Adsett v Berlouis

e points of claim pleading was filed on 7 July 1995. On 1 September 1995 the trustee appeared, represented by counsel, and an order was made permitting the trustee, if so advised, to file a defence to the points of claim. As noted by His Honour in his judgment at page 10, the order as made was permissive and did not direct the trustee to file a defence. Nevertheless, points of defence were filed by the trustee on 21 December 1995 in which the trustee opposed the claim in part, by pleading that the decision to refuse to permit AMP to vote was correct and that the composition was not unreasonable. The defence also put in issue the claim of AMP that the composition was not for the benefit of the creditors. The application was listed for trial on 4 March 1996. When the matter came on for hearing on that date the Court was informed that a settlement had been reached on substantive issues and the the only issue remaining was in respect of the costs of the proceeding. Accordingly, an order was made that the composition be declared void and that at relevant times AMP was a creditor of Mr Hughes. AMP sought an order that the trustee pay the whole of the costs of the proceedings claiming that the litigation had been caused by breaches of duty by the trustee as chairman of the meeting of creditors by not obtaining independent legal advice about the AMP claim that it was a creditor of Mr Hughes and by not allowing AMP to vote on the composition resolution put to the meeting. AMP further submitted that in any event the trustee, by his affidavits and points of defence, had taken a position as an opponent of the AMP's case in the litigation. It was accepted by the trial Judge that the trustee had committed a breach of duty by failing to obtain legal advice on the claim by AMP that it was a creditor of Mr Hughes entitled to vote at the meeting. (See: Re Dingle; Westpac Banking Corporation v Worrell (1993) 119 ALR 265 at 276. His Honour noted that pursuant to s32 of the Act the Court had a discretion to make such order as to costs as it thought fit, such discretion to be exercised judicially according due weight to reason and justice. (See: House v The King (1935) 55 CLR 499 per Starke J at 502.) His Honour also noted that a trustee who took an active role in proceedings relating to the performance of the trustee was at risk of an order for costs in the same manner as any other litigant. The nature of a trustee's right to an indemnity in respect of such a costs order as described in Adsett v Berlouis (1992) 37 FCR 201 at 210, was also considered. In Adsett the Court held that under the general law, a trustee is entitled as of right to a full indemnity out of the trust estate against all costs, charges and expenses properly incurred. The Court said at page 210: "The critical question, in our view, is whether or not the conduct which gave rise to the burden of costs - whether costs ordered to be paid or costs incurred by the trustee in prosecution of the litigation - was proper in the sense explained in Beddoe; that is, whether the expenditure was reasonably, as well as honestly, incurred. Where for example, the litigation was obviously misconceived or, even if it was otherwise reasonable to be undertaken, extravagant in the resources applied to it, we would not regard the expense incurred as proper; notwithstanding that the trustee may have acted honestly throughout. It is neither possible nor desirable to attempt to identify all of the situations in which costs expenditure would not be regarded as proper." In Re Beddoe; Downes v Cottam [1893] 1 Ch 547 at 562 Bowen LJ stated: "If there be one consideration again more than another which ought to be present to the mind of a trustee, especially the trustee of a small and easily dissipated fund, it is that all litigation should be avoided, unless there is such a chance of success as to render it desirable in the interests of the estate that the necessary risk should be incurred." His Honour recognised that a trustee exercising a statutory duty imposed by s201 of the Act fulfilled a public duty in the public interest, and stated that a Court should be reluctant to impose "too heavy a burden on people who have responsibilities of that kind to fulfil lest...a reluctance grows amongst those who have the qualifications and expertise to take on the role to do so". His Honour accepted that this consideration must be weighed against the further consideration identified by Wilcox J in Oayda v Mercantile Mutual Life Insurance Company Limited, Federal Court of Australia, 20 February 1994 (unreported), namely, that trustees receive substantial remuneration for their services and, therefore, assume substantial responsibilities and duties. Having given due attention to these matters his Honour was not persuaded that the trustee should be made liable for the costs of the proceeding by reason of the trustee's breach of duty which led to the commencement of the litigation. His Honour recognised that at the time the composition was approved, there was already a dispute between AMP and Mr Hughes the subject of litigation. After the composition that dispute "mushroomed" and a great deal of the costs of the proceeding in this Court had its genesis in the dispute beteen AMP and Mr Hughes. His Honour found that it would impose too heavy a burden upon the trustee if the entire costs of the proceeding were awarded against him. His Honour found that in the first two affidavits filed the trustee acted reasonably and as required of a trustee of a composition but in filing an affidavit and a defence which joined issue with AMP, the trustee adopted the position of an opposing litigant and should bear costs accordingly. It was on this basis that his Honour awarded the costs of the proceedings against the trustee from the date the points of defence were filed, namely, 21 December 1995 regarding such an order as striking an appropriate balance between the claim of AMP against the trustee for the whole of the costs of the litigation and the trustee's obligation to participate in the litigation to inform the Court of relevant matters as a neutral party. His Honour further ordered that the trustee was not entitled to be indemnified out of the funds of the composition, either in respect of the costs he had incurred or the costs to be paid to AMP. The exclusion of the right of indemnity operated in respect of the trustee's costs incurred after 21 December 1995, being the date on and after which his Honour considered that costs incurred by the trustee were not properly incurred and hence no right of indemnity arose. The trustee now appeals from those orders submitting that his position throughout was that he intended to abide the decision of the Court. It was submitted his Honour erred by failing to take into consideration that the trustee had consistently maintained that he had no view as to the outcome of the proceeding. It was also submitted that his Honour was mistaken in assuming that the filing of the points of defence by the trustee caused the AMP to undertake further work other than that necessary to meet matters put in dispute by the defence of Mr and Mrs Hughes. It was accepted that the principles to be applied were set out correctly by his Honour where he stated: "In the face of an application to have a composition set aside on those grounds, it would be expected normally that a controlling trustee who had acted as chairman of the meeting of creditors would come to the Court at an early stage and indicate that he or she would abide by the decision of the Court on the substantive matters raised by the Applicant. It would be normal, and expected, for the trustee to file an affidavit, informing the Court of the procedural steps which had occurred in relation to the meeting of creditors and of the voting which had occurred. Where it is alleged that the composition is unreasonable and not in the interests of the creditors, it would be appropriate for the controlling trustee to cover matters relating to the business affairs of the debtor or debtors, and to indicate to the Court the extent of the claims that had been received so that the Court would be appraised of information that would permit the Court to judge the reasonableness or otherwise of the composition."