unsuccessful litigation.[4] The discretion is to be exercised judicially and in accordance with Order 63 of the Rules. In that regard, in the circumstances of this case, r 63.26 is relevant:
Unless the Court otherwise orders, a party who sues or is sued as trustee or mortgagee shall be entitled to the costs of the proceeding out of the funds held by the trustee or out of the mortgaged property in so far as the costs are not paid by any other person.
[3]Supreme Court Act 1986, s 24.
[4]Northern Territory v Sangare (2019) 265 CLR 164, 173 [25].
The present controversy concerns the plaintiff’s right as trustee to indemnity out of the Trust. In Wales v Wales,[5] the Court of Appeal summarised the general principles relating to a trustee’s right of indemnity in the context of applications for judicial advice as follows:[6]
In general, a trustee is justified in seeking advice and directions from the Court, and will be indemnified out of the trust fund for his or her costs incurred in doing so. That is confirmed by statute, rules of court, and authority.[7] However, the right of indemnity is confined to expenses properly incurred. That means that a trustee is not indemnified for expenses incurred when acting beyond power, in bad faith or without the care and diligence of a person of ordinary prudence.[8] Similarly, a trustee is not indemnified where a liability is incurred as a result of conduct on the part of the trustee in breach of his or her duty to execute the trust with reasonable diligence and care.[9] However, the standard of care is that “which might be expected of a trustee as objectively but not over-zealously enforced“.[10] What is “proper“ or “improper“ for this purpose is to be answered by reference to the duty with which the trustee was required to comply or the power the trustee was intending to exercise.[11]
In deciding this question, the onus rests on the party seeking to deny the right to indemnity to show that the costs were improperly incurred.[12]
[5][2015] VSCA 345 (‘Wales v Wales’).
[6]Ibid [41]–[42].
[7]Trustee Act 1958, s 36(2); Supreme Court (General Civil Procedure) Rules 2015, r 63.26; Australian Incentive Plan Pty Ltd v A-G (Vic) (No 2) [2012] VSCA 251, [8].
[8]Nolan v Collie (2003) 7 VR 287, 308 [53] (‘Nolan v Collie’).
[9]RWG Management Ltd v Commissioner for Corporate Affairs [1985] VR 385, 396.
[10]Nolan v Collie (n 8), [53].
[11]Ibid 306 [51].
[12]Ibid 306 [50].
In applying these principles, the Court of Appeal referred to the nature of a proceeding under r 54.02 of the Rules:[13]
… However, a proceeding by a trustee under r 54.02 is not ordinary adversarial litigation. It is commenced so that the trustee can be sure that the course proposed to be taken is a proper one. Far from being necessary for the trustee to exhaust all other avenues before commencing a proceeding, it is very often appropriate to approach the Court in cases of doubt rather than expend trust money in ways which might later prove to have been inappropriate. Even where proceedings are commenced alleging a breach of trust, it is appropriate for the trustee to take no step to defend the impugned conduct without first obtaining judicial advice as to the propriety of doing so. Approaching the Court in this way is calculated to avoid later incurring unnecessary costs. A trustee can ordinarily expect to be indemnified for its costs in doing so.
[13]Wales v Wales (n 5), [55], citations omitted.
The Court of Appeal then recalled the observations of the High Court in the Macedonian Church case[14] about applications for judicial advice:[15]
In short, provision is made for a trustee to obtain judicial advice about the prosecution or defence of litigation in recognition of both the fact that the office of trustee is ordinarily a gratuitous office and the fact that a trustee is entitled to an indemnity for all costs and expenses properly incurred in performance of the trustee’s duties. Obtaining judicial advice resolves doubt about whether it is proper for a trustee to incur the costs and expenses of prosecuting or defending litigation. No less importantly, however, resolving those doubts means that the interests of the trust will be protected; the interests of the trust will not be subordinated to the trustee’s fear of personal liability for costs.
It is, therefore, not right to see a trustee’s application for judicial advice about whether to sue or defend proceedings as directed only to the personal protection of the trustee. Proceedings for judicial advice have another and no less important purpose of protecting the interests of the trust.
[14]Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66.
[15]Ibid 93–4 [71]–[72]; Wales v Wales (n 5), [56].
In Di Benedetto v Kilton Grange Pty Ltd,[16] the Court of Appeal referred to the ‘general rule’ that a trustee ‘is justified in seeking advice and directions from the Court, and will be indemnified out of the trust fund for his or her costs incurred in doing so’, with that right of indemnity confined to legal costs which are ‘properly’ incurred.[17] The Court of Appeal continued:[18]
The right of indemnity belongs to the trustee subject to circumstances being present which suffice to deny the right. As such, the position is more accurately stated as being that the trustee is entitled to indemnity for costs, expenses and liabilities which are not shown to have been improperly incurred.[19] Instances where that test has been met include where the trustee has acted beyond power, in bad faith or without the care and diligence of a person of ordinary prudence.[20] Similarly, a trustee is not indemnified where a liability is incurred as a result of conduct on the part of the trustee in breach of his or her duty to execute the trust with reasonable diligence and care.[21] On the other hand, a mere error of judgment may not suffice to show improper conduct.[22] The standard of care is that ‘which might be expected of a trustee as objectively but not over-zealously enforced’.[23] What is ‘proper’ or ‘improper’ for this purpose is to be answered by reference to the duty with which the trustee was required to comply or the power the trustee was intending to exercise.[24]
[16][2017] VSCA 119 (‘Di Benedetto’).
[17]Ibid [63].
[18]Ibid [64].
[19]Nolan v Collie (n 8), [53].
[20]Ibid.
[21]Ibid; RWG Management Ltd v Commissioner for Corporate Affairs [1985] VR 385, 396 (Brooking J).
[22]Nolan v Collie (n 8), [55] and [57].
[23]Ibid [53].
[24]Ibid [51]. See also M Scott Donald, ‘The “Proper” Approach to a Trustee’s Right of Indemnity’ (2014) 8 Journal of Equity 283 (arguing that the right of indemnity depends upon the trustee observing the trustee’s obligations of conduct).
In Hopkins v Edwards[25] Lyons J (as he then was) distilled the following principles in relation to a trustee’s right to indemnity from a survey of the authorities including Di Benedetto:[26]
[25][2020] VSC 456 (‘Hopkins v Edwards’).
[26]Ibid [234].
(1)the trustee is entitled to indemnity for costs, expenses and liabilities which are not shown to have been improperly incurred;
(2)this right of indemnity belongs to the trustee subject to circumstances being present which suffice to deny the right;
(3)the question of whether a cost, expense or liability was not improperly incurred depends on the duty upon, or power in, the trustee which resulted in incurring the cost;
(4)in the case of the costs of litigation or liabilities incurred in litigation, the relevant duty is likely to be whether in incurring the cost or liability the trustee failed to exercise the care and diligence that a person of ordinary prudence would exercise;
(5)even in proceedings involving a trustee which are adversarial in nature or where the trustee’s personal interests are at stake, the court must consider whether the costs incurred by the trustee were not improperly incurred in the sense set out in (3) and (4) above; and
(6)a Court must be cautious before concluding such costs, expenses or liabilities were improperly incurred as to deprive a trustee of his or her right of indemnity.
These principles are consistent with the provision made r 63.26 of the Rules[27] and, subject to the discretion of the Court, give rise to a prima facie entitlement of the plaintiff for her costs of the proceeding.[28]
[27]See above at [6].
[28]Hopkins v Edwards (n 25), [235].
The above principles were referred to by McMillan J in Re Evans; Marks v Evans (No 2).[29] In relation to the observation by the Court of Appeal in Wales v Wales that it is ‘very often appropriate’ for a trustee or executor to seek judicial advice,[30] McMillan J remarked that it does not mean that judicial advice should be sought ‘as of course’ by executors or trustees before the exercise of their powers.[31] ‘The ability to have recourse to the Court for directions and advice does not replace the trustee’s duty to consider the relevant issue for himself or herself’.[32] Her Honour continued:[33]
Trustees have been denied their costs where they have unnecessarily applied to the Court, made applications that had little or no merit, made applications for advice where the legal position was clear, litigated unreasonably, or incurred unnecessary expenses in litigation.
[29][2023] VSC 158 (‘Re Evans’), [14]-[18].
[30]See above at [8].
[31]Re Evans (n 29), [19].
[32]Ibid [20].
[33]Ibid [21], citations omitted.
First defendant’s submissions
The first defendant submitted that the decisions which the plaintiff was called to make – whether it should play an active role in the related proceeding and whether it would be justified in paying the costs of defending that proceeding out of the assets of the Trust – were not of such difficulty as to warrant the expense of the application for judicial advice.
It was further submitted that the plaintiff’s application had little or no merit, was litigated unreasonably and incurred unnecessary expenses when the legal position was clear. In support of that submission, the first defendant referred to various paragraphs of the reasons for judgment in which the Court found that:
(a)The plaintiff had inaccurately characterised the claims made against her in the related proceeding;
(b)The first defendant’s pleading in the related proceeding was clear in that allegations were made against the plaintiff in her personal capacity (and in her capacity as trustee);
(c)There was clear authority for the proposition that it was unnecessary for the Trust to defend the claims when the plaintiff and the fourth defendant were active contradictors;
(d)The plaintiff’s characterisation of High Court authority was misplaced;
(e)There were no discrete claims for breach of trust or where the other person was not necessarily a contradictor;
(f)The plaintiff relied on a characterisations of the first defendant’s claims which was narrow and artificial and which ignored the substance of the claims;
(g)The plaintiff’s classification of the nature of the judicial advice proceeding was artificial, inapposite and ignored its substance;
(h)The plaintiff’s argument that the first defendant’s success in the related proceeding would deprive the Trust of its sole property was not relevant to the task of characterisation in relation to the dispute between the parties.
More generally, the first defendant submitted that he had been completely successful in the proceeding, and the plaintiff completely unsuccessful. It was also submitted that, in a hostile and adversarial proceeding, the first defendant should not be disadvantaged and that this would occur if the first defendant’s costs were paid from the Trust, rather than by the plaintiff personally; he would then effectively be bearing his own costs.
Consideration
The first defendant has not discharged the onus which he carries to show that the costs of this proceeding were improperly incurred. Specifically, I am not satisfied that, in incurring the costs of this application for judicial advice, the plaintiff failed to exercise the care and diligence that a person with ordinary prudence would exercise. In the context of the claims made in the related proceeding, the findings in the reasons for judgment which are adverse to the plaintiff and upon which the first defendant relies do not rise above errors of judgment on the part of the plaintiff which would justify the loss of her right to indemnity as trustee.
This conclusion reflects the following key considerations.
First, the authorities make clear that the starting point is to acknowledge that it is very often appropriate for a trustee to approach the Court for judicial advice under r 54.02 of the Rules in cases of doubt, rather than proceeding to expend trust funds in a way which may later be shown to be inappropriate. However, a trustee’s right to be indemnified for its costs is necessarily limited to those costs and expenses which are properly incurred. It is for the first defendant to persuade the Court of the existence of circumstances which deny the trustee’s right to indemnity; the Court is to proceed cautiously before depriving a trustee of that right.
Secondly, consideration of whether the costs in this proceeding were properly incurred is to be determined in the context of the power given to the plaintiff as trustee to defend legal proceedings and to engage solicitors.[34]
[34]Reasons for judgment [30].
Thirdly, although I ultimately concluded that it would be appropriate for the plaintiff as trustee to play no active role in the related proceeding, it must not be overlooked that I was also satisfied that the plaintiff had sufficient prospects of success in defending the claims in the related proceeding to warrant the giving of judicial advice.[35]
[35]Reasons for judgment [42].
Fourthly, the ultimate conclusion that it would be appropriate for the plaintiff as trustee to play no active role in the related proceeding was the product of an analysis of the pleading filed by the first defendant in the related proceeding which revealed that it could reasonably be expected that the plaintiff, in her personal capacity, and the fourth defendant, would seek to defend the claims in that proceeding. In those circumstances, in line with established authorities,[36] I considered that it was unnecessary for the Trust to also defend the claims.[37] While deceptively simple when summarised in this way, these conclusions only emerged from a detailed consideration of the numerous, substantial and complex claims made by the first defendant in the related proceeding. These included claims against the plaintiff trustee in respect of:
[36]Macedonian Church case (n 14); Aesthete Pty Ltd atf The Real Money Unit Trust [2022] NSWSC 769.
[37]Reasons for judgment [50], [51].
(a) knowing assistance in a fraudulent design;
(b) unconscionable conduct;
(c)receipt of property by fraud within the meaning of ss 42 and 43 of the Transfer of Land Act 1958;
(d)accessorial liability for contraventions of various provisions of the Australian Consumer Law; and
(e)conspiracy by unlawful means.
It is also relevant that claims were also made against the plaintiff in her personal capacity, as well as the fourth defendant, and that some of the specified beneficiaries of the Trust were not party to the related proceeding.
Given these matters, although the plaintiff was unsuccessful in her application for judicial advice, I do not consider that it can be said that she failed to exercise the care and diligence that a person of ordinary prudence would exercise in commencing the proceeding. Rather, I accept the plaintiff’s submissions that the facility provided by r 54.02 of the Rules has worked as intended in that it has enabled the plaintiff trustee to seek advice as to how to proceed in the face of a substantial and complex proceeding which makes claims against her in her capacity as trustee, as well as in her personal capacity.
The Court will accordingly order as follows:
1.Heinz Law pay the first defendant’s costs thrown away of and incidental to the hearing on 12 September 2023 on an indemnity basis.
2.Heinz Law pay the plaintiff’s costs thrown away of and incidental to the hearing on 12 September 2023 on an indemnity basis and not charge the plaintiff any professional costs in respect of its attendance at the hearing on 12 September 2023.
3.Save as set out in paragraph 2, the plaintiff’s costs of the proceeding be paid out of the assets of the Lidgett Property Trust on an indemnity basis.
4.Save as set out in paragraph 1, the first defendant’s costs of the proceeding be paid out of the assets of the Lidgett Property Trust on an indemnity basis.
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