Re the Palermo Unit Trust;
[2014] WASC 69 (S)
•30 JUNE 2014
| JURISDICTION | : | SUPREME COURT OF WESTERN AUSTRALIA IN CIVIL |
| CITATION | : | RE THE PALERMO UNIT TRUST; EX PARTE PHILIP MILTON RUNDELL (AS TRUSTEE FOR VARIOUS TRUSTS) [2014] WASC 69 (S) |
| CORAM | : CHANEY J | ||
| HEARD |
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| DELIVERED |
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| FILE NO/S |
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| MATTER |
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Re: The Palermo Unit Trust, Esplanade Trust, The Hampton 41 Trust, The Metro Trust, The Parkfield Trust, The River Gem Trust, The River Trust, The Time Trust, The Timewize Trust, The Murray Trust &
the MM Trust
EX PARTE
PHILIP MILTON RUNDELL (AS TRUSTEE FOR
VARIOUS TRUSTS)Applicant
Catchwords:
Costs - Application for trustee directions pursuant to Trustees Act 1962 (WA) - Whether costs should be paid out of trust assets - Whether costs should be on solicitor-client basis
[2014] WASC 69 (S)
Legislation:
Legal Practitioners (Supreme Court) (Contentious Business) Determination
2012 (WA)
Rules of the Supreme Court 1971 (WA)
Trustees Act 1962 (WA)
Result:
Second interested party to pay first interested party's costs thrown away
Remaining costs of all parties to be paid out of trust assets
Category: B
Representation:
Counsel:
| Applicant | : | No appearance |
| Anthony Palermo (First Interested Party) | : | No appearance |
| John Palermo (Second Interested Party) | : | No appearance |
Solicitors:
| Applicant | : | Williams & Hughes |
| Anthony Palermo (First Interested Party) | : | Rockwell Olivier |
| John Palermo (Second Interested Party) | : | Gadens Lawyers |
Cases referred to in judgment:
In Re Buckton, Buckton v Buckton [1907] 2 Ch 406
In Re Cunningham; Sprowle v Quested (1914) 31 WN (NSW) 44
In Re Halston [1912] 1 Ch 435
Murdoccca v Murdocca (No 2) [2002] NSWSC 505
Re The Palermo Unit Trust; Ex parte Philip Milton Rundell (as Trustee for
Various Trusts) [2014] WASC 69
Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146
Sons of Gwalia v Margaretic [2006] FCAFC 92; (2006) 233 ALR 119
[2014] WASC 69 (S)
Tsaknis as Executor and Trustee of the Estate of Geoffrey Douglas Roland
Lilburne v Lilburne [2010] WASC 152
[2014] WASC 69 (S)
CHANEY J
CHANEY J:
History of the proceedings
1 These proceedings were originally brought by John Palermo, by an
originating summons for trustee direction dated 23 January 2014. During the course of the proceedings, Anthony Palermo raised the issue of John Palermo's lack of standing to make such an application under s 92 of the Trustees Act 1962 (WA) in submissions that he filed. As a consequence, Mr Rundell, the Court-appointed trustee in relation to various trusts, was substituted as the applicant in these proceedings, in the place of John Palermo, on 26 February 2014.
2 I dismissed Mr Rundell's application for reasons which I published
on 10 March 2014.[1] These reasons should be read in conjunction with those. At the time those reasons were published, orders were made that the costs of the application be reserved, that the question of costs be dealt with on the papers and that Anthony and John Palermo both file written submissions on costs.
[1] Re The Palermo Unit Trust; Ex parte Philip Milton Rundell (as Trustee for Various Trusts) [2014] WASC
Costs orders sought by the parties
Anthony Palermo seeks orders that:
a. The second interested party, John Palermo, pay Anthony Palermo's costs of the application, including the costs of the hearing on 4 February 2014 and the reserved costs of the hearings on 12 and 26 February 2014; b. The limit at Item 11 of Table B to the Schedule to the Legal Practitioner's (Supreme Court) (Contentious Business) Determination 2012 (Scale) be removed; c. To the extent that Anthony Palermo's costs are not recovered from John Palermo, his costs be recovered from the trusts subject to the proceedings on a solicitor-client basis; d. John Palermo bear his own costs of the application; e. John Palermo pay Mr Rundell's costs of the application. 4 In the alternative, Anthony Palermo seeks an order that John Palermo
pay his costs up to when John Palermo was substituted as the applicant in
[2014] WASC 69 (S)
CHANEY J
the proceedings on 26 February 2014, including the costs of the hearings on 4, 12 and 26 February 2014. As a second alternative, Anthony Palermo seeks orders that his costs be paid out of the trusts subject to the proceedings on a solicitor-client basis.
John Palermo opposes the orders sought by Anthony Palermo, and seeks orders that:
a.
John Palermo pay Anthony Palermo's costs of the application, including the costs of the hearing on 4 February 2014, and the reserved costs of the hearings on 12 and 26 February 2014, to the extent only that prejudice was suffered by reason of the change in the applicant;
b.
The remaining costs of all parties should be ordered to be taxed to be borne from the trust assets.
Should John Palermo pay Anthony Palermo's costs of the application?
Order 66 r 1(1) of the Rules of the Supreme Court 1971 (WA) reflects the common law rule that costs generally follow the event:
1. General rules as to costs
(1) Subject to the express provisions of any statute and of these rules the costs of and incidental to all proceedings including the administration of estates and trusts shall be in the discretion of the Court but, without limiting the general discretion conferred on the Court by the Act, and subject to this Order, the Court will generally order that the successful party to any action or matter recover his costs.
7 That provision applies subject to the provisions of any statute. This
application was brought pursuant to 92 of the Trustees Act 1962 (WA). Section 97 grants the Court a broad discretion in awarding costs in any proceedings brought under the Trustees Act:
97. Costs of court proceedings, orders as to
The Court may order the costs and expenses of and incidental to any application for any order under this Act, or of and incidental to the order, or any conveyance or assignment in pursuance thereof, to be raised and paid out of the property in respect of which any of them is made, or out of the income of the property, or to be borne and paid in such manner and by such persons as the Court thinks fit.
[2014] WASC 69 (S)
CHANEY J
8 Kekewich J in In Re Buckton, Buckton v Buckton,[2] provides guidance as to how the judicial discretion in awarding costs in administration actions should be exercised. His Honour observed that there are three general categories of disputes involving trustees:
In a large proportion of the summonses adjourned into court for argument the applicants are trustees of a will or settlement who ask the Court to construe the instrument of trust for their guidance, and in order to ascertain the interests of the beneficiaries, or else ask to have some question determined which has arisen in the administration of the trusts. In cases of this character I regard the costs of all parties as necessarily incurred for the benefit of the estate, and direct them to be taxed as between solicitor and client and paid out of the estate. It is, of course, possible that trustees may come to the Court without due cause. A question of construction or of administration may be too clear for argument, or it may be the duty of trustees to inform a claimant that they must administer their trust on the footing that his claim is unfounded, and leave him to take whatever course he thinks fit. But, although I have thought it necessary sometimes to caution timid trustees against making applications which might with propriety be avoided, I act on the principle that trustees are entitled to the fullest possible protection which the Court can give them, and that I must give them credit for not applying to the Court except under advice which, though it may appear to me unsound, must not be readily treated as unwise. I cannot remember any case in which I have refused to deal with the costs of an application by trustees in the manner above mentioned.
There is a second class of cases differing in form, but not in substance, from the first. In these cases it is admitted on all hands, or it is apparent from the proceedings, that although the application is made, not by trustees (who are respondents), but by some of the beneficiaries, yet it is made by reason of some difficulty of construction, or administration, which would have justified an application by the trustees, and it is not made by them only because, for some reason or other, a different course has been deemed more convenient. To cases of this class I extend to operation of the same rule as is observed in cases of the first class. The application is necessary for the administration of the trust, and the costs of all parties are necessarily incurred for the benefit of the estate regarded as a whole.
There is yet a third class of cases differing in form and substance from the first, and in substance, though not in form, from the second. In this class the application is made by a beneficiary who makes a claim adverse to other beneficiaries, and really takes advantage of the convenience procedure by originating summons to get a question determined which, but for this procedure, would be the subject of an action commenced by writ, and would strictly fall within the description of litigation. It is often difficult to discriminate between cases of the second and third classes, but when once convinced that I am determining rights between adverse
[2014] WASC 69 (S)
CHANEY J
litigants I apply the rule which ought, I think, to be rigidly enforced in adverse litigation, and order the unsuccessful party to pay the costs. Whether he ought to be ordered to pay the costs of the trustees, who are, of course, respondents, or not, is sometimes open to question, but with this possible exception the unsuccessful party bears the costs of all whom he has brought before the Court.[3]
[2] In Re Buckton, Buckton v Buckton [1907] 2 Ch 406.[3] In Re Buckton, Buckton v Buckton [1907] 2 Ch 406, 414 - 415.
9 The principles from Buckton were adopted by the Full Court of the Federal Court in Sons of Gwalia v Margaretic,[4] which was applied by the Court of Appeal in this Court in Scaffidi v Montevento Holdings Pty Ltd.[5]
[4] Sons of Gwalia v Margaretic [2006] FCAFC 92; (2006) 233 ALR 119, 121 (Finkelstein J).[5] Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146. In relation to the application of Buckton10 Anthony Palermo submits that these proceedings can be categorised
as hostile litigation, falling into the third Buckton category, with the consequence that John Palermo, as the unsuccessful party, should pay the costs of the application.[6] Anthony Palermo submits that the proceedings were hostile litigation because:
[6] Submissions of Anthony Palermo on Costs, dated 31 March 2014 [10], [19]. 7 Submissions of Anthony Palermo on Costs, dated 31 March 2014 [14] - [17]. 8 John Palermo's Outline of Submissions on Costs, dated 9 April 2014 [23].
•
the application in John Palermo's name was destined to fail due to lack of standing;
•
there is extensive litigation between Anthony and John Palermo and there are a multitude of other proceedings currently on foot;
•
the outcome sought by the application would be very much in favour of John Palermo and disadvantage Anthony Palermo; and
•
even when Mr Rundell was substituted as the applicant, John Palermo effectively assumed the role of arguing in favour of the orders sought.7
Alternatively, John Palermo submits that:
•
'[t]he problem with this line of submission is that it assumes that John is the unsuccessful party';8
• the application was not brought against Anthony Palermo; and
[2014] WASC 69 (S)
CHANEY J
• Anthony Palermo took a default position rather than forwarding a competing proposal that '[o]ne would presume … would be forthcoming had he been the true defendant in the proceedings'.9 11 In Buckton, Kekewich J had regard to the substance, rather than the form, of the litigation in determining within which category it fell. It is true that John Palermo propounded the approval of the proposed transactions, and Anthony Palermo opposed their approval. It is also true that John Palermo was, until substituted by Mr Rundell on 26 February 2014, named as the applicant in the proceedings. Although John Palermo initiated the proceedings as applicant, the need for the application to be made was undoubtedly a requirement of Mr Rundell. The application was accompanied by an affidavit sworn by Mr Rundell in which he said:
Given the lack of funding of the Trusts, the inability to meet the obligations of the Trusts when due or at all and for general reasons relating to achieving the best commercial outcome for all beneficiaries of the Trusts based on my enquiries, I verily believe I require directions from this Honourable Court as to whether or not I should proceed to settle the Contracts of Sale.[10]
[10] Affidavit of Philip Milton Rundell, sworn 22 January 2014 [14].
12 In my view, it was appropriate for an application to be made in the
circumstances which confronted Mr Rundell in his capacity as trustee of the various trusts. Both John Palermo and Anthony Palermo are, as well as being beneficiaries of the various trusts (either personally or through related entities), also guarantors of the NAB loan. Accordingly, they have a direct interest in steps taken to discharge the NAB loan. In my earlier reasons, I noted that the relationship between John Palermo and Anthony Palermo has completely broken down and is dysfunctional.
13 Whilst the outcome of the proceedings reflected the position for
which Anthony Palermo argued, the essential character of the proceedings was that they constituted a necessary step by the trustee to obtain the guidance of the Court in difficult circumstances. The fact that the two principal beneficiaries adopted opposing views as to whether or not the contracts of sale should be approved for entry by the trustee does not place this case into the third category of case referred to in Buckton. In my view, the proceedings fall properly within the first category. It follows that, save for the question of costs thrown away by the proceedings being instituted by John Palermo without standing, the costs of all parties should be ordered to be paid from the trust assets.
[2014] WASC 69 (S)
CHANEY J
14 John Palermo accepts that the proceedings as initially instituted were
defective, in that he did not have standing to make the application. He accepts that to the extent that the issue of standing resulted in costs being incurred by Anthony Palermo, he should meet those costs. I agree that an order to that effect is appropriate, although I would couch it in slightly different terms from the order proposed by John Palermo.
Should the costs of the parties be paid from the trust assets on a solicitor-client basis?
15 Anthony Palermo submits that in an application made by a trustee for
directions, the costs of all parties are normally ordered to be paid out of the trust estate on a solicitor-client basis.[11] He cites Buckton, and Tsaknis as Executor and Trustee of the Estate of Geoffrey Douglas Roland Lilburne v Lilburne[12] as authorities for this proposition. For the reasons I have discussed above, the costs of all parties should be paid out of the trust assets (save for Anthony Palermo's costs thrown away by the proceedings being instituted by John Palermo with no standing). It is therefore necessary to consider whether the costs of all parties should be paid on a solicitor-client basis.
[11] Submissions of Anthony Palermo on Costs, dated 31 March 2014 [35] - [36].[12] Tsaknis as Executor and Trustee of the Estate of Geoffrey Douglas Roland Lilburne v Lilburne [2010]
16 In both Buckton and Tsaknis, the principle underlying the payment of costs on a solicitor-client basis was that the costs were 'necessarily incurred for the benefit of the estate'.[13] The principle relates to the costs incurred by both trustees and beneficiaries. In Tsaknis, EM Heenan J stated that:
the costs of the beneficiary on an application brought by a trustee for directions, where reasonably and properly incurred, may ordinarily be viewed as necessarily incurred for the benefit of the trust estate and so be ordered to be paid out of the trust estate.[14]
[13] Tsaknis as Executor and Trustee of the Estate of Geoffrey Douglas Roland Lilburne v Lilburne [2010]
[14] Tsaknis as Executor and Trustee of the Estate of Geoffrey Douglas Roland Lilburne v Lilburne [2010]
17 As discussed above, this application was appropriately and
necessarily brought by Mr Rundell. The submissions made and affidavits filed on behalf of Anthony Palermo and John Palermo were necessary to the resolution of the issue as to whether the Court should make the directions sought by Mr Rundell. In this way, their costs in the proceedings can also be regarded as reasonably and properly incurred for
[2014] WASC 69 (S)
CHANEY J
the benefit of the estate. Consequently, the costs of all parties should be
ordered to be paid on a solicitor-client basis from the assets of the Trusts.
Conclusion
For the reasons I have given above, I make the following orders:
1. John Palermo is to pay Anthony Palermo's costs thrown away by the proceedings being instituted by John Palermo with no standing.
2. The costs of all parties, other than the costs the subject of Order 1, be paid from the trusts subject of the proceedings on a solicitor-client basis.
69.
application in other jurisdictions see also Murdoccca v Murdocca (No 2) [2002] NSWSC 505 (Campbell J); In Re Cunningham; Sprowle v Quested (1914) 31 WN (NSW) 44, 45 (Simpson CJ); In Re Halston [1912] 1 Ch 435, 439 (Eve J).
9 John Palermo's Outline of Submissions on Costs, dated 9 April 2014 [24].
WASC 152 [89] (EM Heenan J)
WASC 152 [84], [89] (EM Heenan J); In Re Buckton, Buckton v Buckton [1907] 2 Ch 406, 414 (Kekewich J).
WASC 152 [84].
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