Starke v James (No 2) - [2009] SASC 221

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
STARKE v JAMES (No 2)
[2009] SASC 221
Reasons of Judge Lunn a Master of the Supreme Court
29 July 2009
SUCCESSION - WILLS, PROBATE AND ADMINISTRATION
Remuneration to solicitor/trustee under s 70 of the Administration and Probate Act - preliminary issues on assessment of remuneration - remuneration not to be limited to that for legal work - not appropriate to deal with allegations of negligence against the solicitor/trustee for alleged defaults occurring before he embarked on the administration of the trust in an application for remuneration - at least some costs to be allowed for solicitor/trustee's work in 2 actions in this Court and the quantum to be left to the adjudication - effect of trustee having sought an indemnity from the beneficiary in excess of his legal entitlement as a condition of distribution.

STARKE v JAMES (No 2)
[2009] SASC 221
Reasons on determinations of preliminary issues on the assessment of trustee’s commission.

JUDGE LUNN: For reasons published as [2009] SASC 40 on 25 February 2009 (“the first reasons”) I ordered that the plaintiff as the executor of the estates of each of Kyriacos and Eleni Lycourinos be allowed remuneration under s 70 of the Administration of Probate Act 1919 (“the Act”) and that “such remuneration be the equivalent of the proper legal costs for such work under the relevant Supreme Court Scale to be fixed by the equivalent of an adjudication of those costs under 6R 273”. By his affidavit filed on 23 March 2009, (FDN 19), the plaintiff exhibited five itemised Schedules of costs (FDN 19A-19E) setting out the remuneration he sought. The defendant has filed notices of dispute to all of these Schedules. By a procedure akin to that under 6R 271(6) it was agreed that I should initially determine the following four preliminary issues on general matters going to what remuneration should be awarded to the plaintiff as follows:
(1)Whether the plaintiff has any legal entitlement to remuneration for the work done by him and described in the itemised schedule entitled: Events on death of the late Christos Chryssicopoulos being exhibit DAS 1 to the affidavit of David Starke filed on 23 March 2009.
(2)Whether, pursuant to the order of his Honour Judge Lunn made on 23 February 2009, the pltf is entitled to remuneration for all work properly done as executor of each of the estates of Kyriakos Lycourinos and Eleni Lycourinos, or only the proper legal work for the administration of the estates.
(3)Whether the pltf is entitled to charge fees for work the sole purpose of which was the conduct of action 1127 of 2008.
(4)Whether the pltf is entitled to charge for work the sole purpose of which was the conduct of action 856 of 2008.
Background facts.
What follows is a summary of the facts established by the affidavit evidence, but it is confined to the matters necessary to determine the four preliminary issues. The plaintiff is a solicitor and his legal practice is now carried on through a company, D A Starke Pty Ltd (“the Starke company”). He prepared wills for each of Kyriacos and Eleni Lycourinos in 2001, (although he was apparently then practising under the name of “Starke & Associates Lawyers” and not “Starke Lawyers” as he has in more recent times). He was appointed the executor under each of those wills, but neither will contained a solicitor’s charging clause. Each will contained a provision about the creation of a trust in which Christos Chryssicopoulos (“Christos”) was to be the appointor, the trustee and the primary beneficiary and the plaintiff was to be the settlor. The ultimate beneficiary under each will was to be the trust, but the effectiveness of the gift required that the necessary trust deed had to be prepared and executed by Christos.
Kyriacos died on 17 December 2004 and under his will his estate passed to his wife Eleni. Eleni died on 2 July 2006. As far as was known she only had one child, Christos. However, as no trust deed had been executed there was an issue whether there was an intestacy and whether she might have had other children who would have shared in her estate with Christos on such an intestacy.
Probate was granted to the plaintiff over the estates of Kyriacos and Eleni respectively on 4 December 2007 and 26 March 2008. He has used the services of the Starke company to administer these estates.
The defendant is the only daughter and next of kin of Christos. Christos died on 28 August 2007. There had been no distribution of the estate of Eleni to him. He had made a will dated 28 March 1988 in which he had appointed the defendant and a solicitor, Arthur Drikas, to be the executors and had left his estate to the defendant. However, the original of that will could not be located and there was a copy of it in his possession from which the name of the defendant had been erased. No administration has ever been granted over the estate of Christos.
I now deal with each of the four preliminary issues:
(1)Work done by the plaintiff in the estate of Christos.
An agreement was reached at the hearing on 15 July that the plaintiff would not pursue the Schedule FDN 19A, but certain items in it would be treated as if they were items in the Schedule FDN 19B and 19C, which were for general administration work in the estates of Kyriacos and Eleni respectively. No determination is now required on (1).
(2) Whether the plaintiff’s remuneration extends to non legal work.
The plaintiff’s application is for remuneration under s 70 of the Act and not for an award of costs. The reference in my order of 23 February 2009 to “legal costs”, as quoted above, was to the means by which the quantum of the remuneration was to be calculated. While the relevant Scales are primarily couched in terms of work of a legal nature there is an overriding discretion built into Note A to each version of the Scale which enables the Court to make such allowance as is appropriate for the particular circumstances of the case. This is wide enough to enable allowances to be made for work of a non legal nature. Hence the reference to “legal costs” does not limit the scope of the work for which remuneration may be allowed to legal work. In the context of the first reasons it is clear that the intent of my order was that the plaintiff should receive remuneration for the work which he performed as executor where it was proper to remunerate him for that work, whether it was legal work or not. The cases referred to by counsel for the defendant about what could be allowed under a solicitor’s charging clause are not applicable to an application for remuneration. In any event, in such cases the Court had a discretion where a solicitor’s charging clause was held to be confined to legal work done by the solicitor to allow other commission to the solicitor/executor for non legal work performed by him calculated as a commission on capital value or income: Vance Executor’s Commission 173. Here under my order the basis of remuneration is to be wholly calculated under the Court Scale. What amounts are to be allowed for particular items of non legal work will be a matter of argument in adjudicating on the particular items. It will be open then to the defendant to pursue the argument that the plaintiff should be allowed no more for such work than would have been payable by the estate if a professional agent had been employed to perform it.
(3)Remuneration for action 1127/08.
Both (3) and (4) are directed to whether the plaintiff should be entitled to recover from the estate remuneration for the work which he did in connection with two actions brought in this Court. All I intend to determine now is whether he is entitled to any remuneration as executor/trustee for what he did in these actions. If he is entitled to any such remuneration, then the amount of it will be determined on the adjudication of the applicable Schedule.
I am not determining whether under s 40 of the Supreme Court Act an order should be made as part of the determination of action 1127/08 about who should pay what costs in connection with that action. No such application for costs has been made by the plaintiff. If his application for remuneration under s 70 succeeds, there is no point in him making such an application.
The major argument of the defendant was based on the allegation that the plaintiff had been negligent in the drawing of Eleni’s will. It was contended that the provision for the creation of the trust deed was pointless and created complications which led to the major problems which have occurred in the distribution of Eleni’s estate. In addition, it was contended that it was the responsibility of Mr Starke as the solicitor who had prepared Eleni’s will to take the necessary steps to see that the trust deed was prepared and executed by Christos before his death. (It is unclear who would have been responsible to pay for such work). I am prepared to assume these facts without making any findings about them as I am against the submission on other grounds, and they may be the subject of future litigation between the parties.
Counsel for the defendant cited authorities that a trustee is not to be indemnified by the estate for expenses incurred by him due to his own misconduct, neglect or breach of duty: Cotterell v Stratton (1872) 8 Ch Ap 295 at 302; Turner v Hancock (1887) 20 Ch D 303; O’Brien v Tracy (1907) 24 WN NSW 44. These cases all relate to negligence or misconduct of trustees during their administration of the trust. They do not relate, and I cannot find any case relating, to misconduct or negligence of trustees occurring before they embarked on the administration of their trust. However, the issue here is not whether as a trustee the plaintiff is entitled to indemnity for legal costs out of the estate but whether he is to be entitled to remuneration under s 70 of the Act. To make an order for commission the Court must be satisfied that the trustee has been faithful, honest and diligent in the performance of his trust: Re Darling [1925] SASR 262 at 265; Chiro v Linton (No 2) Lunn M, 2 July 2009, [2009] SASC 197. In all of the cases I have seen about trustees being disallowed commission I have not found any where the alleged misconduct has occurred before the granting of probate.
Counsel for the defendant cited Hill v van Erp (1997) 188 CLR 159 for the proposition that Mr Starke owed a duty of care to the defendant as the ultimate beneficiary in Eleni’s estate, and apparently for a wider proposition that a negligent drafter of a will could be held liable for any damage to the estate for the resulting loss. On the authority of Hill v van Erp the defendant could bring her own action against the plaintiff in tort for any loss which she has suffered as a result of any negligent drafting of the will of Eleni, and possibly for the plaintiff’s failure to take proper steps to have had Christos execute a trust deed. In such an action, if successful, the defendant’s measure of damage is likely to be considerably wider than any remuneration paid out of the estate to the plaintiff. If I determine the issues raised on this application for trustee’s commission, there is a risk issues estoppels may arise which would preclude all of these issues being litigated in any future action in tort by the defendant against the plaintiff. I do not consider the present application is the appropriate vehicle for the determination of these issues. The situation is analogous to one on a solicitor and own client adjudication of costs where the client alleges negligence by the solicitor, but with the loss potentially extending beyond the costs claimed. In that case, the usual practice is to tax the costs, but to stay their recovery pending a separate action for negligence being instituted and determined: Dal Pont Law of Costs [5.22]. I consider that is the proper course here. I will proceed with the assessment of the remuneration claim for action 1127/08, but will consider any application to delay recovery of that remuneration if in the meantime the defendant has instituted other proceedings for negligence against the plaintiff.
In the previous argument which resulted in the first reasons there was a concession that no distinction was to be drawn between the plaintiff and the Starke company. I am unclear whether that concession has been continued for these preliminary issues. In any event it is not material for the conclusions I have reached.
The defendant also submitted that it was unnecessary and unreasonable for the plaintiff to have instituted action 1127/08 because the defendant was entitled to the distribution of Eleni’s estate on any available view of the facts. I do not agree. In view of the possible partial intestacy of Eleni’s estate, and the possible intestacy of Christos’s estate, the plaintiff was entitled as an executor to the protection of orders of the Court if it subsequently transpired that either Eleni or Christos had had other children or next of kin of which the plaintiff was not aware. However, there may well be substantial argument on the adjudication about the justification for all of what was actually done by the plaintiff in 1127/08.
I have indicated that the plaintiff was justified in seeking directions under s 69 of the Act. However, action 1127/08 is not on its face an application for directions under s 69. The summons states that it is issued under Rule 205 but it is not a probate action under that Rule. It does not refer to s 69 or to any other head of power apart from R 205. It may have been intended to refer to Rule 206. Ultimately it was used as a vehicle for directions under s 69. However, although I have not heard argument on the point, it is likely that the plaintiff will be confined to what would be proper remuneration for an s 69 action.
(4) Remuneration for action 856/08.
The defendant in this action (ie 1127/08) instituted action 856/08 without naming any defendant, seeking a declaration that she was either the universal beneficiary under the will of Christos or was the universal statutory beneficiary on an intestacy in his estate. This action was also purportedly commenced under R 205, but it does not qualify as a probate action as it did not seek administration of the estate of Christos. I am not certain of the heads of power which were being invoked for the order sought. I do not believe it could have been an action under s 69 of the Act in respect of the estate of Christos as s 69 is confined to actions by executors or administrators (which the present defendant was not) or under s 69(4) to estates involving Public Trustee. It could have been under R 206, but, if so, it should have been inter partes. The present defendant contends that she instituted action 856/08 as a necessary step to force the present plaintiff to distribute the estate of Eleni to her. If so, it is strange that she did not name the present plaintiff as a defendant to it so as to bind him to its result.
The Court’s record shows that on the first hearing of action 856/08 counsel for the present plaintiff attended and leave was given for him in his capacity as the executor of the estates of Kyriacos and Eleni to intervene in those proceedings. Counsel for the present plaintiff foreshadowed the institution of action 1127/08 so as to bring the related issues in the estates of Kyriacos and Eleni before the Court so that the issues in all three estates could be dealt with concurrently.
At the next hearing of action 856/08 on 8 August 2008 the present defendant applied to join the present plaintiff and Mr Drikas as additional defendants to 856/08, and an order was made accordingly. Why the present defendant did not take that step initially is unknown to me. There were further hearings on 5 and 11 September which resulted in both actions 856/08 and 1127/08 being referred to the Registrar for a management conference. The Masters who conducted those four hearings (who were not myself) made orders that the costs of each of those hearings be costs in the cause. There is no suggestion that the present defendant opposed those costs orders and there was no appeal against them. Assuming that action 856/08 is properly brought under s 69 of the Act or R 206, an order for costs in the cause is tantamount to an order for costs out of the estate. There is nothing in the Court record relating to the four initial hearings in action 856/08 which suggests that the present defendant took the position that the present plaintiff should not be entitled to his costs at least to that point in the proceedings.
Action 856/08 relates only to the estate of Christos. I do not accept that the entitlement of the present defendant to the whole of the estate of Christos was so clear cut that the present plaintiff was not entitled to seek the protection of the Court in distributing on a basis that excluded any other possible next of kin. If Christos had died intestate, as was a real possibility, the present plaintiff was entitled to insist on an order of the Court that authorised him to treat the present defendant as the universal beneficiary of Christos for the purpose of the distribution of the estate of Eleni.
For these reasons I am satisfied that remuneration should be allowed to the plaintiff for at least some work done in relation to action 856/08. The amount to be allowed will be determined on the adjudication.
Proposed deed of release and indemnity.
In respect of both actions the present defendant’s counsel submitted that if I was prepared to allow the costs of the actions generally I should not allow any costs for a proposed Deed of Indemnity and Release bearing a fax date of 26 October 2008 (“the draft Deed”) or any costs incurred in both actions after about that date. The present defendant’s counsel tendered without objection four documents which were not exhibited to any affidavit and which were not satisfactorily explained in any affidavit. The documents were:
·Firstly, a letter of 16 April 2008 from the present defendant’s solicitor to Starke Lawyers which raised questions about whether any trust was established after the death of Kyriacos. I do not understand the relevance of the contents of this letter.
·Secondly, a letter of 2 September 2008 from Starke Lawyers to the solicitors for the present defendant. It referred to conferences in an effort to resolve the matter. It requested consent to various payments being made in the administration of the estate. Its only relevance appears to be the statement in the penultimate paragraph: “ ….. We will require your client to provide the executor, Mr Starke, with a written release and indemnity”. There is no evidence of any reply made to that letter.
·Thirdly, a letter of 18 September 2008 from Starke Lawyers to the solicitors for the present defendant which refers to a fax of 17 September 2008 which had made allegations of negligence against the present plaintiff. It stated:
“Our office, our company and our Mr Starke claim complete indemnity from the estates in respect of your client’s claims including legal costs.
We advise that until the existing actions in your client’s new claims are determined by final judgment (which may include appeals) we will not release or transfer any of the assets of either estate.
In light of the contents of your facsimile transmission of 17 September 2008 the only alternative to a final judgment on all issues is a Deed of Release and Indemnity which will need to be provided by your client”.
There is no evidence of what, if any, response, the present defendant made to that letter.
·Fourthly, the draft Deed. There is no evidence of the terms, if any, upon which it was proffered to the present defendant’s solicitors or of any response which was made to its terms by the present defendant’s solicitors.

The draft Deed contained the following provisions:
RELEASE
31In consideration of the transfer of the Goodwood property and payment of the net proceeds of the Bank Account to her James in her personal capacity and as Administrator of the estate of Christos Chryssicopoulos hereby release and discharges Starke from any and all claims, demands, losses, expenses, costs and damages whatsoever, and whether past, present or future, and whether arising in law or in equity including for negligence of breach of trust (“Claims”) arising from his appointment, position or performance of any duties or functions as:
3.1.1Executor and trustee of the estates of Kyriakos Lycourinos and Eleni Lycourinos; and
31.2Solicitor of the estates of Kyriacos Lycourinos and Eleni Lycourinos.
INDEMNITY
32In consideration of the transfer of the Goodwood property and payment of the net proceeds of the Bank Account to her, James in her personal capacity and as Administrator of the estate of Christos Chryssicopoulos hereby indemnifies Starke from any and all claims, demands, losses, expenses, costs and damages whatsoever, and whether past, present or future, and whether arising in law or in equity (“Claims”) against Starke by James or by any third party including any person who claims to be a beneficiary of the estates of Kyriakos Lycourinos and Eleni Lycourinos.
32.1In his capacity as the trustee and executor of the estates of Kyriacos Lycourinos and Eleni Lycourinos.
32.2In his capacity as the solicitor of the estates of Kyriacos Lycourinos and Eleni Lycourinos.
32.3In matters pertaining to Estate of Christos Chryssicopoulos.
I accept that the present plaintiff was not entitled to any release or indemnity for any misconduct or negligence on his part, and the provisions of the draft Deed sought the releases and indemnities to which he was not properly entitled. However, he was entitled as a term of any agreement under which he would distribute Eleni’s estate to the present defendant that he be released and indemnified by her if it subsequently transpired that she was not entitled in law to the distribution of the whole of that estate. It would not have been a difficult exercise to have amended the draft Deed to confine the release and indemnity to what the present plaintiff could properly have insisted upon. The draft Deed required amendment in any event because it stated that the present defendant was the administrator of the estate of Christos which was not correct. The evidence does not establish that the present plaintiff necessarily required the present defendant to execute the draft Deed with its terms of an excessive release and indemnity or to suffer the consequences of delay in the estate being distributed to her later and subject to further costs being incurred by the present plaintiff in both actions. On the evidence before me it is at least equally consistent with the present defendant’s contention that the present plaintiff gave the present defendant a commercial choice of having the matter resolved either on the terms of the draft Deed or by orders of the Court. While that probably disentitles the first plaintiff to any additional costs incurred in the preparation of the draft Deed insofar as it contained excessive releases and indemnities it does not necessarily disentitle the present plaintiff to any further costs in both actions. That may well depend upon what, if any, counter-proposal the present defendant made about the terms of the draft Deed. I have no evidence on this. If she made no proposals about releases and indemnities in proper terms, it may well be that the present plaintiff was entitled to the directions of the Court which he ultimately obtained before he was obliged to distribute Eleni’s estate to her. If the matter was to be resolved on the basis of releases and indemnities, and not by orders of the Court, there was at least an equal onus on the present defendant to propose proper terms upon which that could occur. Whether the costs of the preparation of the draft Deed are recoverable may depend on whether the present defendant requested it or acquiesced in its preparation.
I am not prepared to make any preliminary determinations about matters involving the draft Deed. Any appropriate points about it can be made about it in the course of the adjudication.
I will now hear the parties on what arrangements should be made for the adjudication to proceed.