Re Steiner [No 2]
[2013] VSC 357
•23 July 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
PROBATE LIST
S CI 2013 01051
IN THE MATTER of the Will and Estate of ANITA GERTRUDE STEINER, deceased
IN THE MATTER of an application by the Executrices for approval pursuant to
r 54.02(2)(c)(i) of the Supreme Court (General Civil Procedure) Rules 2005
| JULIE DAVIS and NICOLE BROWN (in their capacities as Executrices of the Will of the deceased) | Applicants |
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JUDGE: | McMillan J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 5 April 2013 | |
DATE OF JUDGMENT: | 23 July 2013 | |
CASE MAY BE CITED AS: | Re Steiner [No 2] | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 357 | |
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EXECUTORS AND ADMINISTRATORS – Application by executrices and trustees for approval of expenditure of legal costs on Family Court proceedings refused – Whether executrices/trustees entitled to their costs of that failed application – Supreme Court (General Civil Procedure) Rules 2005 rr 54.02, 63.26
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APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr S L Tatarka | Arnold Bloch Leibler |
HER HONOUR:
On 15 May 2013, I published my reasons in this proceeding.[1] That was an application brought by the executrices of the estate of the deceased pursuant to r 54.02(2)(c)(i) of the Supreme Court (General Civil Procedure) Rules 2005 for an order approving two compromises and seeking approval of a decision to institute and maintain certain Family Court proceedings seeking parenting orders in respect of the daughter of the deceased. I refused the executrices’ application under r 54 in relation to the costs of the Family Law proceeding but permitted the applicants’ costs out of the estate in relation to the compromises.[2] The applicants have applied to the Court for an order that their costs of bringing the application for approval of expenditure of estate funds on the litigation in the Family Court be paid of the estate on a trustee basis. This judgment contains my reasons in relation to that request.
[1]Re Steiner [2013] VSC 232 (15 May 2013).
[2] Orders regarding the latter issue were made on 9 April 2013.
Factual background
The facts relevant to this application are set out in my reasons of 15 May 2013. I have reproduced the relevant parts as follows:
The deceased died on 12 November 2011. Probate of the deceased’s will dated 13 October 2011 was granted to the executrices on 11 January 2012. The executrices are a cousin and a best friend, respectively, of the deceased. In the Family Court proceeding, only the cousin is the applicant, she being a blood relative of the infant beneficiary.
The residuary of the estate is currently valued at $1 424 546 comprising two rental properties with a total value of $1 230 000. The rental income from the two properties, after agent’s fees but before tax, is approximately $3 600 per calendar month.
The beneficiary of the estate is the deceased’s daughter, Emma Sarina Frances Lemmens-Steiner, aged four years.
In a statement of wishes dated the same date as her will and addressed to her executrices and appointors and trustees of the trusts established by her will, the deceased stated to whoever was the guardian of Emma that it was her wish that Emma remain in Australia because her family in Australia would support her; that if Emma did not remain in Australia the trust established by her will should pay for Emma’s travel to return to Australia to spend time with her family; and that Emma be provided with a Jewish education at a private Jewish day school. The statement of wishes was expressed so as not to be binding on the persons to whom it was addressed and with a hope that her wishes would be respected.
Emma’s father is Mr Patrick Lemmens, a Dutch and New Zealand citizen. The deceased and Mr Lemmens separated around April 2011.
In June 2012, Mr Lemmens commenced proceedings against the estate seeking provision of one half of the estate pursuant to Part IV of the Administration and Probate Act 1958. A mediation of that proceeding took place on 20 November 2012. The mediation was unsuccessful. Mr Lemmens’ solicitors in the Part IV proceedings have since ceased to act for him. The Part IV proceeding has been adjourned sine die.
On 26 November 2012, the solicitors for the executrices wrote to Mr Lemmens’ family law solicitors seeking certain parenting orders to formalise rights of the deceased’s parents and brother to visit Emma. The proposed parenting orders contemplated Emma’s living in Australia, as she was at the time.
On or about 6 December 2012, Mr Lemmens and Emma left Australia without notice to the executrices. They now live in the Netherlands.
As a consequence, the executrices instructed solicitors, Lander & Rogers, to issue the Family Court proceedings seeking Emma’s return to Australia and parenting orders in relation to Emma that ensured that the parenting of Emma would be shared between Mr Lemmens and the executor cousin, Ms Nicole Brown.
In the Family Law proceeding, Ms Brown contends, on her own behalf and on behalf of Emma’s maternal family,[3] that it is in Emma’s best interests that this type of parenting order be made. The executrices argue that the objects and principles of Part VII of the Family Law Act 1975 (Cth) contain a presumption that it is in a child’s best interests to have ongoing contact with his or her extended family and to enjoy his or her cultural heritage, in this case, a Jewish cultural heritage, with others of the same culture. These submissions will be considered in more detail below.
In the Family Court proceeding, Mr Lemmens expressed concern that the executrices would pay for the Family Court proceedings from the estate of the deceased.
The costs and disbursements to date incurred in the Family Court proceedings amount to $47 109.16. Lander & Rogers estimate the future costs to be between $20 000 and $80 000. The amount of $47 109.16 has already been paid out of the estate to Lander & Rogers.[4]
[3] That is, the deceased’s parents and brother.
[4]Re Steiner [2013] VSC 232 (15 May 2013) [2]–[13].
Clause 9(b) of the deceased’s will established a discretionary testamentary trust empowering the trustees as follows:
To advance and apply the whole or part of the income or capital of any share of my estate to which a beneficiary has a vested contingent or presumptive interest for his or her maintenance education advancement or benefit and my Trustees shall not be responsible to recover any moneys so paid or advanced …[5]
[5] Emphasis added.
I determined that the payment of the legal costs of the family law proceedings was not a proper exercise of the power conferred by cl 9(b) and that the executrices did not give fair consideration to the issues relevant to the exercise of this discretion. I noted that arguments could have been made both in favour of and against the payment of the costs of the litigation out of the estate on the basis of Emma’s best interests.[6] I also noted that the costs incurred to date and estimated future costs were not necessarily ‘out of all proportion’ to the material benefit Emma might receive by that litigation.[7]
[6]Re Steiner [2013] VSC 232 (15 May 2013) [46].
[7] Ibid [47].
A number of other factors led me to conclude that it was inappropriate for the Court to sanction the payment of the Family Court proceedings out of the estate.[8] These factors demonstrated that it was not possible to ascertain whether any sums advanced for that purpose would materially benefit Emma.[9] Those reasons are set out below:
[8] Ibid [45]–[52].
[9] Ibid [54].
the Family Court proceeding will result in the dissipation of the assets of the estate, which, in turn, will probably reduce the value of the testamentary trust that was established for Emma’s material benefit.
If the executrices’ costs of the Family Court proceeding were funded out of the estate and Mr Lemmens defended that proceeding, it is foreseeable that he would argue that his costs should also be funded from the estate, maintaining that the process of defending that application was for Emma’s benefit.
If the costs of the Family Court proceeding were to exceed the funds on deposit, this would likely result in one of the properties being sold, which, in turn, would diminish the income stream for Emma’s testamentary trust.
…
a) Emma is an infant beneficiary and still very young.
b)The Court has not had the advantage of hearing any submissions on behalf of Emma.
c)Whilst the deceased expressed her wishes as to Emma’s future, these wishes are not binding.
d)It is apparent that the deceased contemplated that Emma might not remain in Australia and it is also apparent that those wishes could still be met if Emma remained in the Netherlands with her father.
e)Mr Lemmens is now Emma’s sole custodian and, as her father and custodian, it is primarily for him to determine how he wishes to raise her and where he wishes to raise her.
f)If shared parenting orders were made, this could require Emma’s father to return to Australia to live and raise Emma here. It is not known what effect that would have on Mr Lemmens.[10]
[10] Ibid [49]–[52].
In an affidavit sworn 21 June 2013, Nancy Collins, a solicitor employed by Arnold Bloch Leibler, deposes that the executrices were obliged to seek approval of the compromises with the deceased’s parents and brother because Emma is a minor, and that the application for approval of expenditure on the Family Court proceeding ‘was sought at the same time in order to save costs’.[11]
[11] Affidavit of Nancy Jacqueline Collins, sworn 21 June 2013, [3].
In an affidavit sworn 27 February 2013, Nicole Brown, who is one of the executrices of the estate and a cousin of the deceased, deposes that:
In June 2012 [the deceased’s] former domestic partner, Patrick Lemmens, commenced proceeding S CI 2012 03637 against the estate for family provision in this Honourable Court.
On 23 August 2012 Harding & Co sent a letter to our solicitors, Arnold Bloch Leibler (ABL) on behalf of Mariette, Fred and Jack [the deceased’s parents and brother] in which they foreshadowed a family provision claim.
In the hope that we would be able to resolve Mr Lemmens’ claim before dealing with the Steiners’ foreshadowed claims we instructed our solicitors to contact Harding & Co and request that the Steiners wait to progress their applications until we had time to resolve Mr Lemmens[‘] claim. We attended mediation with Mr Lemmens on 20 November 2012. The mediation was unsuccessful. On 26 November 2012 ABL wrote to Mr Lemmens’ lawyers, Mason Sier Turnbull (MST), enclosing proposed parenting orders to formalise visitation by [the deceased’s] extended family with Emma. The letter sought a response by 11 December 2012. On 6 December 2012 Mr Lemmens … suddenly left Australia with Emma without any notice to us. After consulting with my co-executor I instructed Lander & Rogers Lawyers to commence Family Court proceedings to seek Emma’s return to Australia.[12]
[12]Affidavit of Nicole Manuela Brown, sworn 27 February 2013, [7]–[9].
Julie Davis, a close friend of the deceased and co-executrix of the estate, deposes in an affidavit sworn 2 March 2013 as follows:
On about 6 December 2012 Mr Lemmens left Australia with Emma without giving any notice to us or to members of [the deceased’s] family. Mr Lemmens has since advised that he and Emma have settled in the Netherlands and intend to reside there permanently.
With my support, Nicole instructed Lander & Rogers Lawyers to commence a proceeding to attempt to have Emma returned to Australia. The Family Court proceeding is currently on foot. In an affidavit filed in that proceeding by Mr Lemmens he notes his concern that we will pay for the Family Court proceeding with assets of the estate. Even though we believe that we have considered and properly exercised our duties as trustees in deciding to fund the Family Court proceeding we seek the Court’s approval of such payments of legal costs that have been made and will be made in the future.
The costs billed to date in relation to the Family Court proceeding are $47,109.16. Landers & Rogers Lawyers have estimated the future costs of the proceedings to be between $20,000 and $80,000.[13]
[13] Affidavit of Julie Rochelle Davis, sworn 2 March 2013, [7]–[9].
In a supplementary affidavit sworn 4 April 2013, Nicole Brown deposes that:
To date Landers & Rogers have been paid $47,109.16 in relation to the Family Court proceedings …
The estate has incurred $113,905.78 in other legal costs to date in the administration of the estate, including defending Mr Lemmens’ family provision claim (referred to at paragraph 7 of my First Affidavit) and negotiating the settlement with the Steiners. Of that approximately $12,000 remains outstanding.
…
after Mr Lemmens suddenly left Australia with Emma, without notice to us, we decided that I would commence a proceeding in the Family Court to attempt to have Emma returned to Australia and that the estate would pay the costs of the proceeding. Julie is not a party to the Family Court proceeding because … she did not have standing to do so, not being a blood relative of Emma. The Family Court proceeding (file no (P)MLC11439/2012) is brought under Part VII of the Family Law Act 1975 (Cth).
In making the decision to commence the Family Court proceedings we took into account a variety of factors including:
(a) our powers under the terms of [the deceased’s] will;
(b)the content of [the deceased’s] statement of wishes dated 13 October 2011 …
(c) our concerns about Emma’s welfare, which arise from:
(i)incidents of domestic violence by Mr Lemmens, some of which occurred in Emma’s presence, which [the deceased] described to me and/or to Julie and we deposed to in affidavits filed in Mr Lemmen’s [sic] family provision proceeding; and
(ii)further events of domestic violence deposed to in affidavits filed in the defence of Mr Lemmens’ family provision claim; and
(d) legal advice on the prospects of success.[14]
[14] Affidavit of Nicole Manuela Brown, sworn 4 April 2013, [5]–[6], [13]–[14].
Ms Brown further deposed that it was her belief that the deceased wanted Emma to have a Jewish education and to appreciate her Jewish heritage and that to achieve this it was important that Emma have ongoing contact with her maternal family.[15] Ms Brown deposes that it is both her own and Ms Davis’ belief that an ongoing relationship between Emma and her extended maternal family will advance and benefit Emma.[16] Importantly, she also deposes that:
We have no doubt that [the deceased] would have wanted us to take whatever steps we could to ensure that Emma had the benefit of continuing to know her mother’s family and close friends, such as Julie, and her Jewish heritage.[17]
[15] Ibid [15].
[16] Ibid [16].
[17] Ibid [17].
This latter statement perhaps shows a lack of understanding on the part of Ms Brown of the nature of her role as a trustee. Her position as trustee requires her to follow the trust instrument in determining how to advance and benefit Emma. Her role is not to take whatever steps she can to carry out the settlor’s intentions. The trust instrument is the guiding force.
Ms Brown’s second affidavit does not mention specifically whether she and Ms Davis had considered whether they were authorised, in their capacities as executrices and trustees, to bring the Family Court proceedings. She did note that they had considered their powers under the terms of the deceased’s will and that they had obtained legal advice on the prospects of success of the Family Court litigation, but there is no mention of obtaining legal advice about whether they were authorised as executrices or trustees to commence (or defend for that matter) any litigation. Nor is there any mention whether she or Ms Davis obtained any advice on whether or not to defend the family provision claim brought by Mr Lemmens.[18]
[18] Although I note that this question is not before the Court.
The executrices did not seek the court’s advice before commencing the Family Court proceedings on whether it was appropriate to do so.
The relevant legal principles
Order 63.26 of the Supreme Court (General Civil Procedure) Rules 2005 provides as follows:
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.
Dal Pont notes that, when a trustee applies to the court for advice or directions, the costs of the application are generally subject to a complete indemnity provided that the appropriate procedure is followed by the trustee.[19] There is therefore a presumption, subject to the Court’s discretion, that a trustee will be indemnified out of trust funds when a trustee brings a proceeding, as has occurred in this case.
[19] G E Dal Pont, Equity and Trusts in Australia (Lawbook Co, 5th ed, 2011) 689.
In his submissions, counsel for the applicants sets out the general rule that ‘trustees are generally entitled to their costs of any application to the court as part of the general right to indemnity[20] and will only lose that right by misconduct.’[21]
[20]Gleeson v Fitzpatrick (1920) 29 CLR 29.
[21] J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 7th ed, 2006) 591 [2136].
The applicants also rely on the following statement by the Court in Adsett v Berlouis:
If the expense is one prudently and reasonably incurred in the discharge of the trustee’s proper duties, there is a right under the general law to be indemnified out of the trust estate. If the expense is not so incurred or is unreasonable or unnecessary, there is no right under the general law to indemnity because the expense is not ‘properly incurred’. … ‘properly’ means work reasonably and bona fide undertaken for the purpose of administering the estate … conformably with the trustee’s duty to perform the work with reasonable care and skill and in an efficient and economical way.[22]
[22] (1992) 37 FCR 201, 212.
Counsel for the applicants also pointed to the case of SingTel Optus Pty Ltd v Weston (Costs).[23] Bergin CJ was dealing with a liquidator’s claim for indemnity costs and drew the parallel with the position of trustees in general, saying that ‘[t]he discretion to deny indemnity should be exercised with great caution and only in exceptional circumstances[24] … It has been described as an “unusual and extreme step”’.[25]
[23] [2012] NSWSC 1002 (29 August 2012) [14].
[24] Citing Re Chennell (1878) 8 Ch 492, 502 (Jessel MR), quoted with approval by Spigelman CJ in Gatsios Holdings v Kritharas Holdings (in liq) [2002] NSWCA 29 (14 March 2002) [10].
[25] Citing Adsett v Berlouis (1992) 37 FCR 201, 214.
Counsel also relied on Drummond v Drummond,[26] in which Austin J stated:
In Miller v Cameron (1936) 54 CLR 572, 578, Latham CJ explained that ‘as a rule, a trustee is allowed his costs out of the trust estate if his conduct has been honest, even though it may have been mistaken.’ In Re Weall; Andrews v Weall (1889) 42 Ch D 674, 677, Kekewich J spoke of the ‘tenderness which the Court is anxious to exhibit towards trustees honestly exercising discretion in discharge of their duties, often difficult and still more often thankless.’ In Re Jones; Christmas v Jones [1897] 2 Ch 190, 197 the same judge said that ‘a man who fulfils the difficult duties of an administrator, executor or trustee is, in common sense and common justice, entitled to be recouped to the very last penny everything that he has expended properly — that is to say, without impropriety — in his character of administrator, executor or trustee ...’. Thus it is normally the case that an executor who commences or defends an action in the capacity of executor is entitled to be indemnified out of the estate for the costs incurred in doing so, even if the litigation is unsuccessful, the executor’s conduct is found to have been mistaken, and the other party in the litigation is held to be entitled to an order for costs.[27]
[26] [1999] NSWSC 923 (10 September 1999).
[27] Ibid [43].
Counsel submitted that trustees have been denied their legal costs in circumstances where they have:
· unnecessarily instituted a separate proceeding to claim the costs of an earlier proceeding when that question could and should have been addressed in the first proceeding;[28]
[28] National Trustees Executors & Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268.
· unreasonably refused to convey trust property and litigated unreasonably in relation thereto;[29]
· incurred multiple sets of costs by having separate representation when it was unreasonable or unnecessary to do so;[30]
· made an application that was of little or no merit or had little or no chance of success.[31]
[29] Dixon v Williams (1875) 13 SCR (NSW) Eq 7, 26.
[30] Re Price; Price v Church of England Property Trust Diocese of Goulburn (1935) 35 SR (NSW) 444, 460–2.
[31] Re Roberts (1983) 20 NTR 13, 19.
Counsel submitted that he was unable to identify a case in which a trustee was denied the costs of an application under O 54 even if approval itself was withheld.
Although these principles provide a general guide for trustees seeking an indemnity out of the trust, there are other persuasive commentaries and authorities that guide trustees who are faced with the choice whether to institute or defend proceedings. These authorities are discussed below.
Ong’s Trusts Law in Australia[32] provides that:
A trustee who is uncertain as to whether or not to embark on litigation should apply to the court for directions by way of originating summons.[33] If he does so, then he will be able to claim the costs of the application for directions.[34] If the trustee does not seek such directions, and the subsequent litigation is found to have been unreasonably embarked upon by the trustee, the latter will not be indemnified.[35]
[32] Denis Ong, Trusts Law in Australia (Federation Press, 4th ed, 2012) 350.
[33]Re Beddoe [1893] 1 Ch 547.
[34] Ibid.
[35]Re England’s Settlement Trusts [1918] 1 Ch 24.
I also note the commentary of Dal Pont on this issue as follows:[36]
Situations in which approach to the court is particularly useful are where the issue is whether proceedings ought be instituted or defended (usually supported by an opinion from counsel),[37] it is desired to effect an early distribution of an estate,[38] or the trustee is in doubt as to the extent of her or his powers under the trust instrument.[39] Indeed, so far as the first of these is concerned, the High Court has said that ‘a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings’.[40]
[36] Dal Pont, above n 19, 687.
[37] Fitzgerald v Smith (1889) 15 VLR 467, 473; Re Atkinson (deceased) [1971] VR 612; Application of Macedonian Orthodox Community Church St Petka Inc (No 2) (2005) 63 NSWLR 441.
[38] Citations omitted.
[39] Citations omitted.
[40] Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66, 94 (Gummow ACJ, Kirby, Hayne and Heydon JJ).
Dal Pont further notes that, where litigation is contemplated or even on foot, the jurisdiction serves to protect not only the trustee, but also the interests of the trust,[41] as it determines the appropriateness or otherwise of allocating trust resources to litigation. The jurisdiction to obtain judicial advice has been described as ‘beneficial legislation’ that ‘should not be narrowly construed’.[42]
[41] Dal Pont, above n 19, 688, citing Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66, 94 (Gummow ACJ, Kirby, Hayne and Heydon JJ); 127–8 (Kiefel J).
[42] Ibid, citing Re Perpetual Investment Management Ltd [2011] NSWSC 133 (9 March 2011) [46] (White J).
Dal Pont suggests[43] that ‘[t]rustees may lose their right to costs where they have unnecessarily applied to the court,[44] have litigated unreasonably[45] or have incurred unnecessary expense in the proceedings before the court’.[46]
[43] Ibid 689–90.
[44]Trimble v Kirkland (1913) 13 SR (NSW) 417.
[45] Dixon v Williams (1875) 13 SCR Eq 7; Re Hewitt (deceased) (Unreported, High Court of NZ, Fisher J, 19 May 1998).
[46]Read v Cohen (1929) 46 WN (NSW) 154; Re Price (1935) 35 SR (NSW) 444.
In Re England’s Settlement Trusts,[47] a co-trustee brought a proceeding against the tenant of certain trust property without the knowledge of the other co-trustee or the beneficiaries of the trust. The claim was for the cost of certain repairs to the building, which the trustee asserted should be borne by the tenants pursuant to the lease and for a small amount of unpaid rent. The trustee/plaintiff sought the sum of about ₤193 for the cost of repairs. The tenants/defendants paid into Court ₤110 to satisfy the claim with no admission of liability. On counsel’s advice, the plaintiff then obtained three further quotes for the cost of repairs, with each quote being at least ₤60 greater than the defendants’ payment into Court. On that advice, the plaintiff proceeded with the litigation and obtained judgment in his favour in the sum of ₤90, being the cost of repairs. The claim for unpaid rent was unsuccessful. The plaintiff/trustee sought unsuccessfully to have his costs paid out of the trust.
[47] [1918] 1 Ch 24.
Eve J stated as follows:
the practice of the Court is to indemnify trustees against all expenditure properly incurred in the due execution of the trust: In re Jones; Turner v Hancock. But costs of litigation embarked upon by trustees mero motu are not necessarily costs properly incurred in the due execution of the trust, and before considering how far, if at all, the principles of the cases I have just cited are applicable here, it is essential to ascertain whether the costs were in fact costs properly incurred in the administration of the trust.
…
The question is, Can the trust estate be charged with these costs or any part of them? In In re Beddoe Lindley LJ says: ‘A trustee who, without the sanction of the Court, commences an action or defends an action unsuccessfully, does so at his own risk as regards the costs, even if he acts on counsel’s opinion; and when the trustee seeks to obtain such costs out of his trust estate, he ought not to be allowed to charge them against his cestui que trust unless under very exceptional circumstances. If, indeed, the judge comes to the conclusion that he would have authorized the action or defence had he been applied to, he might, in the exercise of his discretion, allow the costs incurred by the trustee out of the estate; but I cannot imagine any other circumstances under which the costs of an unauthorized and unsuccessful action brought or defended by a trustee could be properly thrown on the estate.’[48]
[48] Ibid 28, 31 (emphasis added) (citations omitted).
In Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand,[49] the High Court discussed in detail the origins of s 63 of the Trustee Act 1925 (NSW) and the development of judicial advice rules in England. The Court considered that the approach in both jurisdictions required trustees ‘to obtain protection before embarking on litigation’.[50] The Court noted that ‘divergences between the two legislative schemes must not be permitted to obscure some important and fundamental similarities between the two’[51] and suggested that cases such as Re Beddoe,[52] Re Dallaway,[53] and Re Evans[54] might provide a useful guide to interpreting the powers given by s 63 of the Act.[55]
[49] (2008) 237 CLR 66.
[50] Ibid 85.
[51] Ibid 86.
[52] [1893] 1 Ch 547.
[53] [1982] 3 All ER 118.
[54] [1985] 3 All ER 289.
[55] Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66, 86.
The Court noted that, despite the similarities and differences between the two jurisdictions, the rule in each is geared toward the same end:
Each provides for a procedure which, if adopted, will not only protect a trustee from later complaint that he or she should have acted otherwise, but also protect the trustee from personal liability for costs incurred. And where the question for the Court is whether the trustee would act properly in instituting or defending litigation, the answer given will necessarily affect the parties to that other litigation. In particular, the judicial advice proceedings may yield an order which will give one party to the litigation (the trustee) power to resort to a fund in order to meet the costs incurred in pursuit or defence of the litigation.[56]
[56] Ibid.
The Court approved of the principles in Re Beddoe, stating that:
That warning that trustees who become involved, or wish to become involved, in litigation should seek the court’s sanction is the significant, and in later years influential, aspect of In re Beddoe.[57]
[57] Ibid 87.
Further on, the Court also stated:
provision is made for a trustee to obtain judicial advice about the prosecution or defence of litigation in recognition of both the fact that the office of trustee is ordinarily a gratuitous office and the fact that a trustee is entitled to an indemnity for all costs and expenses properly incurred in performance of the trustee’s duties. Obtaining judicial advice resolves doubt about whether it is proper for a trustee to incur the costs and expenses of prosecuting or defending litigation. No less importantly, however, resolving those doubts means that the interests of the trust will be protected; the interests of the trust will not be subordinated to the trustee’s fear of personal liability for costs.
It is, therefore, not right to see a trustee’s application for judicial advice about whether to sue or defend proceedings as directed only to the personal protection of the trustee. Proceedings for judicial advice have another and no less important purpose of protecting the interests of the trust.[58]
[58] Ibid 93–4.
These particular comments of the High Court in Macedonian Orthodox Community Church have been approved subsequently by a differently constituted High Court[59] and in numerous instances in both New South Wales[60] and Victoria.[61]
[59]Commissioner of Taxation v Bargwanna (2012) 244 CLR 655.
[60] Re Dulhunty [2010] NSWSC 1023 (2 September 2010) (Hamilton AJ); Jones v Hirst [2013] NSWSC 163 (8 March 2013) (Young AJ); A-G (NSW) v Homeland Community Ltd [2013] NSWSC 723 (6 June 2013) (Ball J); Re Estate of Chow Cho-Poon; Application for Judicial Advice [2013] NSWSC 844 (26 June 2013) (Lindsay J).
[61] Re Mento Developments (Aust) Pty Ltd (2009) 73 ACSR 622 (Robson J); Re Centro Retail Australia Ltd [2012] VSC 240 (8 June 2012) (Almond J); Morris v Smoel [2013] VSCA 11 (15 January 2013) (Maxwell P and Whelan JA).
Application of law to facts
Counsel for the applicants submitted that the Court’s denial to the executrices of their costs of the family law proceedings leaves the executrices at risk of being personally liable in the event that their exercise of discretion is subsequently challenged by the beneficiary of the trust, the deceased’s daughter Emma. It was submitted that the executrices’ pursuit of that part of the application was however reasonable and prudent and was not attended by any disentitling misconduct. I note my finding that the executrices’ conduct in instituting the Family Court proceedings for the supposed ‘benefit’ of Emma was mistaken,[62] however, I consider that it was performed honestly. At the time that it was made, the executrices had just found out that Mr Lemmens had left Australia with Emma, and, although Ms Brown and the deceased’s extended family stood to benefit from any order for shared parenting, a disposition is not invalid merely because some person other than the beneficiary incidentally benefits from that particular act.[63]
[62]Re Steiner [2013] VSC 232 (15 May 2013) [55].
[63]Pilkington v Inland Revenue Commissioners [1964] AC 612, 636.
Although I was not satisfied of the ‘propriety’ of the executrices’ application for the litigation to be paid out of the estate,[64] I consider that the executrices’ conduct does not fall within what Austin J describes as ‘the sub-exception for “impropriety”’.[65] His Honour considered such cases of impropriety to include an executor instituting or defending proceedings in breach of trust, or conducting the proceedings in such a way that the Court, on a general view of the case, regards the executor’s conduct as ‘not honestly brought forward’.[66]
[64]Re Steiner [2013] VSC 232 (15 May 2013) [45].
[65]Drummond v Drummond [1999] NSWSC 923 (10 September 1999) [45].
[66] Ibid, quoting Kekewich J in Re Jones [1897] 2 Ch 190, 198.
It was further submitted that the mechanism of O 54, whereby a trustee applies for judicial advice, recognises that trustees often act without reward and they are deserving of the advice and protection of the Court. Counsel for the applicants emphasised that to deny to a trustee who seeks judicial advice her costs only on the basis of the Court’s refusal to give the approval sought would undermine the public policy reasons for the existence of O 54 and would act as a significant disincentive for trustees to avail themselves of the processes of the Court designed to assist them in the performance of their duties. I agree that O 54 provides a cost-effective process to trustees to seek the Court’s advice and that trustees should be encouraged to avail themselves of this process.
In the current instance, I consider that the prudent approach was for the applicants to seek judicial advice prior to initiating the Family Court proceedings. This is especially so given that, at the time that the Family Court proceedings were commenced, the trust had already incurred significant expenses defending the family provision claim of Mr Lemmens and dealing with the Steiners’ claims.[67] Before the trustees instituted the Family Court proceedings, or as soon as practicable afterwards, they should have applied to the Court for advice. Instead, the trustees waited four months before filing their originating motion on 5 March 2013 and incurred more than $47 000 in costs in the meantime litigating the Family Court dispute.[68] By these acts, in my view, the applicants have not properly considered the interest of the trusts, which will not be subordinated to the trustees’ fear of personal liability for costs.[69] Indeed, there was no evidence before the Court that demonstrated what steps, if any, the applicants took, or whether any legal advice was received, in deciding whether to commence proceedings in the Family Court at the expense of the trust. Similarly, there was no evidence that the applicants considered whether it was in the interests of the trust to spend estate funds litigating in this way. This was especially important considering that Emma, who is the sole beneficiary of the trust, is a minor.
[67] See above paragraph [9].
[68] I note also that the trustees have not approached the Court for advice in relation to whether it is proper for them to defend Mr Lemmens’ family provision claim.
[69] Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66, 94.
Counsel for the applicants submitted that, on these facts, the executrices have acted reasonably and economically by combining the three applications for approval in the one proceeding. I do not agree with that submission for the reasons outlined above. Whilst the principles recognise that a trustee who makes an honest mistake should not be penalised, and I do not find that the trustees acted dishonestly, for the reasons given, I consider that the trustees should not be indemnified for their costs of the Family Court judicial advice application.
Conclusion
Accordingly, the applicants are not entitled to their costs of bringing the application for approval of the expenditure of estate funds in respect of the Family Court litigation from the estate of the deceased.
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