Re Ruschinek; Richards v Tiernan
[2017] VSC 497
•25 August 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY & PROBATE LIST
S CI 2014 05202
| EVA RICHARDS | Plaintiff |
| v | |
| DAMIEN TIERNAN (who is sued as executor of the will of the deceased, Schaja Ruschinek) | Defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF RULING: | 25 August 2017 |
CASE MAY BE CITED AS: | Re Ruschinek; Richards v Tiernan |
MEDIUM NEUTRAL CITATION: | [2017] VSC 497 |
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COSTS – Where plaintiff and defendant seek costs from a non-party – Where non-party from a related proceeding acted unreasonably and caused costs and delay in this proceeding –Supreme Court (General Civil Procedure Rules) 2015, r 63.02 – Bischof v Adams [1992] 2 VR 198 – Re Bonlac Foods Ltd [2001] VSC 75.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R B Phillips | Featherbys Lawyers |
| For the Defendant | Mr J L Smith | Strongman & Crouch |
| For the Non-party | Mr T Mah | Moisson Lawyers |
HER HONOUR:
Schaja Ruschinek died on 31 January 2008 (‘the deceased’). On 19 September 2008, probate of her will dated 10 August 1998 was granted to the defendant. Pursuant to the deceased’s will, the deceased made provision for her two adult children, the plaintiff and Berek Ruschinek (‘Mr Ruschinek’).
On 17 November 2008, Mr Ruschinek issued a proceeding seeking revocation of the grant of probate on the grounds that the deceased lacked testamentary capacity. On 3 June 2009, Mr Ruschinek issued a second proceeding seeking further provision from the estate, pursuant to Part IV of the Administration and Probate Act 1958. In April 2013, both proceedings were compromised. The defendant continued to administer the estate of the deceased in accordance with the terms of the compromise.
The administration proceeding
An outstanding issue was the transfer of certain estate properties to the plaintiff and Mr Ruschinek. On 26 September 2014, the plaintiff issued this proceeding seeking orders for the filing of an administration account and finalisation of the administration of the estate (‘the administration proceeding’).
On 27 October 2014, orders were made in the administration proceeding for the defendant to file an administration account, transfer relevant properties to the plaintiff and reserving the costs of the proceeding.
On 17 November 2014, the defendant filed an administration account for the estate of the deceased.
Mr Ruschinek’s related proceeding
On 27 November 2014, Mr Ruschinek issued a proceeding against the defendant alleging various deficiencies in his administration of the estate of the deceased (‘the related proceeding’).
The administration proceeding and the related proceeding were listed for directions on 5 December 2014. From that date, both proceedings were listed for directions in the Trusts, Equity and Probate List. Given that the administration proceeding was resolved save for the costs, it was adjourned at each directions hearing to the next directions hearing of the related proceeding. It continued to be listed concurrently with the related proceeding until 9 October 2015 when it was adjourned sine die pending the determination of the related proceeding.
In April 2016, the related proceeding was heard and determined by Bongiorno J. On 5 May 2016, his Honour made orders in the related proceeding in favour of the defendant and ordered that Mr Ruschinek pay the defendant’s costs on an indemnity basis, to be retained out of his share of the estate of the deceased.[1] His Honour referred the outstanding question of costs of the administration proceeding to the Judge in charge of the Trusts, Equity and Probate List.
[1]Ruschinek v Tiernan [2016] VSC 197 (5 May 2016).
The costs of the administration proceeding
The issue of the costs in the administration proceeding was deferred on a number of occasions pending discussions with the estate’s former solicitors, Bruce Cook and Associates (‘BCA’). On 17 March 2017, a partial settlement was reached between the parties and BCA (‘the BCA settlement’).
There is consensus between the plaintiff, the defendant and Mr Ruschinek that the costs in the administration proceeding should be approached by reference to three time periods:
(a) the first period from the commencement of the administration proceeding to 5 December 2014, when it was first listed for directions with the related proceeding;
(b) the second period from 6 December 2014 to 5 May 2016 when the unresolved costs issues were held in abeyance pending the outcome of the related proceeding; and
(c) the third period from 6 May 2016 to date where upon conclusion of the related proceeding, the unresolved cost issues were again before the Court.[2]
[2]There are small inconsistencies as to how each party and Mr Ruschinek defined the relevant periods, however, they broadly reflect these time periods.
The plaintiff and defendant accept that the issue of costs for the first period was resolved by the agreement between the parties and BCA.
The plaintiff, defendant and Mr Ruschinek agree that the costs of the administration accounts for the estate provided by the defendant should be borne by the estate of the deceased.
Remaining issues to be determined
The remaining issues between the parties and Mr Ruschinek are the costs of the plaintiff and defendant in the administration proceeding for the second and third periods, that is, from 6 December 2014 to date.
Applicable costs principles
The Court’s jurisdiction in relation to costs is conferred by s 24(1) of the Supreme Court Act 1986. The Court’s general discretion in relation to costs must be exercised judicially and in accordance with Order 63 of the Supreme Court (General Civil Procedure) Rules 2015. The prima facie position in respect of costs in litigation is for standard costs to be ordered by the Court. The usual order as to costs is that costs follow the event and a successful party is entitled to an award of costs in its favour.
Trustees’ costs
Trustees are ordinarily entitled to costs out of the estate in litigation relating to the administration of the trust estate, unless they have been guilty of misconduct.[3] In respect of their costs, trustees are entitled as of right to indemnity out of the trust for expenses properly incurred, that is, all costs except to the extent that they are of an unreasonable amount or have been unreasonably incurred. The concept of proper expenditure excludes conduct demonstrating want of prudence or diligence.[4] The onus to prove that a trustee should not be indemnified rests with the party seeking to deny the right of indemnity that costs have been improperly incurred.[5]
[3]Turner v Hancock (1882) 20 Ch D 303; J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 7th ed, 2006) 591 [2136].
[4]G E Dal Pont, Equity and Trusts in Australia (Thomson Reuters, 5th ed, 2011) 679, citing Turner v Hancock (1882) 20 Ch D 303, 305; Re Beddoe [1893] 1 Ch 547, 558; Nolan v Collie (2003) 7 VR 287, 303–10 (Ormiston JA); Dimos v Skaftouros (2004) 9 VR 584, 617 [164]–[165] (Dodds-Streeton AJA), referring to National Trustees Executors & Agency Company of Australasia Ltd v Barnes (1941) 64 CLR 268.
[5]Nolan v Collie (2003) 7 VR 287, 306 [50].
Cost orders against a non-party
The Court’s jurisdiction as to costs extends to a non-party, such as Mr Ruschinek, who is not a party in the administration proceeding. Costs orders against a non-party are made in exceptional circumstances and the exercise of discretion must be exercised with caution.[6] As with any order for costs, the Court’s discretion must be exercised judicially and in accordance with general legal principles informed by the relevant considerations in each particular case.[7]
[6]Bischof v Adams [1992] 2 VR 198; Burns Philp and Co Ltd v Bhagat [1993] VicRp 13; 1165 Stud Road v Power (No 2) [2015] VSC 735.
[7]GE Dal Pont, Law of Costs (LexisNexis Butterworths, 3rd ed, 2013) [22.17].
In Bischof v Adams, Gobbo J summarised the established categories of cases where costs have been ordered against a non-party and acknowledged that the Court’s discretion is not limited to these categories.[8] His Honour noted that in order to exercise the discretion against a non-party, there must be a connection between the non-party and the proceeding. The two relevant factors in determining a necessary connection were the connection between the non-party and the relevant proceeding, and the causal connection between the non-party and the costs, with this connection being real and material to the issue of the costs. The mere fact that a person may benefit from the litigation will not, without more, suffice.[9]
[8]Bischof v Adams [1992] 2 VR 198, 201–4. See also Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 969; Bacal Contracting Ltd v Modern Engineering (Bristol) Ltd [1980] 2 All ER 655; Kelway Pty Ltd v Catco Developments Pty Ltd (1989) 15 NSWLR 587; Forest Pty Ltd v Keen Bay Pty Ltd (1991) 9 ACLC 460; Singh v Observer Ltd [1989] 2 All ER 751.
[9]Bischof v Adams [1992] 2 VR 198, 61, 204.
Consideration
Relationship between Mr Ruschinek as a non-party and the administration proceeding
Mr Ruschinek involved himself in the administration proceeding from the commencement of the related proceeding. He accepts that he did instruct his solicitors to protect his interests in the administration proceeding, but submits that his involvement did not involve any steps or cause any additional substantive work to be done. This submission is rejected. By the time of Mr Ruschinek’s involvement in the administration proceeding, the substantive relief had already been granted in that proceeding. Over the second and third periods, Mr Ruschinek maintained a substantial involvement in the administration proceeding, for example, with appearances by his counsel when the proceeding was listed before the Court, instructing his solicitors to protect his interests in the administration proceeding and participating in the evolving dispute about costs, along with the plaintiff and defendant.
Mr Ruschinek’s involvement in monitoring the administration proceeding and subsequently engaging in discussions as to costs is analogous to the involvement of the plaintiff and defendant during the second and third periods and is sufficient to establish his direct connection with the administration proceeding, despite not taking any substantive steps.
Relationship between Mr Ruschinek as a non-party and the disputed costs of the administration proceeding
The plaintiff and defendant contend that, but for Mr Ruschinek’s commencement of the related proceeding, the issue of costs would have been resolved at the conclusion of the first period. The plaintiff and defendant submit that the subsequent costs, insofar as they have not been recovered from BCA under the BCA settlement, are a consequence of Mr Ruschinek’s conduct and they incurred further costs in relation to the outstanding dispute by having to address the additional complexity of the related proceeding and Mr Ruschinek’s conduct once that proceeding had been finalised.
Mr Ruschinek contends the outcome of the related proceeding has no relevance to the costs in the administration proceeding. He did not seek to have the administration proceeding remain on foot or the issue of costs adjourned and he was not responsible for the delay in finalising the administration proceeding. He contends that he has not necessitated any significant additional work and the amounts incurred between the parties in resolving the issues of costs, particularly in the third period, would have been incurred by the parties in any event.
In my view, the costs incurred by the parties over the second period would not have eventuated but for the adjournment of the administration proceeding and the determination of the related proceeding. Mr Ruschinek’s commencement of the related proceeding had the effect of delaying any resolution of the issue of costs in the administration proceeding, notwithstanding that he contends that he did not seek to have the administration proceeding adjourned or left in abeyance.
In the third period, the plaintiff and the defendant seek costs not already recovered from BCA under the BCA settlement, that is, costs insofar as they are not related to the disputes with BCA, and relate to the negotiations and settlement of the outstanding costs issues presently before the Court. The plaintiff seeks costs from 1 November 2016 to the present date. Of the defendant’s costs in this period, 70 per cent of those costs up to 26 October 2016 were paid by BCA.
The steps taken in third period in attempting to resolve the outstanding costs issues were subject to a level of complexity that otherwise would not have been present but for the related proceeding, the associated delay and Mr Ruschinek’s continued involvement. It is reasonable to conclude that these costs, not already recovered from BCA, are causally related to Mr Ruschinek.
Although Mr Ruschinek maintains that costs would have been incurred in resolving the outstanding issues between the parties and BCA regardless of his involvement or the related proceeding, this does not displace a finding of causality. Mr Ruschinek’s submission does not acknowledge the level of complexity that has been occasioned by his involvement. While negotiations would have been required at some stage following the grant of substantive orders in the administration proceeding, they would have taken place between the parties and BCA against the backdrop of a much simpler factual scenario and procedural history. Indeed, the parties and BCA were able to resolve the dispute between them without the assistance of the Court.
Mr Ruschinek’s conduct is relevant to the costs that were ultimately incurred in this period and I am satisfied that the costs incurred over this period not captured by the BCA settlement were over and above the costs that would have been incurred by the parties without his involvement and were, in substance, caused by him.
In my view, there is both a real and direct connection between the administration proceeding and Mr Ruschinek and a material and causal relationship between the costs sought by the parties and Mr Ruschinek’s conduct over the two periods.
Further, if costs are incurred because of conduct wholly unnecessary or unreasonable, the Court may exercise its discretion and award costs against a non-party.[10] This means that the reasonableness or otherwise of any conduct is a consideration as to the exercise of the Court’s discretion as to costs. In the circumstances of this application, Mr Ruschinek’s pursuit of the related proceeding may be characterised as unreasonable, as is apparent from the ruling by Bongiorno J in the related proceeding, and caused the costs now claimed by the plaintiff and defendant.
[10] Re Bonlac Foods Ltd [2001] VSC 75 (22 March 2001) [26].
On what basis should costs be ordered?
The plaintiff’s costs
The plaintiff seeks costs to be fixed in the sum of $35,816.15 from Mr Ruschinek’s share of the estate of the deceased in relation to the second period and costs from 1 November 2016 to date, being the third period, to be assessed by the Law Institute of Victoria’s Costing Service in default of agreement. The plaintiff provided detailed submissions as to the basis and reasonableness of these costs.
Mr Ruschinek also made submissions as to the quantum and breadth of the claimed costs. In relation to the costs claimed in the second period, he contends that the costs appear to relate to matters outside the scope of the administration proceeding given that they are claimed at a time when the proceeding was dormant, pending the outcome of the related proceeding.
Where there are disputes as to the breadth and the quantum of the plaintiff’s costs for the second period, it is appropriate and efficient for those claimed costs to be assessed. If agreement cannot be reached as to whether the costs be taxed or assessed by the Law Institute of Victoria’s Costing Service, then the costs will be taxed. Either process will ensure that Mr Ruschinek will be liable to pay costs reasonably incurred by the plaintiff during the second period, as well as ensuring the costs are reasonable in the circumstances.
In respect of the costs claimed in third period, Mr Ruschinek also contends that there are costs claimed that are outside the scope of the administration proceeding and should not be recoverable from him, such as costs in relation to the negotiations and consequences of the BCA settlement where he was not a party. BCA has already made a contribution in relation to the parties’ costs over the third period that assumes the inclusion of the costs in relation to those negotiations. The submissions of the parties canvassed their claims for costs over this period accordingly. In such circumstances, I am satisfied the plaintiff is entitled to her costs claimed in the third period, which have not already been recovered from BCA, from Mr Ruschinek.
Accordingly, the plaintiff is entitled to recover her costs from Mr Ruschinek from 6 December 2014 to the present date (save for the costs from 6 May 2016 to 1 November 2016) assessed on the standard basis. If agreement cannot be reached as to whether the costs be taxed or assessed by the Law Institute of Victoria’s Costing Service, then the costs will be taxed.
The defendant’s costs
The defendant seeks costs on an indemnity basis from 6 December 2014 not already recovered from BCA. The defendant is the executor and trustee of the estate of the deceased and, as such, is entitled as of right to an indemnity out of the estate for expenses properly incurred, that is, all costs except to the extent that they are of an unreasonable amount or have been unreasonably incurred. There is no reason for the defendant not being indemnified for his costs from Mr Ruschinek’s share of the estate of the deceased.
As with the plaintiff’s costs, Mr Ruschinek also made submissions that the costs claimed by the defendant are excessive or unrelated to the administration proceeding. As the defendant’s orders provide for taxation, in default of agreement, any costs of an unreasonable amount or unreasonably incurred will be considered and determined at a taxation of those costs.
Orders
The following orders will be made:
(a) The defendant be indemnified from the estate of the deceased for his costs of preparing, swearing and filing the administration accounts dated 14 November 2014 and 7 April 2016;
(b) With respect to the costs of the parties and the non-party from 6 December 2014 to 5 May 2016:
(i) the costs of the plaintiff of and incidental to this proceeding be paid by Berek Ruschinek on the standard basis, to be taxed in default of agreement (save for such costs as recovered by the plaintiff from Bruce Cook & Associates over this period, if any);
(ii) the defendant be indemnified for his costs of the proceeding (save for such costs as recovered by the defendant from Bruce Cook and Associates, if any, or which fall under paragraph (a) above) from Berek Ruschinek’s share of the estate of the deceased;
(iii) Berek Ruschinek bear his own costs;
(c) With respect to the costs of the parties and the non-party from 6 May 2016 to the present date:
(i) the costs of the plaintiff from 1 November 2016 to the present date be paid by Berek Ruschinek on the standard basis, to be taxed in default of agreement (save for such costs as recovered by the plaintiff from Bruce Cook & Associates over this period, if any);
(ii) the defendant be indemnified for his costs of the proceeding (save for the costs as recovered by the defendant from Bruce Cook & Associates or which fall under paragraph (a) above) from Berek Ruschinek’s share of the estate of the deceased;
(iii) Berek Ruschinek bear his own costs.
(d) No further order as to costs.
(e) The plaintiff’s originating motion dated 25 September 2014 and the defendant’s summons dated 21 June 2016 be otherwise dismissed.
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