Re Sturrock; Spierings v Richards

[2017] VSC 458

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

TRUSTS, EQUITY & PROBATE LIST

S CI 2017 00667

IN THE MATTER of Part IV of the Administration and Probate Act 1958

-and-

IN THE MATTER of the will and estate of MARY EVELYN STURROCK, deceased

BETWEEN:

KAY LEANNE SPIERINGS	Plaintiff
v
SUSAN GAYLE RICHARDS and GLENDA MARY STURROCK (as executors of the estate of Mary Evelyn Sturrock, deceased)	Defendants

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JUDGE:	McMillan J
WHERE HELD:	Melbourne
DATE OF HEARING:	28 July 2017
DATE OF RULING:	10 August 2017
CASE MAY BE CITED AS:	Re Sturrock; Spierings v Richards & Anor
MEDIUM NEUTRAL CITATION:	[2017] VSC 458

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COSTS—Interlocutory application—Estate litigation—Where defendants are executors of deceased estate—Where plaintiff seeks provision from the estate—Where defendants sought to vacate procedural orders—Where defendants’ application unsuccessful—Where defendants ordered to pay costs—Whether costs should come out of the estate—Supreme Court (General Civil Procedure) Rules 2015, r 63.26.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A P Dickenson	KCL Law
For the Defendants	Mr J P Carney	Gadens

HER HONOUR:

Introduction

1. By originating motion filed 27 February 2017, the plaintiff seeks an order for provision out of the estate of her mother, Mary Evelyn Sturrock (‘the deceased’), pursuant to s 91 of the Administration and Probate Act 1958 (‘the Act’).  The defendants are the plaintiff’s sisters and the executors of their mother’s estate.

1. At a directions hearing on 4 April 2017, Judicial Registrar Englefield made orders, inter alia, setting the proceeding down for mediation (‘the 4 April orders’).  During that hearing, a dispute arose as to the extent of the deceased’s estate.  In short, the plaintiff contends that the deceased’s former property in Hampton Park forms part of the estate, whereas the defendants say the property was transferred to them by the deceased during her life.

1. The 4 April orders contain the following summary in ‘other matters’:

A dispute exists as to whether the Estate includes the property previously registered in the name of the Deceased at 75 Central Road, Hampton Park, Victoria (‘the property’) which is valued at in excess of $3,000,000.

The Plaintiff claims 1/3 of the Deceased’s Estate.

The parties wish to mediate that dispute in conjunction with this claim to the end will exchange short points of claim and defence (sic).

1. The mediation was to be conducted by a private mediator by 14 July 2017.  In anticipation of the mediation, the plaintiff was ordered to file a position paper by 5 May 2017, as well as an affidavit as to her financial position and short points of claim with respect to the property.  The affidavit and points of claim were filed on 9 May 2017.  The plaintiff is yet to file a position paper.

1. For their part, the defendants were ordered to file an affidavit by 16 June 2017, as well as short points of defence with respect to the property. They did neither. Instead, on 22 June 2017, the defendants filed a summons and supporting affidavit seeking to stay the proceeding and vacate the 4 April orders. The affidavit was sworn by the defendants’ solicitor who deposed that the stay was sought to allow the plaintiff to bring a new proceeding in respect of the property, thereby excising the issue from the plaintiff’s claim under Part IV of the Act. The defendants’ solicitor emphasised the small size of the estate—excluding the property—with the implication that the approach advocated by the defendants would limit the costs to the estate.

Defendants’ summons filed 22 June 2017

1. By summons filed 22 June 2017, the defendants sought that the proceeding be stayed until the plaintiff filed and served a new proceeding in relation to the property and the 4 April orders be vacated.  The defendants’ application was heard on 28 July 2017.  The defendants primarily relied on this Court’s decision in Re Atkinson[1] in support of their summons.  They submitted that Re Atkinson endorsed the approach they sought in this case; that is, that the plaintiff’s family provision claim should be stayed until the dispute between the parties as to whether or not the property formed part of the estate was resolved.

   [1]Re Atkinson [1971] VR 612.

1. During the hearing, counsel for the defendants referred to two other cases where procedural orders were subsequently vacated in the interests of justice.[2]  It was submitted that this case was in the same category, given that it was now clear that the approach adopted in Re Atkinson should also be adopted here.

   [2]Wilkshire & Coffey v Commonwealth of Australia (1976) 9 ALR 325; E I Du Pont De Nemours v Commissioner of Patents (1987) 16 FCR 423; (1987) 83 ALR 499 (‘De Nemours’).

1. The plaintiff resisted the defendants’ application and contended that there was no good reason to disturb the 4 April orders.  She submitted that the relief sought by the defendants was entirely discretionary and referred to Booth v Ward to the effect that the Court should not be easily persuaded to exercise the discretion in the manner sought.[3]

   [3]Booth v Ward (2007) 17 VR 195, 205–6 (Cavanough J).

1. In response to the defendants’ submissions, the plaintiff noted that the defendants had failed to demonstrate that it was in the interests of justice to vacate the 4 April orders.  The plaintiff submitted that there has not been a change of circumstances sufficient to render those orders unsuitable to the needs of the case.[4]  To the contrary, the defendants had been aware of the issues with respect to the property and its purported transfer for some time.  They were certainly aware of those issues by the time of the hearing before Judicial Registrar Englefield.  So much was evident from the inclusion in the 4 April orders of the summary of the dispute surrounding the property,[5] as well as the orders for points of claim and defence in respect of the property.

   [4]De Nemours (1987) 16 FCR 423, 424, 426 (Sheppard J).

   [5]See [5] above.

1. The Court accepted the plaintiff’s submissions at the hearing on 28 July and refused the relief sought by the defendants.  It was clear that the dispute as to whether or not the property should be included in the deceased’s estate was ventilated before Judicial Registrar Englefield on 4 April.  The 4 April orders were made in that context such that it was contemplated that the status of the property would be a live issue at the mediation.  The defendants did not demonstrate any reason why, in the interests of justice, the Court should exercise its discretion to vacate the 4 April orders, which were entirely procedural in nature.[6] 

   [6]See, eg, Wilkshire & Coffey v Commonwealth of Australia (1976) 9 ALR 325, 330 (Muirhead J); De Nemours (1987) 16 FCR 423, 432 (Beaumont J); Booth v Ward (2007) 17 VR 195, 204–5 (Cavanough J).

Costs

1. By the end of the hearing on 28 July, it was clear that the plaintiff had been successful.  The plaintiff made an application for costs.  In that context, counsel for the defendants was asked about the costs of the summons.  He responded, ‘I can’t say anything in opposition to that’, conceding that the costs of the summons would be borne by the defendants.  The hearing then concluded and the proceeding was adjourned.

1. Shortly after the hearing, a dispute arose between the parties as to the costs of the defendants’ summons.  The Court was informed by email from the plaintiff’s solicitor, which was confirmed by an email from the defendants’ solicitor 13 minutes later, that the parties could not agree on the substance of the costs order that was made at the hearing.  The plaintiff’s solicitor contends that the order was made in the following terms, as set out in a draft form of order attached to their email:

The Defendants are to personally pay the Plaintiff’s costs of and incidental to the Defendants summons filed 22 June 2017, and the Defendants are to personally bear their own costs of and incidental to the Defendants summons filed 22 June 2017 and are not permitted to seek indemnity for those costs out of the Estate (sic).

1. The defendants solicitor argues that the order was not so expansive and was properly limited to the effect that ‘the defendants pay the plaintiff’s costs of and incidental to the defendants’ summons filed 22 June 2017’.  He contends that the order as formulated by the plaintiff’s solicitor represents a departure from the usual costs order and was never raised in court.

1. By email to the parties dated 31 July 2017, the Court indicated that the costs order made at the hearing on 28 July was in substantially the same terms as those proposed by the plaintiff.  In response, the defendants’ solicitor requested reasons for the order.  Short written submissions were provided by the defendants on 2 August, to which the plaintiff replied in a short email to the Court from her solicitor dated 3 August 2017.

Defendants’ submissions

1. It is evident from their submissions that the defendants assumed their costs of the summons, as well as the costs of the plaintiff which they accepted they had to pay, would be allowed out of the deceased’s estate. That assumption is built on their role and conduct as the executors of the estate of the deceased in defending this proceeding. To that end, they rely on r 63.26 of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’):

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.[7]

[7]‘Trustee’ includes an executor of a will and an administrator of an estate: r 63.01(1).

1. They say there is no reason in this case for the Court to depart from the standard position set out in that rule.  Nothing in their conduct in defending the plaintiff’s claim can be described as ‘inappropriate, let alone contumelious’.  They did not resist the 4 April orders in circumstances where they thought the plaintiff’s claim with respect to the property did not raise contested questions of fact, but rather was simply a question of law.  When the plaintiff served her points of claim on 9 May, they realised that the plaintiff’s claim ‘involved a number of factual allegations that were disputed facts’.  Accordingly, they formed the view that the 4 April orders were no longer ‘best calculated’ to resolve the proceeding ‘expeditiously’.

1. Once they had formed that view, the defendants considered that it was ‘not appropriate to maintain their agreement’ to the interlocutory steps contained in the 4 April orders.  Indeed, they submit that, in the circumstances, both their and their legal advisers’ obligations under the Civil Procedure Act 2010 required them to reconsider the orders. This, in turn, justified their actions in seeking to vacate the 4 April orders by the summons filed 22 June 2017. They say their failure to persuade the Court that the 4 April orders should be vacated does not warrant censure, by which they presumably mean departure from the standard position on costs encapsulated by r 63.26 of the Rules.

Plaintiff’s submissions

1. In the very brief reply submissions contained in her email of 3 August, the plaintiff’s solicitor noted that the defendants’ summons was ‘without merit and was wasteful’.  She made the point that if the defendants were allowed to pay the plaintiff’s costs from the estate, the estate would be effectively diminished by the defendants’ ‘wasteful conduct’ which, in turn, would have a detrimental effect on the plaintiff’s claim by reducing the funds from which the plaintiff seeks provision.  The same applies to the prospect of the defendants taking their own costs of the summons from the estate.

1. In circumstances where the plaintiff was wholly successful in resisting the defendants’ summons, it was submitted that allowing costs from the estate of the deceased ‘is not a just outcome’.

Consideration

1. Trustees, including executors, are ordinarily 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.[8]  The concept of proper expenditure excludes conduct that demonstrates want of prudence or diligence.[9]  Expenses and liabilities that are improperly incurred, such as acting beyond power, in bad faith or exercised 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.[10]

   [8]Trustee Act 1958, s 36(2); Supreme Court (General Civil Procedure) Rules 2015, r 63.26.

   [9]G E Dal Pont, Equity and Trusts in Australia (Lawbook Co, 5^th ed, 2011) 679–80 [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) 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.

   [10]Dal Pont, above n 9, 679–80 [23.135], citing Re O’Donoghue [1998] 1 NZLR 116, 121 (Hammond J); Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) (2001) 188 ALR 566, 606 [148]–[149] (Finkelstein J); Nolan v Collie(2003) 7 VR 287.

1. Each case of trust or estate litigation must be considered on its merits with respect to costs, as should each step taken in that litigation.  A successful trustee would ordinarily be allowed their costs out of the trust fund or estate.  Likewise, a trustee who fails in litigation may still be indemnified for their costs from the estate.

1. Where a trustee seeks advice and directions from the court, ‘the costs of the application are generally the subject of a complete indemnity out of the trust fund’.[11]  Such was the case in Re Atkinson.[12]  That case concerned an application by an executor for advice in respect of the estate’s entitlement to certain property.  On their face, the facts of this case bear some similarities to those in Re Atkinson.  The defendants endeavoured to show that those similarities compel a similarity in approach by the Court, both substantively and in respect of costs.  However, such an approach fails to recognise the fundamental differences between this case and Re Atkinson.

   [11]Dal Pont, above n 9, 689 [23.185], citing Gleeson v Fitzpatrick (1920) 29 CLR 29, 35 (Knox CJ), 38 (Rich J). See also Supreme Court (General Civil Procedure) Rules 2015, r 54.02.

   [12]Re Atkinson [1971] VR 612, 619 (Gillard J).

1. Whereas Re Atkinson involved an application to the Court for advice and directions, the executors in this case are defendants to a proceeding brought by the plaintiff pursuant to Part IV of the Act. In that capacity, they participated in a hearing before a Judicial Registrar which led to certain procedural orders—the 4 April orders—being made; orders which they acknowledge they did not resist at the time. They failed to comply with those orders and subsequently sought to have them vacated and the proceeding stayed. They were not successful and the timetable set down by the 4 April orders was effectively restored, allowing for the delay caused by the defendants’ summons.

1. The defendants recognise that they were unsuccessful on the substance of their application and concede that the plaintiff is entitled to her costs.  However, they submit that they should be indemnified for those costs, as well as their own costs of the application, out of the estate of the deceased.  This is the ‘usual position as to costs’ in litigation involving trustees and executors.[13]  The defendants submit there is no reason to depart from that position in this case.  They emphasise that the plaintiff did not give notice of her intention to seek a different costs order at the hearing and that the grounds of any such application had not been articulated.

   [13]See Trustee Act 1958, s 36(2); Supreme Court (General Civil Procedure) Rules 2015, r 63.26.

1. The plaintiff’s intention to seek costs against the defendants personally was clearly stated in her counsel’s written submissions dated 27 July 2017.  It is likely that the defendants’ lawyers received those submissions on that day, being one day before the hearing of their summons seeking to vacate the 4 April orders.  At the very least, they were on notice of the possibility of costs being awarded against their clients personally by the time of the hearing.  It was in that context that counsel for the defendants declined the opportunity to make submissions as to costs when asked directly during the hearing.  The defendants’ submission that ‘the proposed order for costs was not discussed at the hearing’ is true only insofar as their counsel did not discuss it.

Conclusion

1. The defendants’ summons filed 22 June has achieved nothing but to delay the just, efficient, timely and cost-effective resolution of the dispute in this proceeding.[14]  Their application was without merit.  The plaintiff was right to resist it.  In circumstances where the plaintiff is an applicant for provision from the estate of the deceased, any costs borne by the estate are also borne by the plaintiff, at least in part.[15]  To allow the defendants to take the costs of their futile application out of the estate, including the plaintiff’s costs, would be unfair to the plaintiff.

   [14]Cf Civil Procedure Act 2010, s 7(1).

   [15]See also Defina v Matina [2017] VSC 106 (16 March 2017) [35].

1. Accordingly, the costs order made at the hearing on 28 July 2017 was in the terms suggested by the plaintiff, to the effect that the defendants personally pay the plaintiff’s costs of and incidental to the defendants’ summons filed 22 June 2017 and the defendants bear their own costs of and incidental to the summons without indemnity for those costs out of the estate of the deceased.