Re Schoenmakers [No 2]
[2013] VSC 658
•29 November 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
PROBATE LIST
No. PRB 341 of 2012
| THE TRUST COMPANY (AUSTRALIA) LIMITED (ACN 000 000 993) (formerly and in the Will called TRUST COMPANY FIDUCIARY SERVICES LIMITED) | Plaintiff |
| v | |
| FRANS SCHOENMAKERS | Defendant |
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JUDGE: | McMillan J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18 October 2013 | |
DATE OF JUDGMENT: | 29 November 2013 | |
CASE MAY BE CITED AS: | Re Schoenmakers [No 2] | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 658 | |
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COSTS — Rectification of a will — Application successful — Unsuccessful trustee sought costs out of the estate — Unsuccessful trustee responsible for drafting of will — Principles of trustee’s indemnity — Where trustee cause of the litigation — Trustee to pay costs of successful defendant personally — Trustee to bear own costs
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R B Phillips | The Trust Company (Legal Services) Pty Ltd |
| For the Defendant | Mr S Newton | Ouwens Lawyers |
HER HONOUR:
On 18 October 2013, I delivered judgment in this proceeding in favour of the defendant. The facts of this application are set out in my reasons, where I held that:
the defendant is entitled to orders extending the time for making this application pursuant to s 31(3) of the Act and rectification of the will of the deceased dated 18 June 2009, pursuant to s 31(1) of the Act, to the effect that notwithstanding the sale of the deceased’s principal place of residence, the defendant is entitled to receive that part of the estate of the deceased that represents the net proceeds of the sale of the unit.[1]
[1]Re Schoenmakers [No 1] [2013] VSC 556 (18 October 2013) [43].
Both parties agree with the appropriate form of orders, save for the question of the costs of the proceeding. I shall order, with liberty to apply reserved, that:
1.Pursuant to s 31(3) of the Wills Act 1997, the time within which the defendant may apply to the Court for an order pursuant to s 31(1) of the Wills Act 1997 be extended now for then to 27 February 2013.
2.Pursuant to s 31(1) of the Wills Act 1997, the will dated 18 June 2009 of the abovenamed deceased be rectified by deleting clause 4(a) thereof and substituting the words as a new clause 4(a):
As to the balance remaining of the net proceeds of sale of unit 151 Tudor Village, 520 Maroondah Highway, Lilydale, Victoria, or any moneys representing the same, for my brother FRANS SCHOENMAKERS should he survive me.
3.Pursuant to s 32 of the Wills Act 1997, an authenticated copy of this order be annexed to the Probate of the will of the deceased.
Plainly, the defendant is entitled to their costs of the proceeding. However, there are two questions in relation to the costs of the proceeding:
(a)Should the plaintiff be held personally liable for the defendant’s costs, or should the defendant’s costs come out of the estate?
(b) Should the plaintiff be entitled to their costs out of the estate?
Principles in relation to Costs
Section 24(1) of the Supreme Court Act 1986 provides that:
24 Costs to be in the discretion of Court
(1)Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.
However, that discretion must be exercised judicially, and in accordance with established principles. The usual order as to costs is that costs follow the event. This means that a successful party in litigation is entitled to an award of costs in its favour, and the unsuccessful party bears the liability for the costs of the unsuccessful litigation.[2] As McHugh J explained in Oshlack v Richmond River Council:
The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did.[3]
[2]Oshlack v Richmond River Council (1998) 193 CLR 72, 97.
[3]Ibid.
In respect of litigation conducted by an executor as trustee of the estate, r 63.26 of the Supreme Court (General Civil Procedure) Rules 2005 provides that:
63.26 Trustee or mortgagee
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 fund held by the trustee or out of the mortgaged property in so far as the costs are not paid by any other person.
That entitlement remains within the discretion of the Court as to costs. While the circumstances in which a trustee may be deprived of his or her entitlement to indemnity are many and varied, it extends to cases where it is his or her conduct that has put the estate to expense.[4] In MacBean v The Trustees Executor and Agency Company Ltd, a case about the extent of remuneration a trustee company was entitled to, Hood J said:
In such a proceeding I consider that, however bona fide the action of the company may be, there is power to award costs against it, in the same way as they would be dealt with in any other litigation respecting a disputed claim. The conduct of the trustee which is impeached has nothing to do with the performance of the trust. These proceedings are in no way directed to the benefit of the estate. The beneficiaries, having successfully applied to the Court for an order reducing the rate of commission claimed by the trustee, are entitled to the costs of so doing.[5]
[4]See LexisNexis Butterworths, Civil Procedure: Victoria, vol 1 [I 63.26.10] and the cases cited therein.
[5][1916] VLR 425, 440.
His Honour considered that the right to indemnity:
does not apply, in my opinion, to the case where the services of the trustee are not gratuitous, and where the costs claimed have been incurred in an endeavour under statutory authority to obtain from the beneficiaries a larger amount of remuneration than the Court considers right. If the defendant’s contention were correct, the company would not be compelled to rest content with an order that each party should pay its own costs, but would be entitled to be paid its costs out of the estate. So that the beneficiaries successfully defending themselves from an erroneous claim made honestly by their own trustee would be compelled to pay costs, win or lose. This, I think, cannot be correct.[6]
[6]Ibid 441.
Costs in Rectification Proceedings
In Hind v Collins, an executor applied for the rectification of a will, which was opposed by a beneficiary.[7] A solicitor, Mr Lane, was given instructions to include a residuary clause for the balance of the estate, which he failed to do, and the Court ordered that the will be rectified.[8] McMurdo J considered the question of costs:
The executor submits that the respondent should have her costs on an indemnity basis paid from the estate and that there should be no other order. The respondent submits that Mr Lane should be ordered to pay them. In my view the order should provide for the estate to bear them, vis à vis the respondent. Whether the estate recoups them from Mr Lane is not a matter which could be fairly considered within this application, when Mr Lane is the solicitor instructing counsel for the executor.[9]
[7][2006] 1 Qd R 514.
[8]Ibid 516–17.
[9]Ibid 518.
In ANZ Trustees v Hamlet, an executor applied for the rectification of a will, or alternatively for the Court to construe the will.[10] ANZ Trustees had taken instructions for and prepared the will.[11] They understood the effect of those instructions to be to divide the residue into five equal parts, and submitted that this either was the correct construction, or else it should be rectified to reflect that.[12] Pagone J instead found that the residue should be divided into eleven parts, and that the instructions in the ANZ Trustees file notes confirmed that this was the intention of the deceased.[13]
[10][2010] VSC 207 (21 May 2010).
[11]Ibid [9].
[12]Ibid [6], [8].
[13]Ibid [11].
His Honour then considered costs:
The final matter for me to consider is who should pay the costs of the application and the basis upon which those costs should be paid. ANZ Trustees, understandably and quite properly, does not seek its costs. It has failed on all aspects of the application and should properly pay the costs of all defendants on the usual basis.
It is strictly unnecessary for me to say anything about what costs I would have ordered had I acceded to the application for rectification or taken a different view about the construction of the Will, but it may be desirable for me to express my views on that hypothesis in case the matter becomes relevant hereafter. In my view ANZ Trustees should pay the costs of the defendants even if it had succeeded in its claim for rectification or in its amended claim for construction of the terms of the Will. The construction contended for by ANZ Trustees, and the rectification which it sought, were matters on which the Court should have the benefit of a controverter and to have tested by those with an interest in the outcome. Furthermore, the evidence of Mr Caraher concerning the date of creation of the statement of his instructions appearing on p 12 of the Will Planner was an important matter properly to be tested. The defendants appearing at the trial had a real and substantial interest in testing the construction propounded by ANZ Trustees and, even if they had failed, and ANZ Trustees had succeeded, I would have awarded costs against ANZ Trustees on the basis that it was the drafting for which it was responsible (and by a process which it adopted) that made the proceedings necessary and made the presence of controverters desirable and appropriate.[14]
[14]Ibid [18]–[19].
The Position of the Plaintiff
The plaintiff played many parts in this proceeding. As well as being the executor and trustee named in the will, the solicitors for the plaintiff were responsible for taking instructions for, and drafting, the will. The plaintiff also acted under power of attorney for the deceased in disposing of the property at the centre of this dispute.
In drafting the will, the plaintiff did not accurately record the instructions of the deceased. As I explained in my judgment:
The evidence of the deceased’s instructions concerning any benefit to be given to the defendant and his wife is, in my view, clear. His instructions as recorded by Mr Monroe were that he wanted the ‘proceeds of unit’ or ‘proceeds of house’ to pass to the defendant and, if the defendant predeceased the deceased, the proceeds would pass to the defendant’s wife. Ms Bennetts’ evidence confirms that the deceased ‘wanted the net proceeds from the sale’ of the unit to ‘go to the defendant’ and if the defendant predeceased him, then to the defendant’s wife. He wanted the sale proceeds from his unit to pass to the defendant. There are no instructions from the deceased that the gift of the sale proceeds was to be tied to the unit ‘being owned by me at the date of my death’. The drafting of cl 4(a) of the will restricts the gift to the defendant to those circumstances and, for this reason, it fails to set out the deceased’s instructions in relation to the gift to the defendant.[15]
[15]Re Schoenmakers [No 1] [2013] VSC 556 (18 October 2013) [42].
The failure of the plaintiff to draft a will that gave effect to the testamentary wishes of the deceased was the substantial cause of the litigation.
Failure to Settle
The plaintiff also played a role in facilitating discussions between the residuary beneficiaries and the defendant. They recommended that the beneficiaries of the estate discuss the terms of the will in order to reach an agreement. The residuary beneficiaries and the defendant were unable to reach agreement. The plaintiff submitted on the basis of this that they were obliged to uphold the terms of the will in this application, and that this, rather than their drafting error, was the cause of the litigation.
I do not accept this submission. Had the will been drafted as the deceased requested, there would have been no need for negotiation. The plaintiff and the residuary beneficiaries would have had no grounds on which to question the distribution of the proceeds of the Lilydale property to the defendant. The residuary beneficiaries were not in a position to assess intention of the deceased, but the plaintiff was. Having the knowledge that they did, they cannot now submit that the litigation was caused by a failure to settle that they played no part in.
Alternate Proposed Orders
The plaintiff proposed that the defendant’s costs be paid from the residuary estate excluding that which was attributable to the sale of the Lilydale property. The plaintiff submitted that the defendant’s costs should be considered testamentary expenses within the meaning of cl 4 of the will, and be payable out of the estate. The plaintiff then submitted that, as the residuary beneficiaries stood to gain if the application was successfully opposed, it was appropriate that the Court exercise its discretion to award costs out of the residuary of the estate excluding the proceeds of the Lilydale property.
In my view, such an order is not appropriate. Clause 4 is the very clause that I have ordered to be rectified in this application. The deceased clearly did not contemplate, in giving instructions for that clause, that it would include the payment of expenses rectifying the will to reflect those same instructions.
The Conduct of the Plaintiff
The plaintiff in this proceeding is a professional trust services company. Their day-to-day conduct, and their very livelihood, is the exercise of trust powers for a fee. In doing so, they owe fiduciary obligations to the clients to whom they charge those fees.
The plaintiff’s failure was not malicious, but rather a mistake. However, I consider that their conduct when the mistake was discovered, and since then, has been dubious. They chose to contest the application, where it was open to them to remain neutral. Whether that was the appropriate decision is not a matter that can fairly be assessed on the evidence before the Court, although it raises questions.
However, I do consider the submissions made by the plaintiff on the question of costs do not adequately consider any conflict of interest that the plaintiff might have had in the circumstances. The successful defendant sought costs directly from the plaintiff, because to award costs against the estate would be in effect to award them, in part, against the successful defendant. The unsuccessful plaintiff submitted in response that costs should be awarded from that part of the estate which will fall to the residuary beneficiaries. In doing so, they failed properly to consider the interests of those beneficiaries, who are not represented in this proceeding.
Conclusion
In Hind v Collins, the unsuccessful respondent who opposed the rectification was not an executor, and the solicitor responsible for the drafting error, although acting as instructing solicitor in the matter, was not a party to the proceeding.[16] In those circumstances, it was understandable that McMurdo J left the contest as to the drafting solicitor’s liability for the litigation to a separate proceeding, one that could be properly considered by the executor in light of their obligations to the residuary beneficiaries.
[16]2006] 1 Qd R 514., 518.
In ANZ Trustees v Hamlet, the unsuccessful executor who had sought rectification did not seek costs out of the estate, as Pagone J said, ‘understandably and quite properly’.[17] The unsuccessful executor was responsible for the drafting error. The drafting error made the litigation necessary. Pagone J considered that, even if they had been successful, it was their drafting error that had caused the litigation, and they should bear the costs.[18]
[17][2010] VSC 207 (21 May 2010), [18]
[18]Ibid [19].
Unlike in that case, the plaintiff in this proceeding seeks to be indemnified from the estate for their costs, and to have the estate pay the successful defendant’s costs. These are costs that I consider arose from the drafting error by the plaintiff. They are costs that were exacerbated by the plaintiff’s conduct prior to the proceeding, and by their decision to oppose the application. It is neither understandable nor proper that the plaintiff sought these orders.
For these reasons, I consider the appropriate order as to costs is that the plaintiff pay the costs of the defendant personally, and not be entitled to be indemnified from the deceased’s estate for either those costs, or their own costs of and incidental to the proceeding.
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