Re McKenzie (No 3)
[2018] VSC 311
•14 June 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S CI 2016 02462
IN THE MATTER of Part IV of the Administration and Probate Act 1958
-and-
IN THE MATTER of the estate of DAVID CYRIL McKENZIE, deceased
BETWEEN:
| AILEEN MOIRA McKENZIE and FAYE ADA HARRIS | Plaintiffs |
| v | |
| DAVID GORDON McKENZIE and LYNTON HENRY McKENZIE (as executors of the will of DAVID CYRIL McKENZIE) | Defendants |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF RULING: | 14 June 2018 |
CASE MAY BE CITED AS: | Re McKenzie (No 3) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 311 |
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FAMILY PROVISION — COSTS — Where defendant executors limited asset pool to their share of the estate at trial — Where defendant executors seek their costs from the estate and to be borne by those beneficially entitled to the estate in proportion to the value of their interests in the estate — Whether costs of defendant executors be paid out of the estate or borne by them personally —Where defendants advanced their own interests in the estate.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S T Pitt | Katz Silver Lawyers |
| For the Defendant | Mr M C McKenzie | Trevor Yong & Associates |
HER HONOUR:
Introduction
On 11 May 2018, the Court delivered reasons in respect of the costs of the proceeding, as well as a number of extraneous issues raised by the defendants.[1] Orders were made for the filing of submissions as to whether the defendants’ costs should be paid out of the estate of the deceased or borne by them personally and whether interest was payable on the unpaid portion of the pecuniary legacies payable to the plaintiffs. The orders also provided for the filing of reply submissions by the plaintiffs.
[1]Re McKenzie (No 2) [2018] VSC 238 (11 May 2018) [38] citing Re McKenzie [2017] VSC 792 (21 December 2017) [61].
Statutory interest
In respect of statutory interest payable on the unpaid portion of the pecuniary legacies payable to the plaintiffs, the plaintiffs do not seek statutory interest to be paid as they wish to finalise the proceeding.
Costs of the defendants
In the reasons for judgment, the Court considered the defendants’ submissions that their costs be paid from the estate of the deceased and borne by the beneficiaries in proportion to their entitlements.
The filing of further submissions was directed to whether the usual order for costs of the defendant executors should be made or whether it ought to be modified in the exercise of the Court’s discretion. Circumstances relevant to the Court’s consideration include the defendants’ rejection of the plaintiffs’ reasonable and realistic offers, the unnecessary prolongation of the proceeding, and the fact that the executors limited the asset pool for the purposes of the proceeding to their entitlements under the deceased’s will.[2]
[2]Ibid.
The defendants’ submissions comprised ten unnumbered pages, with very few numbered paragraphs, that mainly referred to irrelevant or decided matters. The only submissions dealing with the defendants’ costs were as follows:
The court is invited to consider the chapter in the Succession Laws Report of August 2013. Paragraph 10.11 and 10.12 in the comments on ‘Costs rules in succession proceedings’ includes the comment:
In practice, executors and administrators will recover their costs out of the estate on an indemnity basis. In this way, whether or not successful, executors and administrators will not be required to pay personally for representing the estate in litigation.
References provided. With respect Dr. Hardingham’s comments were well received and generally endorsed as sound. It is respectfully submitted the court has no proper basis for taking a harsher view in this instance.
Otherwise, the defendants proposed the following order:
The costs and expenses of the defendants of and incidental to this proceeding, including any reserved costs, be paid on an indemnity basis from the estate [of the deceased] to be borne by those beneficially entitled to the estate in proportion to the values of their respective estates and interests in such estate.
The plaintiffs made no submissions on the question of the defendants’ costs.
Consideration
The defendants’ reference to the chapter in the Succession Laws Report is a reference to the report by the Victorian Law Reform Commission in 2013.[3] The quoted section relates to succession proceedings that arise in either the probate jurisdiction or the general jurisdiction of the Court. Family provision proceedings arise in the general jurisdiction of the Court. A footnote to the quotation provides examples of recovery of costs by an unsuccessful executor being allowed, as well as disallowed in the probate jurisdiction of the Court.
[3]Victorian Law Reform Commission, Succession Laws, Report (2013) (‘Succession Laws Report’).
The Report contains a separate section specifically addressing costs in family provision litigation.[4] As a result of the recommendations made by the Victorian Law Reform Commission Report, the costs legislation in family provision cases was amended with effect from 1 January 2015 so that costs in family provision claims are to be determined in the exercise of the Court’s general costs discretion.[5]
[4]Ibid 115–19.
[5] Justice Legislation Amendment (Succession and Surrogacy) Act 2014.
The trial of this proceeding was conducted on the basis that any provision made for the plaintiffs would be paid out of a limited asset pool, which comprised the defendants’ entitlements under the deceased’s will. These entitlements comprised real estate valued for probate purposes at $1,290,000 (‘the available asset pool’).[6] This meant that any orders made in favour of the plaintiffs would not adversely affect other beneficiaries of the estate of the deceased.[7] In this respect, the property known as ‘Five Ways’ devised to a grandson of the deceased did not form part of the available asset pool of the estate.
[6]Re McKenzie [2017] VSC 792 (21 December 2017) [61].
[7]Ibid [60].
Had the available asset pool included ‘Five Ways’ for the purposes of costs, the grandson beneficiary would have an interest in the proceeding as any orders for costs to be paid out of ‘the estate’ would necessarily affect the grandson’s entitlements. If a costs order is made that the defendants’ costs be paid out of the estate of the deceased, that order is limited to the available asset pool as at trial, as now affected by the orders made on 16 June 2017 and 21 December 2017.
The defendant’s limitation means they are the only beneficiaries of the available asset pool out of which orders have been made for provision to the plaintiffs. In defending the proceeding, the defendants are involved as the executors of the estate, as well as the only beneficiaries of the available asset pool. In this manner, they sought to advance their own interests under the guise of upholding the deceased’s will. The defendants’ proposed costs orders now seek payment out of the whole of the estate on an indemnity basis and, in a manner that is unclear, also seek to limit the plaintiffs’ costs by some manner of adjustment.
As executors of the estate, 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.[8] This is consistent with their fiduciary duty as executors conducting litigation affecting an estate. As the only beneficiaries of the available asset pool, they do not have such a duty.[9] The family provision legislation imposes a duty on a testator to make adequate and proper provision for eligible persons and, as executors, the defendants must not ignore this. They should also be mindful that, as the only beneficiaries of the available asset pool, the proceeding is effectively inter partes litigation and this may affect where the burden of the costs of the litigation falls.[10]
[8]Collett v Knox [2010] QSC 132 (23 April 2010) [167].
[9]Underwood v Sheppard [2010] QCA 76 (30 March 2010) [16].
[10]Nowell v Palmer (1993) 32 NSWLR 574, 581–2 (Mahoney JA, Meagher and Handley JJA agreeing); Cumming v Sands [2001] NSWSC 507 (20 June 2001) [9]–[12] quoting Nowell v Palmer (1993) 32 NSWLR 574, 581–2 (Mahoney JA, Meagher and Handley JJA agreeing).
The plaintiff’s first offer expired on 7 March 2017. It is reasonable that the defendants’ costs be paid out of the available asset pool, up to and including 7 March 2017, to be assessed on the trustee basis and taxed in default of agreement. Thereafter, the defendants should bear their own costs of and incidental to the proceeding personally, without reimbursement from the available asset pool.
The defendants’ assertion that the plaintiffs’ costs are subject to some calculation on a pro rata basis, in proportion to each beneficiary’s share of the estate after judgment in the proceeding, is rejected. The provision for the plaintiffs and the payment of their costs should not be taken into account by the executors in determining the apportionment of any liabilities of the available asset pool.
Defendants’ assertions regarding amendment to orders made on 21 December 2017
In their earlier submissions, the defendants asserted that the orders already made by the Court on 21 December 2017[11] required amendment as the title particulars of the properties referred to in one of the orders had changed as a result of the separation of the certificates of title. The Court required evidence on affidavit by the defendants to support these assertions, including the filing of relevant evidence, such as title searches for the relevant properties.[12]
[11]Re McKenzie [2017] VSC 792 (21 December 2017) [97].
[12]Re McKenzie (No 2) [2018] VSC 238 (11 May 2018) [43].
The defendants have failed to comply with this requirement. In their latest submissions, the defendants simply state that ‘affidavit material as to titles can be provided if required’ and this is the ‘next item for consideration’.
There is no basis for the title details to be the ‘next item for consideration’. It is inexplicable that an affidavit was not filed, particularly in light of the Court requiring it. As with the defendants’ informal attempt to make a stay application in their initial submissions,[13] the failure to provide an affidavit evidencing the correct title details reflects poorly on the defendants and their legal practitioners.
[13]Ibid [44]–[46].
In the absence of affidavit evidence as to the new titles, the final orders will reflect the orders made at judgment[14] and, for the avoidance of doubt, the recitals to the orders will include references to the new titles, registered in the names of the executors as the legal personal representatives of the estate of the deceased, as derived from the titles referred to in the deceased’s will.
[14]Re McKenzie [2017] VSC 792 (21 December 2017) [97].
Orders
The Court orders:
(a) The costs of the defendants of and incidental to the proceeding up to and including the 7 March 2017 be paid on a trustee basis from the available asset pool of the estate of the deceased, to be taxed in default of agreement;
(b) Otherwise the defendants bear their own costs personally, without indemnity from the available asset pool of the estate of the deceased.
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