Re Owies Family Trust (No 4)
[2021] VSC 294
•25 May 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2018 02534
| PAUL ANDREW OWIES | First Plaintiff |
| And | |
| DEBORAH OWIES | Second Plaintiff |
| v | |
| JJE NOMINEES PTY LTD (ACN 004 856 366) (in its capacity as the trustee for the OWIES FAMILY TRUST) | First Defendant |
| And | |
| MICHAEL BENJAMIN OWIES | Second Defendant |
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JUDGE: | MOORE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | Written submissions received on 1 and 14 April 2021 |
DATE OF RULING: | 25 May 2021 |
CASE MAY BE CITED AS: | Re Owies Family Trust (No 4) |
MEDIUM NEUTRAL CITATION: | [2021] VSC 294 |
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COSTS – Trust estate litigation – Where proceeding involved the determination of multiple issues – Where plaintiff beneficiaries and defendant trustee had mixed success – Where litigation was adversarial – Where plaintiff beneficiaries acted reasonably in commencing the litigation – Where litigation resulted in the identification of failures and shortcomings in the defendant trustee’s administration of the trust – Circumstances demand departure from usual order as to costs – Parties to have their costs out of the trust fund – Supreme Court Act 1986, s 24 – Supreme Court (General Civil Procedure) Rules 2015, O 63 – Northern Territory v Sangare (2019) 265 CLR 164, applied – Daicos v Daicos (No 2) [2018] VSC 693, applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | K P Hanscombe QC with A P Dickenson | KCL Law |
| For the First Defendant | J Evans QC with R Grayson Morison | Tisher Liner FC Law |
HIS HONOUR:
I delivered judgment in this proceeding on 28 October 2020.[1]
[1]Re Owies Family Trust [2020] VSC 716 (the Reasons). In this ruling, I use the abbreviations as defined in the Reasons.
I subsequently dismissed separate applications brought by Paul and Deborah for leave to re-open the evidence and for leave to amend their statement of claim.[2] The trustee seeks an order that the costs of these two applications follow the event, such that Paul and Deborah pay its costs on a standard basis. Paul and Deborah did not make any submission regarding the costs of these unsuccessful applications. There is no reason to depart from the usual order as to costs in relation to those applications. I will order that Paul and Deborah pay the trustee’s costs of and incidental to those applications on a standard basis.
[2]Re Owies Family Trust (No 2) [2021] VSC 14 and Re Owies Family Trust (No 3) [2021] VSC 114.
The remaining issue concerns the costs of the trial of the proceeding. The trustee seeks an order that Paul and Deborah pay 50% of its costs of and incidental to the proceeding, including reserved costs. Paul and Deborah seek an order that the parties’ costs be paid out of the trust fund. No order as to costs is sought by or in relation to Michael.
The issues at trial
I determined the following nine issues at trial.
Purported variations of the trust deed
1.Whether, properly construed, the trust deed gives power to the trustee to amend the description of the persons identified as ‘Guardian’ and ‘Appointor’.
2.Assuming that the trustee had power to amend the description of the persons identified in the trust deed as ‘Guardian’ and ‘Appointor’, whether the 2002 variation, the 2010 variation and the 2017 variation are void because the Court cannot be satisfied that the board of directors of the trustee resolved to authorize the trustee to execute the variations.
3.Assuming that the trustee had power to amend the description of the persons identified in the trust deed as ‘Guardian’ and ‘Appointor’ and assuming that the 2002 variation was valid, whether the 2010 and 2017 variations are void because Eva Owies, as a joint Guardian appointed pursuant to the 2002 variation, did not consent to their making.
4.Assuming that the trustee had power to amend the description of the persons identified in the trust deed as ‘Guardian’ and ‘Appointor’, whether the 2017 variation is void because it was not properly executed by the trustee as the meeting of the board of directors in relation to the making of the variation was inquorate.
Trust income
5.Whether the trustee failed to make any resolution regarding the income of the trust within the financial year for any of the financial years between 2010 and 2017.
6. Whether the resolutions of the board of directors of the trustee which purported to resolve the distribution of income for each financial year in and between 2010 and 2019 were made in breach of trust because they were made without the trustee giving any genuine consideration to whether, in the exercise of its discretion, a distribution should be made to Deborah Owies and/or Paul Owies.
7.Whether Paul and Deborah’s claims regarding income distributions of the trust in 2010, 2011 and 2012 are barred by operation of s 21(2) of the Limitation of Actions Act 1958 or by virtue of their laches in commencing the proceeding.
Removal
8.Whether the trustee should be removed as the trustee of the trust.
9.If the Court has jurisdiction to do so, whether Michael Owies should be removed as the Guardian and Appointor of the trust because he is not a fit and proper person to undertake those roles.
I determined issue 1 in favour of Paul and Deborah, holding that the trust deed, properly construed, did not give power to the trustee to amend the description of the persons identified as ‘Guardian’ and ‘Appointor’. I also partially determined issue 6 in favour of Paul and Deborah, finding that the trustee had not given real and genuine consideration to the exercise of its discretion to distribute trust income in 2015, 2016 and 2018. I determined the remaining issues in favour of the trustee.
Legal principles
The Court’s jurisdiction in relation to costs is conferred by s 24(1) of the Supreme Court Act 1986. The Court’s discretion in relation to costs is to be exercised judicially and in accordance with Order 63 of the Supreme Court (General Civil Procedure) Rules 2015.
In Northern Territory v Sangare, the High Court noted that a guiding principle by reference to which the discretion as to costs is to be exercised:
…indeed, “one of the most, if not the most, important” principle — is that the successful party is generally entitled to his or her costs by way of indemnity against the expense of litigation that should not, in justice, have been visited upon that party. The application of that principle may be modified or displaced where there is conduct on the part of the successful party in relation to the conduct of the litigation that would justify a different outcome.[3]
Further, it was noted that the discretion as to costs is to be exercised judicially ‘by reference only to considerations relevant to its exercise and upon facts connected with or leading up to the litigation’.[4]
[3](2019) 265 CLR 164, 173 [25] (Kiefel CJ, Bell, Gageler, Keane and Nettle JJ), omitting citations.
[4]Ibid [24], omitting citations.
The trustee submitted that in the case of litigation involving trust estates, the authorities establish the existence of three different categories, although there is no “bright line” between them, and more than one category may exist within a single proceeding. The trustee referred to the following statement of principle by Professor Dal Pont in Law of Costs:
In any case, the same basic inquiry — whether the litigation is adversarial or directed at the due administration of the trust — ostensibly underscores each category:
1 Where beneficiaries are represented on an application brought by a trustee for directions of the court as to the construction of the trust deed or some question arising in the course of administration, and it is in the circumstances reasonable for the beneficiaries to be represented, the costs of all parties are ordinarily viewed as necessarily incurred for the benefit of the trust, and so ordered to be paid out of the fund.
2 Where a (potential) beneficiary institutes a hostile claim against the trustees or another beneficiary, costs usually follow the event. For example, in Re Cunningham, a case where an issue arose between the beneficiaries of a trust, Simpson CJ in Eq remarked that as the parties were in the position of hostile litigants, and the defendants were unsuccessful, the usual costs rule should apply. For a successful claim against a trustee, whether for breach of trust and/or for removal, the claimant will be allowed costs out of the fund. Such an outcome may eventuate even in the event of an ultimately unsuccessful claim, at least if there were reasonable grounds for bringing the claim or it brought to light matters of relevance of the administration of the trust. Aside from this, an unsuccessful claimant will ordinarily bear costs.
3 Where an application is made other than by the trustee, but raises the same kind of point as in the first category and would have justified an application by the trustee, the costs usually come out of the fund. A reason is that, where a fund is established for the benefit of beneficiaries, the law encourages them to assert an interest in its proper administration. Just as a trustee is indemnified from the fund, if the beneficiaries act reasonably in a proceeding relating to its administration, it is appropriate that the cost be shared among all interested parties by being met from the fund. In CASAW Local 1 v Alcan Smelters and Chemicals Ltd, for example, the British Columbia Court of Appeal refused pension fund members a declaration that their employer’s amendment to fund rules, which excluded overtime pay from the calculation of pensionable earnings, was unlawful. Levine JA saw the action as one relating to the administration of the fund — it involved no dispute between beneficiaries — as the appellants’ success or failure did not affect the benefits other members of the fund, who did not earn overtime pay, would receive. It was therefore held that the costs of the unsuccessful appellants should be paid from the fund.[5]
[5]G E Dal Pont, Law of Costs (LexisNexis Butterworths, 4th ed, 2018) 300–1 [10.15], omitting citations.
The trustee’s submissions
The trustee submitted that the proceeding was adversarial, the claims brought against it were wide-ranging, and Paul and Deborah were only successful in relation to issue 1, partially successful in relation to issue 6, and failed in relation to the other seven issues. It was submitted that most of the evidence at trial related to issues 5, 6 and 8.
The trustee acknowledged that issues 1 to 4 related to the due administration of the trust, and accepted that Paul and Deborah could ordinarily expect to have their costs in respect of those issues paid out of the trust.
However, it was submitted that the rest of the issues, except issue 9, fell into the second category identified by Professor Dal Pont, in that they involved attacks against the trustee and its conduct. The trustee submitted that most of the evidence and hearing time at the trial was concerned with these issues, and it was largely successful in defending them. Particular attention was given to issue 6, given Paul and Deborah’s partial success: this issue was said to be a building block in Paul and Deborah’s application to remove the trustee, as their amended statement of claim did not seek that the Court overturn the income resolutions on the basis that the trustee had failed to properly exercise its discretion. The significance of this was said to be as follows:
While it is true that the findings on Issue 6 have identified a past deficiency by JJE [Nominees] in its conduct as trustee of the [t]rust, this does not alter the fact that [Paul and Deborah’s] principal claims in the proceeding – which were in the nature of hostile litigation against JJE [Nominees] as trustee – have failed. In the end, the only relief obtained by [Paul and Deborah] was declaratory.
The trustee submitted that an order that Paul and Deborah pay 50% of its costs of the proceeding properly reflected, in a single costs order, the entitlement of Paul and Deborah to a small proportion of their costs, and the trustee’s entitlement to most of its costs as a result of its success.
Consideration
It is not in dispute that the trustee has a right of reimbursement from the trust fund of its costs of the proceeding. Paul and Deborah have not sought an order that the trustee repay costs to the trust.
Applying the principles to which I have earlier referred, in the circumstances of this case, I consider that the order in respect of costs which is fair and just between the parties is an order that the Paul and Deborah’s and the trustee’s costs be paid out of the trust fund. There are a number of considerations which have led me to exercise my discretion in this way.
First, as has been noted, of the nine issues determined at trial, the trustee properly acknowledged that issues 1 to 4 related to the due administration of the trust and as such it is appropriate that the parties have their costs in respect of those issues paid out of the trust. Of the remaining issues, Paul and Deborah were partially successful in relation to the claims made under issue 6 concerning the making of resolutions without genuine consideration.
Secondly, although it is correct that all of the other issues, except issue 9, fell within the second category in Professor Dal Pont’s taxonomy referred to above, overall there were reasonable grounds for bringing those claims and they brought to light matters relevant to the administration of the trust. As identified by Professor Dal Pont, in such circumstances, it may be appropriate for an unsuccessful plaintiff who has instituted a hostile claim against the trustee to have their costs. In my view, this proceeding has a number of features which collectively provide a proper basis to displace the operation of the usual order as to costs to which the trustee might otherwise reasonably expect to apply in relation to issues 5, 6 (to the extent that it was successful), 7 and 8.
In relation to issue 8 concerning the removal of the trustee sought by Paul and Deborah, in my reasons for judgment I identified a number of concerns about the capacity of Michael and Mr Sampson to properly discharge their duties as officers of the trustee.[6] Critically, however, I found that the making of the capital distribution of the South Yarra apartment to Deborah overshadowed and contextualised the claim that Mr Sampson and Michael were incapable of bringing an impartial mind in their roles as directors of the trustee.[7] It was that fact which diminished the collective significance of the deficiencies in Michael and Mr Sampson’s approach as directors of the trustee and which provided me with a measure of confidence that the trustee was capable of properly administering the trust now and into the future.[8]
[6]Reasons, [378]–[380], [386].
[7]Reasons, [382].
[8]Reasons, [387].
However, the trustee did not indicate its intention to transfer the South Yarra apartment to Deborah until about April 2019, well after the commencement of the proceeding, and the transfer was not completed until well after trial. In those circumstances, there clearly was a proper basis for Paul and Deborah to seek the trustee’s removal when the proceeding was commenced. Their failure to secure that relief was, to a significant extent, the result of action taken by the trustee well after the commencement of the proceeding.
As to issue 5 concerning whether the trustee failed to make income resolutions in the years between 2010 and 2017, although the issue was determined in favour of the trustee, the evidence at trial on this issue did not reflect favourably on the discharge by the trustee of its duty to keep and maintain proper trust records and provided sound reasons for the making of this claim by Paul and Deborah. As at the date of trial, the trustee was not able to locate any written record of resolutions regarding income distribution for the 2011, 2013, 2014 and 2016 financial years. In those circumstances, it was entirely appropriate for Paul and Deborah, as beneficiaries under the trust deed, to seek the Court’s determination about whether the trustee in fact failed to make any resolution regarding income in the financial years in question. I accept their submission that it was the conduct of the trustee which led to the need for adjudication of that question.
In relation to issue 6 concerning a lack of genuine consideration by the trustees of Paul and Deborah, their partial success in these claims has had the beneficial effect of identifying a deficiency by the trustee in its conduct and operation of the trust. While I take into account that this claim was articulated as a ‘building block’ for Paul and Deborah’s application to remove the trustee, as distinct from founding a claim for other relief, in light of my earlier observations about the context in which the application for removal was brought, that matter does not materially alter my assessment of this issue in the exercise of my discretion as to costs.
In summary, although Paul and Deborah were not successful in all of their claims, there was a sound basis for them to commence the proceeding and as beneficiaries under the trust they have been successful in identifying significant failures in the administration of the trust. In those circumstances, they ought not be penalised by paying any portion of the trustee’s costs. Further, in circumstances where it would appear that the trustee has had its costs paid out of the trust fund without objection by Paul and Deborah and where they do not seek any repayment of those amounts to the trust fund, the appropriate order is that Paul and Deborah’s and the trustee’s costs be paid out of the trust fund. An order in those terms is fair and just between the parties in the circumstance of the case.[9] There will be no order as to costs in relation to Michael.
[9]In Daicos v Daicos (No 2) [2018] VSC 693, McMillan J observed that in proceedings about the administration of a trust, ‘[t]he central principle is to make an order that is fair and just between the parties in the circumstance of each case’: see [21].
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