Re Sir Colin and Lady MacKenzie Trust (No 2)
[2020] VSC 335
•5 June 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2019 03602
| EQUITY TRUSTEES LIMITED (as sole trustee of the SIR COLIN AND LADY MACKENZIE TRUST FUND) | Plaintiff |
| v | |
| ATTORNEY-GENERAL FOR THE STATE OF VICTORIA | First Defendant |
| - and - | |
| THE ZOOLOGICAL PARKS AND GARDENS BOARD | Second Defendant |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 5 June 2020 |
CASE MAY BE CITED AS: | Re Sir Colin and Lady MacKenzie Trust (No 2) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 335 – First Revision 11 June 2020 |
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TRUST & ESTATES — Application by professional trustee company for exoneration for breach of trust — Distributions of charitable gift paid following lapse of attached condition — Investigations undertaken by trustee — Representations made by recipient — Where trustee perceived ‘substantial compliance’ with condition — Whether distributions honest and reasonable — Whether trustee ought to be excused of breaches in all of the circumstances — Trustee Act 1958 (Vic) s 67.
COSTS — Costs of application for judicial advice — Whether trustee’s costs reasonably incurred — Whether trustee’s application proper for administration of the trust — Whether interested beneficiary entitled to costs from the trust.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T Mah | Piper Alderman |
| For the First Defendant | No Appearance | Victorian Government Solicitor |
| For the Second Defendant | Mr SF McNab | DLA Piper Australia |
HER HONOUR:
Introduction
By originating motion filed 12 August 2019, the plaintiff sought judicial advice pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 in relation to the administration of the Sir Colin and Lady MacKenzie Trust Fund (‘the trust’).
In its reasons for judgment on the r 54.02 application, the Court granted leave to the plaintiff to file further submissions on the issue of relief from liability for breaches of trust, pursuant to s 67 of the Trustee Act 1958 (the ‘Act’). The plaintiff filed further submissions on 13 March 2020 seeking exoneration for distributions of approximately $223,560 that were made pursuant to a gift that had lapsed.
The plaintiff and the second defendant also seek orders for their costs of the r 54.02 application to be paid from the trust.
By letter dated 24 February 2020, the solicitors for the first defendant confirmed that the Attorney General would not make submissions in relation to the s 67 application.
Background
The trust was established pursuant to the will of Lady Evelyn McKenzie (‘the will’). Pursuant to clause 3(ii) of the will, income of the trust was to be applied one third in favour of the committee administering the Sir Colin MacKenzie Sanctuary (‘the gift to the sanctuary’) and two thirds for the provision of prizes and grants for studies in comparative anatomy (‘the gift for anatomical studies’). The gift to the sanctuary was made upon the condition that its name never be altered from the ‘Sir Colin MacKenzie Sanctuary’. Pursuant to a gift over provision in clause 3(ii)(A) of the will, in the event that the gift to the sanctuary lapsed, those funds were to be applied as part of the gift for anatomical studies.
In its reasons for judgment dated 17 December 2019, the Court determined that:
(a) the gift to the sanctuary pursuant to clause 3(ii)(A) of the will lapsed on 27 June 2002, being the date on which the official name of the sanctuary was altered from ‘Sir Colin MacKenzie Sanctuary’ to ‘Sir Colin MacKenzie Zoological Park’;[1] and
(b) the gift for anatomical studies pursuant to clause 3(ii)(B) of the will was to be applied cy près to facilitate the replacement of a member of the committee convened pursuant to the will for the distribution and allocation of funds to prizes and grants.[2]
[1]Re Sir Colin and Lady MacKenzie Trust [2019] VSC 834, [45].
[2]Ibid [62].
Between 28 June 2002 and 2 May 2012 the plaintiff made distributions to the sanctuary totalling $223,560.61 as follows:
Date Distribution 28 June 2002 $3,300 30 June 2003 $10,560 30 June 2004 $22,000 14 June 2005 $23,000 30 June 2006 $26,500 29 June 2007 $19,000 16 June 2008 $38,000 22 October 2009 $28,037 2 May 2011 $28,952.33 2 May 2012 $24,211.28
In light of the Court’s findings, those distributions were made in breach of the trust and these funds ought to have been applied to the gift for anatomical studies, pursuant to the gift over provision contained in the will. The plaintiff’s breach was a passive breach of trust — that is, it did not consist of some intentional, negligent or dishonest act on the part of the plaintiff.[3] In any event, the plaintiff has acted contrary to the terms of the will and is prima facie liable to compensate the trust for losses associated with the breach.[4] The proper party to bring proceedings in respect of the trustee’s breach is the first defendant. Although she has not yet done so, it is anticipated that the first defendant will seek to recover the funds which ought to have been applied as part of the gift for anatomical studies.
[3]See GE Dal Pont, Law of Charity (LexisNexis Butterworths, 2nd ed, 2017) 438 [17.36].
[4]Ibid [17.37]; Reid v Hubbard [2003] VSC 387, [35] (Nettle J).
Plaintiff’s application for exoneration
The plaintiff’s application pursuant to s 67 of the Act is supported by an affidavit of Ms Helen Elizabeth Rowe, Relationship Manager of the plaintiff, sworn 13 March 2020. Ms Rowe’s affidavit cross-refers to her previous affidavit filed in support of the r 54.02 application sworn 7 March 2019. Both affidavits exhibit correspondence and other internal files of the plaintiff associated with the administration of the trust. The exhibited documents often refer to or involve other current or former employees of the plaintiff, however, none of those employees provided evidence in the proceeding.
Ms Rowe managed the trust on behalf of the plaintiff for a period of six months from May 2010 to November 2010. She reviewed the plaintiff’s internal file and deposed that the plaintiff did not receive any notification that there had been a change to the name of the sanctuary from the second defendant or its predecessor, Zoos Victoria, prior to September 2009.
A file note dated 27 October 2003 prepared by Ms Kirrily Burgess, who was then the manager of the trust, detailed a discussion with Mr Ian Morrison, a solicitor in the employ of the plaintiff, in relation to the name of the sanctuary. The file note recorded that Mr Morrison advised ‘as far as he was aware, the sanctuary was still called ‘the Sir Colin MacKenzie Sanctuary’ – Healesville is just a trading name.’
By letter dated 30 June 2004, the plaintiff advised Zoos Victoria that ‘the income from the trust will be directed elsewhere should the name of the sanctuary ever be altered from the ‘Sir Colin MacKenzie Sanctuary’.’ Ms Rowe deposed to her belief that a non-standard template letter, similar to that dated 30 June 2004, would have been sent to Zoos Victoria or the second defendant every year thereafter alongside distributions from the trust. She has been unable to locate copies of any such letter sent after 30 June 2004, nor evidence of any response from Zoos Victoria.
Ms Rowe referred to extracts of a spreadsheet entitled ‘Non-discretionary Trusts — beneficiary spreadsheet with sheets for EFT and Cheque’. That spreadsheet was created by the plaintiff for its internal administration of distributions from all charitable trusts under its management. The spreadsheet reflected that a payment plan for administration of the gift to the sanctuary had commenced on 30 June 2003. Pursuant to that plan, payments were made to the sanctuary via electronic funds transfer on an annual basis. A column in the spreadsheet identified that a notification letter must be sent out via post alongside the payment of each year’s distribution. Ms Rowe deposed, by reference to her experience in employment at the plaintiff, that a notification letter in a similar form to the 30 June 2004 letter would have been dispatched at the time of each distribution.
It is of note that, according to the spreadsheet, the nominated bank account into which payments were to be made was held in the name of ‘Sir Colin MacKenzie Fauna Park’, not ‘Sir Colin MacKenzie Sanctuary’.
A letter dated 18 September 2009 from Mr Lawrence Tai, Chief Financial Officer of Zoos Victoria, to Mr Lachlan Wraith, Head of Personal Estates and Trusts of the plaintiff, referred to the sanctuary as ‘The Sir Colin MacKenzie Sanctuary, also known as Healesville Sanctuary’. The letter referred to a letter from the plaintiff to Zoos Victoria dated 15 September 2009, a copy of that letter has not been located. The letter concerned the status of the sanctuary as a charity for taxation purposes. To that end, it attached an endorsement from the Australian Taxation Office dated 8 June 2000 to the effect that the sanctuary was a deductable gift recipient. The endorsement recorded the name of the institution as the ‘Sir Colin MacKenzie Zoological Park’.
On 30 September 2009, Ms Tabitha Lovett of the plaintiff spoke with Mr Tai by telephone. A file note of that discussion, prepared by Ms Lovett and exhibited to Ms Rowe’s earlier affidavit, recorded that Ms Lovett raised the issue of the name of the sanctuary. Mr Tai indicated that the official name of the sanctuary was contained in the Zoological Parks and Gardens Regulations 2003 (‘the Regulations’). Regulation 5(1) of the Regulations referred to the sanctuary as ‘the zoological park at Healesville… known as the Sir Colin MacKenzie Zoological Park’. Ms Lovett’s file note concluded, ‘[a]ccordingly, the payments can be resumed to the Zoo.’
A letter dated 30 September 2009, sent by Mr Tai to Ms Lovett following their telephone conversation, referred to the sanctuary as both the ‘Sir Colin MacKenzie Zoological Park’ and the ‘Sir Colin Mackenzie Sanctuary’. Mr Tai noted:
I also confirmed that in our regulation (a copy forwarded through email) that the name Sir Colin MacKenzie Zoological Park is embedded in our regulation.
‘Healesville Sanctuary’ means the zoological park at Healesville existing on the lands shown on the plan in Part 3 of Schedule 1 to the Act and known as the Sir Colin MacKenzie Zoological Park’.
On 27 October 2009, Ms Caroline Gatenby, Philanthropy Services Trust Manager of the plaintiff, wrote to Mr John Gibbons, Director of the sanctuary. The letter referred to correspondence with Mr Tai dated 30 September 2009 and asked:
1. In what year the name of the Sanctuary was changed to the Healesville Sanctuary?
2.Whether there is any signage at the Healesville Sanctuary to inform visitors that the Sanctuary is in fact named the Sir Colin MacKenzie Sanctuary; and
3. Whether there are any displays providing information on his legacy?
Mr Gibbons responded to Ms Gatenby by letter dated 6 January 2010, which letter stated in response to her first question:
The Zoological Parks and Gardens Board commenced using the name ‘Healesville Sanctuary’ for marketing purposes only in the early 1980s. Sir Colin MacKenzie Zoological Park remains to be our official name.
On 21 October 2012, Ms Lovett attended the sanctuary in order to investigate whether the name of the sanctuary had been changed to ‘Healesville Sanctuary’. The following day Ms Lovett wrote to Piper Alderman by email, requesting advice as to whether the name of the sanctuary had been altered. Piper Alderman advised that the plaintiff apply to the Court for a declaration as to how it should deal with the gift to the sanctuary.
By email dated 29 January 2013, Ms Lovett instructed that the annual payments to the sanctuary be ceased until the outcome of a rule 54.02 application.
Applicable principles
Section 67 of the Act confers a discretion upon the Court to relieve a trustee from personal liability:
Power to relieve trustee from personal liability
If it appears to the Court that a trustee, whether appointed by the Court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the Court in the matter in which he committed such breach, then the Court may relieve him either wholly or partly from personal liability for the same.
The Court’s discretion is enlivened in circumstances where ‘it appears to the Court that a trustee… is or may be personally liable for any breach of trust’. It is not necessary for the exercise of the jurisdiction that the Court has made a positive finding of breach, it is enough that the Court is of the opinion that the trustee may be under some personal liability.[5] This does not, however, allow the Court to relieve a trustee from liability associated with some anticipated future breach.
[5]Re Mackay [1911] 1 Ch 300, 306 (Parker J).
The requirements of s 67 are cumulative — an applicant must satisfy the Court that they acted honestly and reasonably, and ought fairly be excused for the breach in all of the circumstances of the case.[6] It is not sufficient for an applicant to show compliance with just one of the elements prescribed in the Act.
[6]Re Turner; Barker v Ivimey [1897] 1 Ch 536, 541 (Byrne J); National Trustees Co of Australiasia Ltd v General Finance Co of Australasia Ltd [1905] AC 373, 380–1 (Sir Ford North, Lord Davey, Lord Linley and Sir Arthur Wilson agreeing); Reid v Hubbard (n 4) [30] (Nettle J).
The Court must exercise its discretion by reference to the facts that were known or ought to have been known to the trustee at the time of the breach of trust.[7] Each case must turn upon its own facts and the provision ought to be freely acted upon in the exercise of the Court’s discretion.[8] To that end, the Courts have not propounded any guiding principles or criteria which must be considered in all cases.[9] The jurisdiction is remedial in nature, and the Court must strike a balance in an effort to avoid unfairly punishing a trustee who has acted honestly and reasonably, whilst not encouraging laxity or complacency in a trustee’s dealings.[10]
[7]JD Heydon and M J Leeming, Jacob’s Law of Trusts in Australia (8th ed, 2016), 546 [22-12], citing Re Hurst (1892) 62 LT 96; Re Kay [1897] 2 Ch 518, 524 (Romer J).
[8]Ibid.
[9]Holland v German Property Administrator [1937] 2 All ER 807, 816 (Lord Wright MR, Romer and Scott LJJ agreeing).
[10]McMahon v Cooper (1904) 4 SR (NSW) 433, 438 (Simpson CJ); Standard Insurance Co Ltd (in liq) v Sidey [1967] NZLR 86, 92–3 (Woodhouse J); Craven-Sands v Koch (2000) 34 ACSR 341, 367 [188] (Bergin J).
Honesty and reasonableness are to be viewed objectively, by reference to the welfare and interests of the trust. The Court must consider whether the trustee’s actions were in good faith,[11] and whether they acted with a degree of prudence that a person of ordinary intelligence and diligence would be expected to exhibit in the conduct of his or her own affairs.[12] That standard does not, however, require that the trustee engage in best practice in all respects. As the requirements are cumulative, honesty on the part of the trustee will not excuse actions that are nonetheless unreasonable. Unreasonableness may be identified by reference to several factors, including a failure to seek legal advice, or undue reliance upon another person.[13] Although negligence on the part of a trustee may be indicative of a want of honesty or reasonableness in a trustee’s actions, mere negligence is not in itself disentitling.[14]
[11]Cotton v Dempster (1918) 20 WALR 14.
[12]Re Turner; Barker v Ivimey (n 6) 542 (Byrne J); Re Stuart; Smith v Stuart [1897] 2 Ch 583, 590 (Stirling J); Re Grindey [1898] 2 Ch 593; Fouche v Superannuation Fund Board (1952) 88 CLR 609, 641 (Dixon, McTiernan and Fullagar JJ).
[13] Partridge v Equity Trustees Executors and Agency Co Ltd (1947) 75 CLR 149, 165 (Starke, Dixon and Williams JJ).
[14]Heydon and Leeming, Jacobs’ Law of Trusts (n 7) 547 [22-13], approved in Sproule v Sproule (2009) 2 ASTLR 80, [43].
Whether the trustee ought fairly to be excused of the breach requires the Court to consider all of the circumstances, beyond the honesty and reasonableness of the trustee’s actions. Although a breach may have occurred in law, the Court may consider that the trustee’s actions were sensible and that the trust suffered no loss or was in no way prejudiced as a consequence of the trustee’s actions. Conversely, where a trustee has established that they acted honestly and reasonably, the Court may determine that they are nonetheless disentitled to relief.[15]
[15]See National Trustee Co of Australasia v General Finance Co of Australasia (n 6), where a trustee was disentitled from relief on the basis that they had made no attempt to replace the fund, nor explained the reason for their abstention.
In the case of professional trustee companies, such as the plaintiff, a more onerous burden is placed upon an applicant to satisfy the Court that it is entitled to relief.[16]
Plaintiff’s submissions
[16]Partridge v Equity Trustees Executors and Agency Co Ltd (n 13) 165 (Starke, Dixon and Williams JJ).
The plaintiff submits that it never intended to disregard the terms of the gift to the sanctuary. It says that their internal records reflect that it was well aware of the condition attached to the gift, and it took regular steps to investigate compliance. The plaintiff submits that it could not have known that the gift had lapsed, and the fact that payments were made into a bank account attributed to ‘Sir Colin MacKenzie Fauna Park’ is not sufficient to have put the plaintiff on notice that the sanctuary may have changed its name.
In 2009, the plaintiff took active steps to investigate compliance with the condition and, at that time, the second defendant used both names ‘Sir Colin MacKenzie Sanctuary’ and ‘Sir Colin MacKenzie Zoological Park’. Further investigations occurred in October 2012, after which the plaintiff sought legal advice and, upon receiving such advice, it ceased distributions to the sanctuary pending the outcome of the proposed r 54.02 application. The plaintiff submits that those investigations were reasonable, and show that its representatives were determined to clarify the issue.
The plaintiff further submits that in all the circumstances it ought fairly be excused. It says that the second defendant, which is the entity in the best position to know the name of the sanctuary, appeared uncertain as to the name. The name ‘Sir Colin MacKenzie Sanctuary’ appears to have fallen into disuse by an act of omission, and there was no evidence as to why the registration of that name was not renewed in June 2002 and it would have been impossible for the plaintiff, at that time, to know about the registration. The plaintiff submits that it was entitled to rely upon the information provided by the second defendant as to the name of the sanctuary and, in all the circumstances, ought fairly be excused from liability.
Consideration
For the following reasons, the plaintiff ought be excused from liability for distributions made in breach of trust before 18 September 2009, but the plaintiff ought not be relieved for payments made thereafter.
In its reasons, the Court found that the gift to the sanctuary lapsed when the registration of the name ‘Sir Colin MacKenzie Sanctuary’ was not renewed on 27 June 2002.[17] From that date onwards, the sanctuary ceased to be known in any official capacity as ‘Sir Colin MacKenzie Sanctuary’ and was known as ‘Sir Colin MacKenzie Zoological Park’. There was no evidence as to why the registration was not renewed, and it appears that this may have been an act of omission on the part of Zoos Victoria rather than a conscious decision to alter the official name of the sanctuary. The name ‘Sir Colin MacKenzie Zoological Park’ had been in use since at least 1996, and possibly as early as 1984. That name was contained in the Zoological Parks and Gardens (Administration) (Charges) Regulations 1996 and Zoological Parks and Gardens Regulations 2003, and was registered with the ATO in July 2000.
[17]Re Sir Colin and Lady MacKenzie Trust (n 1), [45].
There is no evidence to suggest that the plaintiff actually knew of the lapse of registration of the name ‘Sir Colin MacKenzie Sanctuary’, nor can it reasonably be expected to have known about it in or around June 2002. The plaintiff acted honestly and reasonably in ensuring that internal systems were in place to monitor compliance with the condition attached to the gift, by writing to the sanctuary alongside each distribution with a specific notification that its name was not to be altered. No response appears to have been received from Zoos Victoria or the second defendant and, at that time, there was nothing to otherwise put the plaintiff on notice that the name may have changed.
In or around October 2003, it appears that some investigation was undertaken by Ms Burgess to verify the name of the sanctuary. That investigation appears to have focused upon the name ‘Healesville Sanctuary’, rather than ‘Sir Colin MacKenzie Zoological Park’.
The reference to ‘Sir Colin MacKenzie Fauna Park’ in the plaintiff’s internal spreadsheet is insufficient to put the plaintiff on notice that the sanctuary may have changed its name. That name does not appear in any of the correspondence between the plaintiff and the sanctuary which is before the Court. There is no indication in the evidence as to why the name ‘Sir Colin MacKenzie Fauna Park’ appears in the spreadsheet. Ms Rowe deposed that bank details would have been provided by the second defendant. It is entirely plausible that the name was recorded in error. Although it may have been prudent for the plaintiff to correct the error, or investigate it, the spreadsheet is not sufficient basis for the Court to conclude that the plaintiff’s distributions from the trust occurred with a want of honesty or reasonableness.
Likewise, the references to the ‘Sir Colin MacKenzie Zoological Park’ in the Regulations were not sufficient to put the plaintiff on notice of the alteration of the name of the sanctuary. The Regulations concerned the fees payable for entry into zoological parks in Victoria, as well as the care, protection and management of those zoological parks.[18] The plaintiff would have no cause to consult the regulations in the course of its administration of the trust. To require it to do so, in the absence of any other factor putting the plaintiff on notice of a potential change in name, would set the bar for reasonableness at too high a standard.
[18]Zoological Parks and Gardens Regulations 2003 (Vic) reg 1.
In September 2009, the plaintiff was placed on notice that the name of the sanctuary may have changed. The ATO endorsement attached to the letter dated 18 September 2009 recorded the name of the sanctuary as ‘Sir Colin MacKenzie Zoological Park’. It was at that time the plaintiff ought to have ceased distributions. Although Mr Tai’s covering letter referred to the sanctuary as ‘Sir Colin MacKenzie Sanctuary’, the use of the altered name in the endorsement was sufficient cause for investigation into the name of the sanctuary.
The plaintiff undertook some investigation on or around 30 September 2009. It is not clear on the evidence whether that investigation arose as a result of the 18 September 2009 letter. In a telephone conversation and subsequent letter dated 30 September 2009, Mr Tai of Zoos Victoria confirmed that the official name of the sanctuary was that which was contained in the Regulations, that is, ‘Sir Colin MacKenzie Zoological Park’. That name was also confirmed as the official name of the sanctuary by its director in a letter dated 6 January 2010. The plaintiff’s representatives ought to have appreciated that this was an alteration that may have resulted in lapse of the gift. There was no indication in the evidence that references to ‘Sir Colin MacKenzie Zoological Park’ in the correspondence enlivened or caused any concern to the plaintiff’s representatives. Ms Rowe deposed that:
Although there was uncertainty as to the name of the Sanctuary, it would appear that its name still referred to ‘Sir Colin MacKenzie’. Based on my experience at Equity Trustees, I believe that in such circumstances where there appears to be substantial compliance with the condition stipulated in the trust deed or a will, Equity Trustee’s [sic] general practice is not to cease distributions until the uncertainty had been resolved.
Ms Rowe’s evidence is of particular concern. Even if the plaintiff’s representatives turned their minds to whether the use of the name ‘Sir Colin MacKenzie Zoological Park’ meant that the gift had lapsed, Ms Rowe suggests that, as there was ‘substantial compliance’ with the condition, payments would continue as a matter of general practice. Such an approach is not a reasonable means of administering trust funds. If there were any concern regarding whether or not a condition has been complied with, payments to which that condition is attached ought to have ceased immediately. It is not the role of the trustee to determine whether or not the gift has lapsed based upon its perception of ‘substantial compliance’. The appropriate course, as was advised by Piper Alderman in 2012, is for the trustee to approach the Court for judicial advice as to how trust funds ought to be administered in such circumstances.
In October 2012, the plaintiff conducted further investigation of the name of the sanctuary. That investigation resulted in the suspension of payments from the trust and to the r 54.02 application. It remains unclear why the application was made more than six years after payments to the sanctuary ceased.
Notwithstanding the investigations in 2009 and 2012, the plaintiff distributed funds to the sanctuary amounting to $81,200.71 being $28,037 on 22 October 2009, $28,952.33 on 2 May 2011 and $24,211.38 on 2 May 2012. No funds were distributed in 2010 and no reasons were given for that being the case.
From 18 September 2009, the plaintiff was on notice that the name of the sanctuary may have been altered. Correspondence received some two weeks later, on 30 September 2009 appeared to confirm that the name had been changed. Although there is no evidence to indicate that the plaintiff acted with anything less than good faith in making payments on 22 October 2009, 2 May 2011 and 2 May 2012 those payments were not made reasonably in circumstances where the plaintiff was on notice that the sanctuary no longer complied with the condition attached to the gift. A ‘general practice’ of the plaintiff to continue payments where it perceives there to be ‘substantial compliance’ with a condition is not reasonable. In the circumstances, the plaintiff ought not be exonerated for any payments made in breach of trust after 18 September 2009.
As observed, the plaintiff must prima facie make good the loss caused by the breach of trust so as to put the trust in the same position as if the breach had not been committed. It is a matter for the Attorney-General, as protector of charities, whether to pursue a claim for breach of trust against the plaintiff to recover losses and interest.
Costs
Trustees are ordinarily entitled as of right to indemnity out of the trust for expenses properly incurred, including litigation expenses. This is the positon at common law and is reflected in statute.[19]
[19]See Trustee Act 1958 (Vic) s 36; Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 63.26.
The concept of ‘proper’ expenditure excludes costs which are of an unreasonable amount, have been unreasonably incurred, or have been incurred as a result of conduct that demonstrates want of prudence or diligence.[20] Expenses and liabilities that are improperly incurred, such as acting beyond power, in bad faith or in the exercise of power ‘with an absence of care and diligence that a person of ordinary prudence should exercise’ are not caught by the right of indemnity and should be borne by the trustee personally.[21]
[20]GE Dal Pont, Equity and Trusts in Australia (Lawbook Co, 7th ed, 2018) 682 [23.135] 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] VSCA 141.
[21]Dal Pont, Equity and Trusts in Australia (n 20) 682–3 [23.135], citing Re O’Donogue [1998] 1 NZLR 116, 121; Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) (2001) 188 ALR 566, 606; Nolan v Collie (n 20).
Where an application was reasonably required for the due administration of a trust or estate, the costs of all other parties are normally payable from the fund, taxed on a standard basis.[22] The costs of such a proceeding nonetheless remain within the Court’s general costs discretion and the application of the general rule that costs follow the event.
Costs of the r 54.02 application
[22]Re Buckton [1907] 2 Ch 406.
As observed, a trustee that is justified in seeking the advice of the Court will generally be indemnified for the proper costs of that application. Notwithstanding the Court’s finding that the gift to the sanctuary had lapsed, the plaintiff acted properly and reasonably in bringing the r 54.02 application, albeit extremely slowly when the advice to do so was given more than six years ago. There existed a genuine issue as to whether the sanctuary had changed its official name, upon which it was necessary and proper to seek the Court’s guidance. Likewise, the refusal of the National Health and Medical Research Council to appoint a representative to the committee to administer the gift for anatomical studies meant that the plaintiff was required to approach the Court to seek an amendment to the previous cy-près scheme. Although the Court has some reservation as to why the application was only made some six years after payments to the sanctuary ceased, the plaintiff is entitled to be indemnified from the trust for the costs of those applications.
Although the Attorney-General has not played an active part in the proceeding, the first defendant is the protector of charities and is a necessary party to the proceeding. The Attorney-General is also entitled to be indemnified from the trust for her costs associated with the r 54.02 application.
The second defendant also seeks its costs of the r 54.02 application, to be paid from the trust on the standard basis. The second defendant agrees that the plaintiff properly brought the proceeding. It says that, in the circumstances, it was appropriate that the second defendant be joined to the proceeding, in effect as contradictor. The second defendant submits that its costs of the application ought be paid out of the estate because the terms of the will did not clearly deal with the facts as they evolved.
The position of the second defendant is more analogous to a party who intervenes in proceedings in order to protect some right or interest, rather than that of a disinterested contradictor. Absent any unusual feature or circumstances, the general principles as to the costs of litigation apply to such a party. The second defendant cannot be said to have succeeded in achieving the position for which it advocated in the r 54.02 application. The second defendant submitted that the gift had not lapsed because the name still retained reference to Sir Colin MacKenzie. The Court rejected that submission, finding that the terms of the will left no room for any alteration of the name of the sanctuary. Although, as observed, it was reasonable and necessary for the plaintiff to seek the guidance of the Court, that necessity arose directly from the actions of the second defendant. This was not a case in which a new situation arose which was not contemplated in the will, rather, the necessity for the r 54.02 application arose because the second defendant failed to maintain compliance with the condition attached to the gift.
In the circumstances, there is no exception to the principle that costs should follow the event and, accordingly, the second defendant ought to bear its own costs of the application.
Costs of the s 67 application
The plaintiff accepts that its application for exoneration was made for its own benefit, rather than for the due administration of the trust. In such circumstances the usual principle is that costs follow the event.[23] The relevant ‘event’ is success in the action or on particular issues.[24] There is no special circumstance or unusual feature of the s 67 application which would justify a special order as to costs against the plaintiff.
[23]Di Benedetto v Grange & anor [2017] VSCA 117, [65] (Ferguson and McLeish JJA, Cameron AJA).
[24]Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622, 624–5 (McHugh J).
In this case, the plaintiff cannot be said to have been either wholly successful or wholly unsuccessful in its application for exoneration. The Court has concluded that the plaintiff ought properly be exonerated for distributions made in breach of trust between 27 June 2002 and 18 September 2009, totalling $142,360. The Court has not exonerated payments made thereafter, which it considered to have been unreasonably made, totalling $81,200.71. Treating each breach as a separate issue, it can be said that the plaintiff has been successful in approximately 64 per cent of his application for exoneration. The plaintiff’s costs of the s 67 application ought to be indemnified from the estate to that extent, with its costs of the remaining 36 per cent borne personally by the plaintiff.
Orders
The Court orders as follows:
(a) Pursuant to s 67 of the Trustee Act 1958, the plaintiff be relieved from personal liability for breaches of the trust that occurred between 27 June 2002 and 18 September 2009.
(b) The plaintiff’s and first defendant’s costs of the plaintiff’s application pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 be paid from the trust on the indemnity basis.
(c) Sixty-four per cent of the plaintiff’s costs of its application pursuant to s 67 of the Trustee Act 1958 be paid from the trust on the indemnity basis.
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