Tomsevic v Jovetic (No 3)
[2012] VSC 558
•23 November 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 06404 of 2010
| MIRKO TOMASEVIC & ANOR | Plaintiff |
| v | |
| DUSAN RAPHAEL JOVETIC & ORS | Defendant |
- and - No. 01819 of 2011
| FREE SERBIAN ORTHODOX CHURCH-SCHOOL CONGREGATION OF ST PETER & PAUL WODONGA INC & ORS | Plaintiffs |
| v | |
| MIRKO TOMASEVIC & ORS | Defendants |
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JUDGE: | Sifris J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11 October 2012 | |
DATE OF JUDGMENT: | 23 November 2012 | |
CASE MAY BE CITED AS: | Tomsevic & Anor v Jovetic & Ors (No 3) | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 558 | |
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COSTS – Trustees of charitable trust – Litigation in respect of removal of trustees and other matters – Trustees mixed success in proceedings – Removal of one trustee – Whether trustee entitled to indemnity for legal costs from trust estate following removal – Whether legal costs properly incurred incidental to administration of trust.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M.N.C. Harvey | Derek Norquay |
| For the Defendants | Mr I. Upjohn | Septimus Jones & Lee |
HIS HONOUR:
On 4 June 2012, I published my reasons for judgment in these two related proceedings. [1] I held that a purported merger between the Free Serbian Orthodox Church – School Congregation St Peter and Paul Wodonga (“the First Church”) and the Serbian Orthodox Church (“the Second Church”), both in Wodonga, was invalid and ineffective. I held further that an incorporated association was not the true successor to the First Church; and that the trustees of the property of the First Church (“the First Church Trust”) were and remained as:
•Mirko Tomasevic (“Mr Tomasevic”);
•Petar Milutinovic (“Mr Milutinovic”);
•Dusan Jovetic (“Mr Jovetic”); and
•Slobodan Juzbasic (“Mr Juzbasic”).
[1]Tomasevic & Anor v Jovetic & Ors [2012] VSC 223. The related proceedings are 2010/06404 and 2011/01819 (the “2010 proceedings” and “2011 proceedings”, respectively).
On 12 September 2012, I published reasons for my second judgment in these proceedings.[2] Among other things, I decided that Mr Juzbasic should be removed as trustee of the property of the First Church. I indicated that I would make such an order, together with orders removing caveats on the First Church property that had been lodged by Mr Juzbasic and orders in relation to costs.[3] The parties provided written submissions and requested an oral hearing, which was held on 11 October 2012. The main issue between the parties relates to costs.
[2]Tomasevic & Anor v Jovetic & Ors [2012] VSC 405.
[3]Tomasevic & Anor v Jovetic & Ors [2012] VSC 405, [16].
The submissions of the parties
The plaintiffs submit that the 2011 proceedings were commenced on an incorrect premise, namely that the incorporated association was the true successor of the First Church, and was thus entitled to the First Church Trust property. The court’s finding that the incorporated association was not the First Church’s successor, it was submitted, means that the defendants were unsuccessful in the 2011 proceedings and costs should follow the event.
In relation to the 2010 proceedings, the plaintiffs accept that they were successful only against Mr Juzbasic. They submit therefore that the ordinary course would be for Mr Juzbasic to pay the plaintiffs’ and the Attorney-General’s costs, while the plaintiffs would pay Mr Jovetic’s costs. They also submit, however, that given Mr Jovetic’s mixed success across the two proceedings, the court should simply order that he bears his own costs. Further, the plaintiffs submit that they should be able to draw upon the property of the First Church to pay any outstanding legal costs that Mr Juzbasic is unable to pay, while Mr Juzbasic should not be able to do so as his costs in these proceedings were not costs properly incurred in the execution of the trust.[4]
[4]Nolan v Collie (2003) 7 VR 287 at [51]-[53].
The defendants submit that their actions in defending the 2010 proceedings and bringing the 2011 proceedings were reasonable and not for their personal benefit.[5] They note that there was no finding of misconduct or negligence and that they succeeded on the majority of issues before the court. The defendants thus submit that their costs, and the costs of the plaintiffs, ought to be paid out of the property of the First Church Trust.[6]
[5]O’Brien v Tracey (1907) 24 Weekly Notes (NSW) 44 per Street J; and Miller v Cameron (1936) 54 CLR 572 at 578-9 per Latham CJ.
[6]The defendants referred the Court to Radmanovich v Nedeljkovic (2001) 52 NSWLR 641 at 678, Order 9.
The law regarding indemnification of trustees from trust property for legal costs
Historically, trustees have been reimbursed from a trust fund for legal expenses relating to the administration of the trust, except where they have acted in violation of their duties, were grossly negligent or have engaged in misconduct.[7]
[7]See O’Brien v Tracey (1907) 24 Weekly Notes (NSW) 44 per Street J; Turner v Hancock (1882) 20 Ch D 303; and Re Love (1885) 29 Ch D 348.
Mere mistakes by trustees, with honest intentions, are not usually enough to deny a trustee the right to such reimbursement.[8] In Miller v Cameron, Latham CJ noted 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 the ordinary case a trustee brings or contests legal proceedings on behalf of the trust and not on his own behalf. ... The position is admittedly different in a case of misconduct.”[9]
[8]See O’Brien v Tracey (1907) 24 Weekly Notes (NSW) 44 per Street J.
[9]Miller v Cameron (1936) 54 CLR 572 at 578-579 per Latham CJ.
His Honour went on to state that, though there had been no misconduct in the management of the relevant trust estate in the case before him (although some evidence tending to establish misconduct was admitted at trial),
“[the trustee’s] refusal to resign in all the circumstances has resulted in legal proceedings which ought to have been avoided. The defendant would have acted wisely and properly in resigning as soon as he was asked. In defending this action and in prosecuting this appeal the defendant has been representing and supporting his own interests and not those of the trust estate. He has failed to show that his interests coincide with the interests of the trust estate. In such a case I consider it quite proper that he should pay the plaintiffs’ costs of the action and of the appeal to this Court.”[10]
[10]Ibid.
Thus in Miller v Cameron the trustee’s improper insistence on remaining as trustee, in circumstances of probable misconduct, meant that he pursued the legal action for an interest that diverged from the interests of the trust. The legal costs incurred by the trustee as a result were not costs properly incurred in the administration of the trust.
Section 36(2) of the Trustee Act 1958 (Vic) allows for trustees to reimburse themselves, pay or discharge out of the trust “all expenses incurred in or about the execution of the trusts or powers”.
Thus, the question to be determined is “whether the costs, charges and expenses [incurred by the respective parties as trustees were] … properly incurred … as an incident of … [their] … administration of the estate”?[11] Or, as put by the Court of Appeal in Nolan v Collie, whether the legal costs were “not improperly incurred”?[12] This question is to be answered by reference to all the circumstances of the case.[13]
[11]National Trustees Executors & Agency Co of Australasia Limited v Barnes (1941) 64 CLR 268 at 279.
[12]Nolan v Colliee (2003) 7 VR 287, [51] citing In Re Beddoe [1893] 1 Ch 547 at 558.
[13]Nolan v Colliee (2003) 7 VR 287, [51]; O’Keeffe v Hayes Knight GTO Pty Ltd [2005] FCA 389, [15].
It should also be noted that a lack of success in a proceeding by a trustee does not automatically deny the trustee reimbursement from the trust fund.[14]
[14]Re Ogilvie (1920) 11 SR (NSW) 11.
It should also be noted that Order 63.26 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) provides that unless the court provides otherwise, a party who sues or is sued as trustee is entitled to the costs of the proceeding out of the fund held by the trustee, in so far as the costs are not paid by any other person.
The 2010 proceedings
The 2010 proceedings were brought by Mr Tomasevic and Mr Milutinovic, at least in part, on the basis that Mr Jovetic and Mr Juzbasic were no longer fit to remain as trustees of the First Church Trust and thus should be removed. While the plaintiffs alleged a number of grounds for that removal, including a purported “hostility” of Mr Jovetic and Mr Juzbasic towards the trust, and that Mr Juzbasic acted contrary to the purposes of the trust, none of these contentions formed the basis of the court’s judgment.
Rather, Mr Juzbasic was removed as trustee to protect the beneficiaries of the First Church Trust from the deadlock that had arisen between the trustees and had resulted in an unworkable situation for the trust. As noted in the judgment, Mr Juzbasic’s removal was not due to misconduct.[15]
[15]Tomasevic & Anor v Jovetic & Ors [2012] VSC 405, [12] and [14].
In this case, the trustees had reached an impasse in their dealings. They each had conflicting views, held in good faith, as to the situation of the First and Second Churches and how to best deal with trust property. The 2010 proceedings were not brought or defended for the benefit of any trustee personally, but rather out of a desire to protect the trust fund and to clarify the position of the trustees.
While the plaintiffs’ position is that Mr Juzbasic should not have resisted their application to have him removed as trustee, I do not consider that his refusal to do so was unreasonable or as a result of obstinacy. Mr Juzbasic was not plainly unsuitable to remain as trustee,[16] his refusal to resign was not an attempt to protect his own interest, but arose from his desire to protect the trust. Further, in my view, Mr Juzbasic was justified in resisting the allegations made by the plaintiffs, particularly given their serious nature.[17] His defence of the plaintiffs’ claim was not out of obstinacy, and certainly not out of an obstinacy rising to misconduct.[18] In sum, Mr Juzbasic’s defence of the 2010 proceedings, alongside Mr Jovetic, was not contrary to or against the interests of the First Church Trust. In fact their position in relation to the purported merger was vindicated. The foundation of the plaintiffs’ case for removal was the asserted validity of the merger. The foundation was devoid of substance and the defendants were entitled to challenge it and succeeded.
[16]Cf. Miller v Cameron (1936) 54 CLR 572, 579; Re Jones [1897] 2 Ch 190, 197-198; and Killen v Leigo (unreported, NSWSC, Young J, No 3204/96, 10 March 1997), 7-9.
[17]See Tallents & Anor v Caine & Ors [2001] WASC 63, [13].
[18]Jacob’s Law of Trusts in Australia, 7th Ed (2006), [2109].
In these circumstances, insofar as the 2010 proceedings are concerned, it may on one view be desirable to allow all the trustee parties to be reimbursed from the First Church Trust funds. However it is apparent that the First Church Trust does not have the necessary funds and if orders are made on a trustee or indemnity basis it will be necessary to sell assets.
The plaintiffs’ position in relation to costs is as follows:
| Total legal costs | $180,331.14 | |
| Total unpaid costs | - | $15,733.05 |
| Total costs paid | $164,598.09 |
Of the total costs paid $45,000 comprises interest free loans from various church members or other parties and $119,598.09 has been paid “from Wodonga congregation funds”. It is not clear whether the funds derive from the First Church or both churches.
The defendants’ total legal costs are $211,148.60. It is not clear to what extent the costs have been paid. However, no amount has been paid from what may loosely be described as trust assets.
An order that costs be reimbursed on a trustee basis would require the First Church Trust to dispose of assets in order to meet the unpaid costs of $271,881.65.[19]
[19]$45,000 plus $15,733.05 to the plaintiffs and $211,148.60 to the defendants.
This state of affairs is nothing short of shameful. Many church members and other stakeholders would rightly be appalled at the incurring of an expense of over $400,000 that effectively achieved nothing.
I do not propose to burden the First Church and its members and other stakeholders with the entire cost of the proceeding. The opposing parties as trustees each did the wrong thing and the right thing. They should not recover their costs on a trustee basis. On the other hand, as my judgment indicates, the degree of blame is equal. The plaintiffs wrongly and continuously asserted the validity of the merger and the defendants should not have incorporated the association and asserted that it was the successor to the First Church.
In the circumstances and in the exercise of my discretion the defendants should recover the sum of $119,598.09 from the assets of the First Church. Both sides will have recovered part of their costs from the trust assets and will have to make good the balance of the costs from other sources. I am not prepared to burden the First Church Trust with the entire amount of the costs in the peculiar circumstances of this case. It would be unfair and unjust.
The 2011 proceedings
The 2011 proceedings were brought by the defendants and the incorporated association on the basis that the incorporated association was the true successor to the First Church. I found that this was not the case. Indeed, in my view this was patently not the case and the defendants should have known this prior to commencing the 2011 proceedings.
The matters were heard together and the additional costs associated with this proceeding are likely to be minimal. I do not propose to make any order as to costs in this proceeding.
Conclusion and orders
For the reasons given above, in combination with those given in my earlier judgments in these proceedings, I will make the following orders in the 2010 proceeding:
(1) The Court declares that the purported meeting of the First and Second Church held on 2 January 2010 (and any resolutions passed at such meeting) was invalid and of no effect.
(2) The Court declares that the Incorporated Association is not the successor organisation to the First Church.
(3)That, with effect from the date of this order, Mr Slobodan Juzbasic be removed as trustee of the First Church Trust. This Order is made to ensure the best continuing functioning and management of the First Church Trust and not due to misconduct.
(4)That the caveat placed on the First Church Properties (dealing No. AG807249N registered against Certificates of Title Volume 07597 Folio 123 and Volume 09021 Folio 167) by Mr Slobodan Juzbasic be removed.
(5)The parties’ costs, except those of the Fourth Defendant, the Attorney-General, of and incidental to these proceedings each in the sum of $119,598.09 be paid out of the First Church Trust fund. Save as aforesaid each party shall bear its own costs. (It is noted that the plaintiffs have already been indemnified from the assets of the First Church Trust to the extent of $119,598.09).
(6)There is liberty to apply.
In the 2011 proceeding I will make the following orders:
(1) The proceeding be dismissed.
(2)There is no order as to costs.
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