AIT Investment Group Pty Ltd v Markham Property Fund

Supreme Court of NSW|2021-03-09|Before: Slattery J

Judgment

This is the Court's second judgment in relation to the protracted administration of the estates of Maureen and Dolf Huber, who died in 2010 and 2013 respectively. The Court's principal judgment, given on 6 November 2020, substantially upholds a decision of the Registrar in Probate allowing commission to the executors in both estates and allowing the executors' costs of passing estate accounts: The Estate of Maureen Leila Huber; the Estate of Dolf Paul Huber [2020] NSWSC 1539.
This second judgment deals with 10 ancillary costs issues. This judgment should be read with the Court's principal judgment. Events, matters and persons are referred to in both judgments in the same way. The executors and beneficiaries continue with the same legal representation.
In orders and directions made on 25 November 2020, the Court set out 10 ancillary costs issues left unresolved by, or generated by, the first judgment, upon which the parties were directed to make submissions. This judgment is structured around these ancillary issues: 1. Who should pay the costs of the motions for review of the Registrar's decision determined in the principal judgment (that is, the costs of the Backhouse brothers' two motions filed 8 October 2018 and the executors' two motions filed 15 November 2018) and on what basis. 2. If the Backhouse brothers are not liable for the executors' costs of the review of the Registrar's decision, whether the executors in their capacity as executors and trustees are entitled to be indemnified for their costs from the estate or the trust. 3. What costs order should be made in respect of the costs before Lindsay J, being the costs of the Backhouse brothers' two amended Notices of Motion filed 2 March 2015 (the original Notices of Motion having been filed on 14 November 2014). 4. If the executors are liable for the Backhouse brothers' costs before Lindsay J, whether the executors should pay: 1. the costs of the Backhouse brothers; and/or 2. their own costs; 3. personally and without right of indemnity, reimbursement or exoneration from the two estates. 1. If there is no order as to costs as between the parties relating to the costs before Lindsay J, whether the executors are entitled to be indemnified from the two estates or should pay their own costs personally, and without right of indemnity, reimbursement or exoneration from the two estates. 2. Costs of the Backhouse brothers before the Registrar. 3. Whether the executors are entitled to be indemnified from the two estates for their legal costs of the settlement discussions with the Backhouse brothers. 4. Whether the executors should pay the Backhouse brothers' costs of settlement discussions with the executors and if so, whether they should do so personally and without right of indemnity, reimbursement or exoneration from the two estates or testamentary trusts. 5. Whether the Backhouse brothers are personally liable for the costs order made by Registrar Walton on 6 March 2019. 6. Whether the testamentary trust entitlements of Daniel Backhouse's children, the third, fourth & fifth respondents, should be insulated from any costs orders made by the Court.

(1) The Costs of the Motions for Review Determined in the Principal Judgment

The first question is who should pay the costs of the four motions for review of the decision of the Registrar that were determined in the principal judgment and on what basis? These costs are the costs of (a) the Backhouse brothers' two motions - one in each estate - filed on 8 October 2018 seeking a review of the Registrar's decision to pass accounts and allow commission and (b) the executors' two motions filed on 15 November 2018 seeking a review of the Registrar's decision to award the executors ordinary costs rather than indemnity costs.
The outcome of the principal judgment was that the Backhouse brothers were wholly unsuccessful in their October 2018 motions for review of the Registrar's decision, on which the Court confirmed in the principal judgment the Registrar's decision to allow the executors their commission. The Backhouse brothers were also unsuccessful on the executors' November 2018 motions for review, on which the Court held in the principal judgment that the executors were entitled to their costs of passing accounts on the indemnity basis, rather than costs on the ordinary basis, as the Registrar had originally allowed in her decision.
The executors submit that costs should follow the event, and that the Backhouse brothers should bear the executors' costs of the four motions on the indemnity basis. The Backhouse brothers accept that they have been unsuccessful on the four motions. They submit that they are liable for the executors' costs of the motions but only on the ordinary basis. Thus, the remaining issue here is whether the Backhouse brothers should pay the costs of the motions on the indemnity basis, or on the ordinary basis.
The Court's findings in the principal judgment are relevant to this issue. At [206] the Court highlighted the Backhouse brothers' unreasonable conduct in pursuing these claims before the Registrar: "[206] In this case the conduct of the beneficiaries in pursuing these claims, as demonstrated by these reasons, was so consistently unreasonable that the executors should have their costs of passing the accounts on the indemnity basis. Most of the beneficiaries' arguments both before the Registrar and in this Court were so wholly without merit that they should never have been raised. They considerably added to the pains and troubles and costs of the executors. This is a most appropriate case for the executors to receive a full indemnity in respect of their costs before the Registrar of the passing of accounts."
At [207] the Court made it clear that these observations did "not include the costs of this review which will be determined separately" (emphasis added) on the basis that the Backhouse brothers, not Daniel Backhouse's children, "drove the questioning of the executors conduct", so that "issues may arise as between the Backhouse brothers and the other beneficiaries… as to how these costs should be borne". But presaging the application of the statements at [206] to the costs on this review, the Court said, "the same kind of issue may arise for consideration when the Court comes to deal with the cost of this review."
The same kind of issue does arise. The Backhouse brothers' unreasonable conduct of these proceedings as conducted before the Court comes very close to warranting an order for indemnity costs. Such orders are not uncommonly made when the conduct of a litigant unreasonably delays and prolongs proceedings by the making of unjustified allegations or where the party's allegations have no prospects of success: Harrison v Schipp [2001] NSWCA 13 at [138]. But for an order for indemnity costs to be made, the impugned conduct must relate to the conduct of the litigation itself as opposed to the subject matter of the litigation: Mead v Watson (2005) 23 ACLC 718; [2005] NSWCA 133, at [9] - [10].
The Backhouse brothers' arguments on the review were considered in detail in the first judgment. As that judgment shows these arguments required detailed answer and could therefore not be dismissed summarily. It could not be said they were so without merit as to be vexatious or frivolous, even though in large degree, as the Court has observed, they were lacking in substance.
In the Court's view the Backhouse brothers' arguments were not so universally unmeritorious that an indemnity costs order against them is warranted in respect of their conduct in this Court. In respect of the four motions the Court will therefore make an order for costs for the executors on the ordinary basis against the Backhouse brothers.

(2) Executors' Indemnity out of the Estates or Trusts for their costs

The second question is: if the Backhouse brothers are not liable for the executors' costs of the review of the Registrar's decision, then the question arises whether the executors in their capacity as executors and trustees are entitled to be indemnified for their costs of the four motions from the estate or the testamentary trusts.
The result of the first question is that executors will have their costs of the motions paid by the Backhouse brothers on the ordinary basis. This will leave them out of pocket in respect of the difference between a full indemnity for their actual costs of the four motions and the partial indemnity they will receive from their award of ordinary costs ("the costs differential").
On the second question the Court must decide whether the executors are entitled to an indemnity from the estates or the testamentary trusts for the costs differential.
The applicable law is clear. Costs properly and reasonably incurred by the executor in connection with the administration of an estate are payable from the estate: Nobarani v Mariconte (No 2) (2018) 360 ALR 390; [2018] HCA 49 at [2]. This is an aspect of the wider principle that a trustee may be indemnified out of the estate for liabilities properly incurred in the performance of the trustee's duties: National Trustees Executors & Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268; [1941] ALR 58; [1941] VLR 133.
Filing and passing accounts and seeking commission are an integral part of the administration of an estate by its executors. The proceedings before the Registrar and on review to this Court are both part of the administration of these two estates. The executors are entitled to an indemnity for the costs differential, unless it has been established that the costs they claim on the four motions were not properly or reasonably incurred.
That cannot be established here. The Court has almost universally upheld the stance that the executors took on each of the matters decided in the principal judgment. They were well justified in taking the positions they advanced or defended on these reviews. There is no other basis for a finding of improper conduct against them. The executors should have an indemnity for the costs differential out of each of the estates or the testamentary trusts.
The question of how that costs differential should be borne as between the Backhouse brothers and Daniel Backhouse's children will be dealt with separately.

(3) Costs Orders before Lindsay J on the Backhouse Brothers' Motions

On 14 November 2014, the Backhouse brothers filed Motions seeking production of documents and seeking the passing of accounts in both estates. The Backhouse brothers filed Amended Motions on 2 March 2015 at a directions hearing held by Lindsay J, who then listed them for hearing on 16 March 2015. As a part of that hearing, on 17 March 2015 Lindsay J made orders by consent for the executors to pass accounts in each estate.
The third question is what costs orders should be made (for or against the executors) in respect of the costs of these motions before Lindsay J. There are two aspects to the question: as between the Backhouse brothers and the executors: who should bear the costs of the Motions for the passing accounts; and, who should bear the costs of providing documents. Both aspects are in contest.
This question is related to the fourth and fifth questions. Those questions deal with the executors' rights of indemnity from the estates or from the testamentary trusts depending upon the outcome of this third question.
The costs of the motions for passing accounts. As to the costs of the motions for the passing of accounts, the executors do not seek an order for costs against the Backhouse brothers on those motions. Rather, they submit that they should not bear any personal liability for the costs related to the passing of accounts. The executors contend that they acted expeditiously, and consistently with their obligations in relation to the Backhouse brothers' requests for them to pass accounts.
The Backhouse brothers contend that they were successful on their amended motions (of 2 March 2015) for the filing of accounts and that costs should therefore follow the event. They point out that they obtained orders for the filing of accounts in both estates and for the two testamentary trusts over the initial opposition of the executors. The Backhouse brothers contend that the executors had refused or failed to provide any of the accounts prior to filing of the two motions.
The executors submit that they volunteered early to provide all the accounts at the first directions hearing when the motions for the passing of accounts came before Registrar Studdert on 8 December 2014. Order 4 of the orders made on that day records for such an order in relation to Dolf's estate: "[4] The Respondents provide the solicitors for the Applicants with copies of the accounts such as they are referred to in Paragraph 1 of the Schedule to the Notice of Motion filed 14 November 2014 in the Estate of Dolf Paul Huber by 4.00pm on 10 December 2014."
The executors further submit that at the directions hearing held before Lindsay J on 2 March 2015, even before the motions were listed for hearing on 16 March 2018, Lindsay J noted that the executors had agreed to pass accounts. Order 10 of the orders made on 2 March 2015 provided: "[10] NOTE that the respondents are, as presently advised, prepared to submit to orders (whether made under section 85 of the Probate and Administration Act 1898 NSW or part 54 of the Uniform Civil Procedure Rules 2005 NSW or otherwise) that they pass accounts, on a common form basis, in relation to each of the deceased estates and each of the testamentary trusts the subject of these proceedings."
The executors submit that: it was clear from their concessions that the only issue for hearing on 16 March 2015 was the provision of documents; and they did not at any stage unnecessarily contest the issue of the passing of accounts; and that they should not therefore be deprived of their costs of dealing with the issue of the passing of accounts.
On the Court's analysis, there is not a sufficient basis to make a costs order in favour of the Backhouse brothers against the executors for their costs of their motions for the passing of the accounts in each estate.
Looking first at the executors' conduct before the Backhouse brothers' motions were filed, the executors had provided some accounts by that time and those accounts were part of what was included in the Registrar's passing of accounts. The executors disputed their obligation to provide more detailed accounts. It is not as though the executors had done nothing before the motions were filed. The Court is not in a position now to determine the relative merits of the parties' positions on this issue on the present application, beyond finding that there was a genuine disagreement about it. These circumstances would not ordinarily warrant a costs order in favour of the Backhouse brothers for their costs incurred before filing their motions.
Looking next at the executors' conduct once the motions were filed, it can safely be said, as the executors submit, that the executors took early steps to indicate that they would be cooperative in filing accounts to reduce the scope of the contest before the Court. And upon proper analysis, the consensus about the passing of accounts that was indicated to the Court on 2 March 2015 meant that the Backhouse brothers should not have committed any time to preparing to argue a case for the passing of accounts on 16 March 2015 and are not entitled to a costs order on their motions for the passing of accounts.
The costs of the motion for the executors to provide documents. The other aspect of the Backhouse brothers' 14 November 2014 motion concerned the Backhouse brothers' demands for the executors to give them various documents. The Backhouse brothers say that they were justified in making these demands and that the filing of the motions led to more documents being produced by the executors to them and they should therefore have their costs of the motions on this basis as well.
The Backhouse brothers put their argument on this issue in the following way (excluding cross-references to the evidence): "[38] Matthew & Daniel were successful on their 2 Amended Motions filed 2 March 2015 (and costs should follow the event). [39] They obtained the orders they sought for the filing of (formal) Accounts in both Estates. Indeed, Lindsay J ordered Accounts for the 2 Trusts as well. As noted, ultimately, Lindsay J's Orders were also made with the Executors' consent. [40] As to the documents and information sought, between 14 November 2014 and 16 March 2015, the Executors completely reversed their position. [41] Having refused or failed to provide any of the accounts, information or documents sought prior to the filing of the 2 Motions, the Respondents subsequently claimed to have provided everything they had. By 2 March 2015, the Executors were submitting they 'ha[d] produced all of the documents requested, so this motion is effectively about costs'. [42] This was in contrast to the refusal to entertain any of Matthew & Daniel's requests in the correspondence from Belbridge Hague dated 16 July 2014 & 2 October 2014 (and the text messages from Mr Govett) (before the 2 Motions were filed). It is clear that their filing was necessary to obtain the documents and information requested. [43] Matthew & Daniel's concerns as to the accuracy of the Inventories of Property in the 2 Estates were also vindicated. The 2 Affidavits of Additional Assets…(sworn 10 March 2015, also after filing of the Motions and shortly before their hearing on 16 March 2015) disclosed substantial additional property in the 2 Estates (totalling $410,247) that the Executors had not previously disclosed to this Court. [44] Further, on 2 February 2015, Mr Corbo had conceded an Amended Inventory of Property in Dolf's Estate was necessary (and had instructed Belbridge Hague to prepare one for filing with this Court):…(although it never has been)."
The Backhouse brothers' recitation of relevant facts also went over the history of the correspondence preceding the filing of the motions. They complain that this history shows the executors unreasonably insisted on dealing with the Backhouse brothers through solicitors rather than directly. But given the Backhouse brothers' somewhat querulous correspondence and other communications, dealing only through solicitors was a reasonable response on the part of the executors, designed to promote both efficiency and clarity.
The executors' submissions in reply were as follows: "3 Costs of Documents NOM 1. The Executors continue to press that the Executors should be entitled to their costs of the Documents NOM. 2. In [9] of the Sons' submissions, the Sons say that Justice Lindsay heard the two amended motions on 16 March 2015. 3. Notably, at the time Justice Lindsay heard the two Notices of Motion on 16 March 2015, the Executors had already volunteered to provide all of the accounts that they had at the first directions hearing before Registrar Studdert on 8 December 2014, and had already agreed to formally pass accounts at the first directions hearing before Justice Lindsay on 2 March 2015. 4. Further, when Justice Lindsay heard the two Notices of Motion on 16 March 2015, he did not order any documents to be produced that had not already been produced. 5. The Sons' Submissions at [41] that the Executors refused or failed to provide accounts, information or documents before the filing of the Notice of Motion is incorrect - many of the documents had been provided before the Notice of Motion was filed, and further documents were provided by 5 December 2014 which was in accordance with the timetable that the Executors indicated in the Executors letter to the Sons on 10 November 2014, before the Sons filed the Notice of Motion. 6. In any event, there are real issues about whether the Executors had any obligation to provide the documents in the first place. 7. In [13] of the Sons' submissions, the Sons say that the Sons had various concerns about estate administration. However, this is not relevant to the Documents NOM - the Documents NOM is limited to passing of accounts and the provision of documents, and this is the only basis on which the Sons can seek costs."
For several reasons the executors' counter-arguments are the more persuasive on these issues. First, by the time the motions were filed the executors had already passed accounts as required by the Court and had provided the Backhouse brothers with a substantial volume of the trust accounts relating to Dolf's estate and Maureen's estate. On a costs application such as this, the Court does not have to determine further disputes about the precise adequacy of accounts. But it can be said that the executors provided trust accounts and affidavits relating to Maureen's estate on 2 May 2013, and affidavits and trust accounts relating to Dolf's estate on 4 June 2014. The executors agreed relatively quickly to provide the documents that they did, and promptly agreed to pass further accounts. But this was not an admission that the Backhouse brothers were justified in seeking the production of further documents. The executors' submission is accepted: there is no basis to conclude that the Court would have intervened to require the executors to give more detailed disclosure of documents.
Second, the Backhouse brothers' detailed demands for documents could never be supported. For example, the Backhouse brothers requested the date of sale and name and address of the purchasers of all assets and primary records for the storage and transportation of assets held in storage. The Backhouse brothers requested an inventory and valuation of all Maureen's furniture and jewellery at the date of her death. But Maureen had bequeathed her furniture and jewellery to Dolf, not to the testamentary trust set up under her will. The Backhouse brothers were never entitled to a valuation of these assets as at the date of Maureen's death.
And the Court has accepted for the purposes of its reasoning in the principal judgment that the Backhouse brothers could seek and use information about the purchase of the Ford Territory motor vehicle, including the date of sale, the name and address of the purchaser, and the efforts to sell the car including copies of advertisements. But their standing to do so was questionable. HBPE, not Dolf, owned the vehicle. The Backhouse brothers were therefore asking, in their capacity as potential objects of a discretionary trust, for details of Dolf's company's assets, not Dolf's assets. Whether or not they are entitled in that capacity to such information was not free from legal controversy: AIT Investment Group Pty Ltd v Markham Property Fund (No 2) Pty Ltd [2015] NSWSC 216; and Wright v Stevens [2018] NSWSC 548.
Moreover, the Backhouse brothers were ultimately unsuccessful in the principal judgment in criticising the sale of the Ford Territory. It should be added to the Court's reasons in the principal judgment on this issue that the expenditure on repairs and maintenance of the Ford Territory vehicle whilst it was in Mr Govett's possession effectively eliminated any profit on its sale in any event.
Third, if a beneficiary requests information, then the trustee is required to provide the information to the beneficiary at the beneficiary's cost: Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, per Mahoney JA at 431. The Backhouse brothers' correspondence with the executors lacks any upfront unconditional offer to pay the administrative costs and other outlays associated with extracting, copying and transmitting the documents being requested. The absence of such an offer makes unlikely the success of this part of the Backhouse brothers' motions.
Fourth, Lindsay J ultimately was not required to decide the merits of the Backhouse brothers' motions for production of documents. The motion was not ultimately pressed to a determination before his Honour. Where a motion is undetermined the Court will ordinarily make no order as to costs except where one or other party has behaved unreasonably or was bound to succeed: Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622; (1997) 143 ALR 1; (1997) 71 ALJR 533; [1997] HCA 6. Neither exception applies here.
The Backhouse brothers' application for the executors to pay their costs of the motions before Lindsay J therefore fails.

(4) The Executors' Costs Burden, If They Are Liable for the Costs before Lindsay J

The next question is if the executors are liable for the Backhouse brothers' costs before Lindsay J, whether the executors should pay: 1. the costs of the Backhouse brothers; 2. their own costs; and/or 3. personally and without right of indemnity, reimbursement or exoneration from the two estates.
The executors have not been made liable for the Backhouse brothers' costs before Lindsay J. This question does not arise.

(5) Executors' Indemnity, if no Order for Costs before Lindsay J

The next question is if there is no order as to costs as between the parties relating to the costs before Lindsay J, whether the executors are entitled to be indemnified from the two estates or the testamentary trusts, or whether they should pay their own costs personally, and without right of indemnity, reimbursement or exoneration from the two estates. This question arises as no order for costs was made on the motions before Lindsay J. The Backhouse brothers oppose any indemnity.
The Backhouse brothers complain about many aspects of the executors' conduct of these motions. But nothing in the executors' conduct of these motions was dishonest, improper or unreasonable. The executors followed legal advice and their actions were legally justifiable. They made every effort to keep costs contained, despite the voluminous requests from the Backhouse brothers.
Moreover, the reasons already given for not making any order for costs against the executors on these motions, also showed the reasonableness of the executors' conduct and provide the basis for the executors to have an indemnity for their costs of the motions.
The Backhouse brothers argue in their written submissions that "in the event of not having to pay Matthew & Daniel's costs, this is all the more reason for the executors not to have their costs from the Estates". But this does not follow: failure to gain a costs order in their favour against the Backhouse brothers does not establish any impropriety, dishonesty or unreasonableness on the part of the executors.
The executors are entitled to be indemnified from the two estates, or the testamentary trusts, for their costs before Lindsay J.

(6) Costs of the Backhouse Brothers before the Registrar

The next question is whether the costs the Backhouse brothers incurred before the Registrar leading up to her decision on 18 September 2018 should be ordered to be paid out of the estates or the testamentary trusts, or whether they should bear those costs themselves.
The Backhouse brothers submit that they should have an order for their costs (on the ordinary basis) before the Registrar in Probate. They support that submission in the following way: "[76] The relevant legal principles are set out by Lindsay J in Re Estate Ford [2016] NSWSC 6. [77] These are that, first, an executor is obliged to pass Accounts as a preliminary to an application for an allowance of commission (available, not as of right, but only upon an exercise of discretion by the Court): at [11]. [78] Secondly, the usual practice in NSW is that the costs of passing Accounts (and any application for commission) are allowed out of the Estate on a 'party-party' (ordinary) (as distinct from indemnity) basis : at [12]. [79] Thirdly, this reflects the fact that ordinarily the costs of an application for commission are a necessary incident of the administration of a deceased Estate (in the event an executor exercises a right to apply for commission), entitling a beneficiary to oppose the application : at [13]. [80] Fourthly, a beneficiary is entitled, without fear of an adverse costs order, to put material before the Court (in the form of evidence and/or submissions) in support of a contention that th_e executor did not properly perform his duties (and to ask that the Court take the executor's default into account in determining whether any (and, if so, how much) should be allowed) : at [14]. [81] Applying these principles, Matthew & Daniel were entitled to their costs before the Registrar in Probate on the ordinary basis. [82] This is even more the case where Matthew & Daniel actually sought orders for the passing of Accounts in their Motions filed 14 November 2014 (which, after a contested application, Lindsay J made) (and to which the Executors (ultimately) consented). Further, the Executors having exercised their right to apply for commission, Matthew & Daniel were entitled to oppose that application. [83] Although Matthew & Daniel (twice) sought to be heard on the question (RCB1, 222 at 266 [284]-[285]; RCB1, 295 at 330 [298]-[300]), the Registrar did not do so, did not award Matthew & Daniel their costs (and did not even address the question in her Reasons). This appears to have been oversight (and, it is respectfully submitted, error) on the part of the Registrar. [84] Matthew & Daniel should therefore have their costs before the Registrar in Probate on the ordinary basis now."
The executors submit the following in reply: "6 Sons' costs before the Registrar 13. The Sons' Submissions at [81] is not correct - the principles in Re Estate Ford [2016] NSWSC 6 do not support the Sons being entitled to their costs. 14. The principle at [12] of Re Estate Ford that the usual practice is that the cost of passing accounts is allowed is the Executors costs of passing accounts are allowed out of the estate, not the cost of the objectors. 15. The principle at [14] of Re Estate Ford that a beneficiary may put material before the court without fear of an adverse costs order means that the beneficiary will not bear the burden of a costs order, rather than that the beneficiary is positively entitled to an order for their own costs."
The Backhouse brothers should personally pay their own costs before the Registrar in Probate. The Backhouse brothers alone among beneficiaries of both estates drove a hostile case against the executors before the Registrar and failed except in minor respects. There is no reason why anyone other than the Backhouse brothers should bear the costs of that contest. The Court noted in the principal judgment (at [207]) that the Backhouse brothers drove the questioning of the executors' conduct both in the passing of accounts, and in the review.
Moreover, if such an order were to be made it would be unfair for the Swiss beneficiaries (in Dolf's estate) or for any of the beneficiaries of the testamentary trusts to bear these costs. The Swiss beneficiaries consented to the executors being paid commission and did not require the executors to pass accounts. Daniel Backhouse's children did not support the Backhouse brothers case against the executors. Neither did the Swiss beneficiaries nor Daniel Backhouse's children cause any of these costs to be incurred.

(7) The Executors Entitlement to Indemnity for Their Costs of Settlement Discussions

The next question is whether the executors are entitled to be indemnified from the two estates for their legal costs of the settlement discussions with the Backhouse brothers.
The executors have incurred costs whilst engaging in settlement negotiations with the Backhouse brothers in relation to the Backhouse brothers' motions of 14 November 2014 and in relation to the motions for review that led to the principal judgment. Not all these costs will be recoverable by the executors as part of their costs on the various motions. The executors therefore seek to be indemnified from the estates or from the testamentary trusts for their costs of these settlement negotiations. The Backhouse brothers oppose such an indemnity, arguing as follows: "Whether the Executors are entitled to be indemnified from the 2 Estates or Trusts for settlement discussions with Matthew & Daniel 86 This (and the following related) issue is raised by the Executors (Submissions in Chief, [85]; Executors' Submissions, [59]-[62], [63]-[70]). 87 It is respectfully submitted that these submissions are misconceived. First, there is no evidence of any settlement negotiations in connection with any of the Motions being considered (or, as might be expected, of their substance) (and none is cited). 88 Secondly, there is no evidence of the extent of (any) settlement negotiations (such that any assessment of their cost could be made). 89 Thirdly, it is, with respect, not correct that any costs of a Motion include the costs of engaging in any settlement negotiations concerning that Motion (Executors' Submissions, [60]). 90 Whether on the ordinary or the indemnity basis, the costs order covers work performed by the party's lawyers in filing, preparing for and conducting the hearing of the Motion. It does not include the costs of any settlement negotiations concerning the Motion (and no authority is cited for such a proposition). 91 The other submissions (Executors' Submissions, [60]-[62]), with respect, do not advance the matter and are not of assistance. 92 There is also no evidence that the Executors 'negotiat[ed] in good faith' (or otherwise) in (any) settlement negotiations (and, again, none is cited). Nor (as the Executors themselves submit) is there any evidence of whether 'they acted improperly or dishonestly or were furthering their own interest' (or otherwise) (even assuming this is the legal test in this context) (Executors' Submissions, [62])."
The executors should have the indemnity they request. This is so for several reasons. First, these costs are readily to be characterised as part of the executors' costs of administering the estate. There is no basis for concluding that the executors acted unreasonably, improperly or dishonestly when these costs were incurred, notwithstanding that the settlement negotiations failed.
Moreover, the executors were successful on these motions. The Court passed the accounts, ordered commission and paid the executors' costs out of the estate on the indemnity basis. The positions they took during the associated negotiations therefore were likely to have been reasonable. Moreover, conducting negotiations to avoid the estates/testamentary trusts from incurring the greater costs associated with contested motions was always likely to be a reasonable course.

(8) Executors' Liability for the Backhouse Brothers' Negotiation Costs

The next question is whether the executors should pay the Backhouse brothers' costs of the settlement discussions with the executors, and if so, whether they should do so personally and without right of indemnity, reimbursement or exoneration from the two estates or testamentary trusts.
There is no principled basis on which the executors should be ordered to pay these costs. The executors were ultimately successful on all the motions the subject of these negotiations. They should not be ordered to bear personally the Backhouse brothers' costs of these negotiations.

(9) Liability for Registrar Walton's Cost Orders of 6 March 2019

The next issue is the Backhouse brothers' liability for the costs orders made against them by Registrar Walton on 6 March 2019. These costs orders resulted from a contest between the Backhouse brothers and the executors before the Registrar in Equity. The Backhouse brothers had issued subpoenas to the executors' solicitors and notices to produce to the executors. The executors filed motions to set the subpoenas and notices to produce aside. The executors were largely successful in setting them aside. The Registrar in Equity ordered the Backhouse brothers to pay the executors' costs of this contest.
The Backhouse brothers concede in their submissions that they are liable under these costs orders and do not seek to vary them. The Registrar's costs orders of 6 March 2019 will therefore stand.

(10) Protection from Costs Orders for Daniel Backhouse's Children

The last question is whether Daniel Backhouse's children should be protected from the above orders for costs. This question needs to be addressed after consideration of these reasons by the executors in their capacity as trustees, by the Backhouse brothers and by Daniel Backhouse's children.
But the question is simplified by the Backhouse brothers' concession in their submissions that Daniel Backhouse's children should be insulated from any costs orders. The concession is well made. None of the costs in these proceedings have been generated or contributed to by the actions of Daniel Backhouse's children, or for that matter the Swiss beneficiaries. It would therefore be difficult to justify a result that had any of these parties being burdened with any of the costs incurred in these proceedings.
Practical questions arise as to how this concession is to be implemented. The Backhouse brothers' submissions point out, they are only discretionary objects of the two testamentary trusts. One possible solution is that it may be enough for them to declare that they will bear their own costs, as ordered in these reasons, and that they will not seek any reimbursement from the testamentary trusts on that account. That issue will be reserved for further consideration.

Some Ancillary Issues

Three ancillary issues have also been raised in the parties' submissions: (1) the inclusion of counsel's fees in the executors' indemnity in respect of their costs before the Registrar for the passing of accounts; (2) the reasonable expenses incurred by Belbridge Hague complying with the subpoena to it from the Backhouse brothers; and (3) who will bear the burden of costs within the estates and testamentary trusts.
(1) Counsel's fees before the Registrar. A minor dispute still exists about the quantum of the executors' costs of passing their accounts before the Registrar. In the principal judgment (at [205]) the Court noted that Belbridge Hague had calculated their costs of passing the accounts for the executors at $88,915.82. At the directions hearing on 25 November 2020, Ms Catanzariti, counsel for the executors, raised the question of an omission of the full quantum of her fees from this calculation, which only included the solicitors' costs. She explained at the directions hearing that her fees of $7,276.50 had been omitted from the calculation, making the sum $88,915.82.
The Court had made directions on 28 February 2020 for the parties to provide to one another copies of their bills of costs for the passing of accounts before the Registrar. And counsel's fees were included with the Belbridge Hague memoranda of fees when the executors complied with these directions. But the figures the Court recorded in the principal judgment (at [205]) had not taken into account counsel's fees. So, the Court indicated on 25 November 2020 that, as it had the record of counsel fees before it, it would make orders that took into account the additional amount of those fees. So, on 25 November 2020, the Court made an order (order 3) that allocated equally the burden of those costs (including counsels' fees of $7,276.50) to each estate, namely $48,096.16, being half of $96,192.32 ($88,915.82 + $7,276.50).
Ms Catanzariti indicated that she would provide substantiation of that figure. But when she did, it emerged that other invoices for counsel fees had been issued and that the total of her fees relating to the passing of accounts was actually $11,492.50. The Court has reviewed the material provided by Ms Catanzariti and her email to the Court dated 24 November 2020 and the Belbridge Hague letter of 28 February 2015 has been marked Exhibit B in these proceedings.
This will require recalculation of the $48,096.16 figure to include the amended amount of Ms Catanzariti's fees. This is consistent with what the Court set out at [205] of the principal judgment, that this is a "most appropriate case for the executors to receive a full indemnity in respect of their costs before the Registrar of the passing of accounts" (emphasis added). The executors submit that they should have the benefit of an order for a complete indemnity for their costs rather than one as moderated by the Registrar.
The recalculated amount for each estate is now therefore $50,204.16, being half of $100,408.32 (being $88,915.82 plus $11,492.50). An order substituting this amount for Order 3 made on 25 November 2028 is made below.
(2) Compliance expenses for the Belbridge Hague Subpoena. The executors also raise issues that the Backhouse brothers have not paid Belbridge Hague for locating, collating, copying and producing documents under the subpoena served on to Belbridge Hague. The executors submit that Belbridge Hague attempted to negotiate the costs as required by Uniform Civil Procedure Rules 2005 ("UCPR"), Part 42.33, but that the Backhouse brothers have still not paid the costs. It is not yet clear to the Court what negotiations have occurred on this subject.
The executors now seek an order pursuant to UCPR, r 33.11 for its reasonable costs of complying with the subpoena, in an amount of $5,000 + GST. The Court will determine this issue if the parties cannot resolve it between themselves. But before any further funds are expended on this exercise the Court will first require the parties to complete their negotiations by exchanging Calderbank letters (with 7 day expiry periods - which are likely to be a reasonable period given the very small amounts in issue) putting their respective final offers as to the reasonable costs of complying with this subpoena. Based on whether these offers are bettered, if the Court must determine the issue, the Court will determine whether an order for indemnity costs against either party is warranted. The directions below provide for the submission of these Calderbank letters between the Backhouse brothers and Belbridge Hague.
(3) The Burden of Costs within the Estates. The Swiss beneficiaries under Dolf's will have taken no part in these proceedings. Their portion of Dolf's estate should not have to bear any of the executors' costs of these proceedings incurred in relation to the administration of Dolf's estate. These reasons make clear that not all of the executors' costs of these proceedings will be recovered from the Backhouse brothers. Some of those costs will have to come either out of Maureen's estate, or out of Dolf's testamentary trust, which is where the remaining assets under administration are to be found.
Other considerations lead to the same conclusion. The legal costs of giving notice to the Swiss beneficiaries, organising a single legal representative for those beneficiaries, and holding an argument about whether or not they should bear any of the executors' costs of these proceedings would be wholly uneconomic and disproportionate to the quantum of costs in question. The Court will therefore exonerate the Swiss beneficiaries from bearing any of the executors' costs of the proceedings. The appropriate way to achieve this is to order that Maureen's estate and Dolf's testamentary trust will be responsible for the executors' costs of these proceedings, to the extent that the costs are not recovered from the Backhouse brothers.
That in turn raises the issue of whether or not the third, fourth and fifth respondents, Daniel Backhouse's children, as members of the class of beneficiaries of the testamentary trusts, should bear any of those costs. It has been put on behalf of these children that they should not bear any of those costs. Both the executors and the Backhouse brothers accept the validity of that submission and do not oppose orders being made giving effect to it.
The appropriate way for this to be done is for an order to be made for the executors' costs to be paid out of Dolf's testamentary trust. But this is a discretionary trust, so it is not apt to speak of exonerating Daniel Backhouse's children's share of that trust from this liability. Nevertheless, in the expected reconstitution of, or in distributions from, Dolf's testamentary trust, it may be possible by agreement for this liability to be treated as being solely to the account of the Backhouse brothers, rather than to the account of Daniel Backhouse's children. This can be resolved in the course of the next steps of these proceedings, which are discussed below.

Conclusions and Orders

Several issues remain to be resolved among these parties. Principal among those issues is enabling the retirement of the executors as executors and as trustees of Maureen and Dolf's testamentary trusts. The executors seek a release from liability in relation to their administration of these estates and trusts. At its directions hearing on 25 November 2020, the Court noted the following about these remaining issues and emphasised their possible future resolution by mediation: "[7] The Court reserves for further consideration and possible mediation, in addition to the costs issues the subject of Orders 5 and 6, the question of the retirement of the Executors as trustees, the terms upon which they may retire, and the possible execution of the trusts."
To assist the preparation of these remaining issues for hearing the Court will direct the parties to bring in short minutes of order containing further procedural directions. The Court anticipates another hearing day may be required to resolve all the remaining issues.
The following steps need to be taken to finalise these proceedings. The first step is to ascertain the quantum of the cost liabilities consequent upon the Court's orders. A full costs assessment would be a time consuming and unnecessarily costly process in proceedings which have already been excessively contentious and where estates and trusts are being consumed by legal costs. The appropriate solution in such a case is for the Court to make a specified gross sum costs order under Civil Procedure Act 2005, s 98(4)(c). The Court has raised this issue with the parties in the course of argument. All parties appear to support that approach being taken. My approach to making specified gross sum costs orders can readily be ascertained from cases, such as: Bahamad v Wong [2020] NSWSC 991. Expert evidence is not required for the making of such orders.
The second step is facilitating the retirement of the executors. To assist this outcome, the executors should provide an up-to-date statement of the assets and liabilities of Dolf's and Maureen's trusts for the benefit of the Court and the other parties. And they should formulate and provide to the other parties the precise orders that they seek upon their retirement from the trusts.
The third step is restructuring the testamentary trusts. This step must precede any attempt to replace the executors with a new trustee or trustees. Dolf and Maureen's trusts can be reconstituted by agreement before it is necessary to identify and substitute trustees. At one point, the Backhouse brothers indicated that they might become the new trustees of those trusts. But until they have met the executors' costs ordered in this judgment, they stand in a position of conflict of interest with Daniel Backhouse's children and would not ordinarily be appointed as trustees to the testamentary trusts.
It may, for example, be convenient to reconstitute Dolf's and Maureen's testamentary trusts as trusts merely for Daniel's children, or some of them, and allowing Daniel Backhouse and Matthew Backhouse each to have distributed to them by agreement from the testamentary trusts a fund which will enable them to be eliminated as discretionary beneficiaries of both these trusts. This outcome could be negotiated at a mediation or other structured settlement process at which Daniel Backhouse's children would be independently represented, as they are now by Mr Stevens and Ms Jarrett. Orders and directions will need to be made providing for such a mediation. It would no doubt assist the parties at the mediation to have the outcome of steps one and two available. If step three cannot be resolved by agreement, then one or other party will have to propose by motion orders to achieve step three.
Step four will be the appointment of a new trustee or trustees. This will involve the return of the proceedings to Court for the making of final orders. Such orders will be necessary to reconstitute the trusts. The executors can retire at the same time as step four is completed.
The parties should do the best they can to agree upon short minutes of order to plan out most of these steps in an orderly, cost-efficient way.
For these reasons the Court makes the following orders, notations and directions: 1. Note that for the purposes of these orders the following persons will be referred to in the following ways: 1. the first and second plaintiffs, as "the executors"; 2. the first and second respondents as "the Backhouse brothers"; 3. the third, fourth and fifth respondents as "Daniel Backhouse's children"; 4. the estates of Maureen Huber and Dolf Huber as "Maureen's estate", and "Dolf's estate" respectively; and 5. the testamentary trusts created under the wills of Maureen Huber and Dolf Huber as "Maureen's testamentary trust" and "Dolf's testamentary trust" respectively. 1. Order the Backhouse brothers pay the executors' costs of the four motions for review of the 18 September 2018 decision of the Registrar in Probate, namely the Backhouse brothers' two motions filed on 8 October 2018 and the executors' two motions filed on 15 November 2018 ("the four motions"). 2. Order that the executors be indemnified out of each of Maureen's estate or Dolf's testamentary trust for any costs differential between their actual costs of the four motions and the amount of costs they recover under order (2) in respect of the four motions. 3. Note that the Court makes no order for costs as between the executors and the Backhouse brothers in relation to the motions before Lindsay J on 16 March 2015. 4. Order that the executors be indemnified out of each of Maureen's estate or Dolf's testamentary trust for their costs of preparing for and conducting the motions before Lindsay J on 16 March 2015. 5. Note that the Backhouse brothers will bear their own legal costs incurred in the various contests before the Registrar in Probate and the Court makes no order in their favour for those costs. 6. To the extent that the executors have incurred costs in settlement negotiations or other ancillary costs in relation to the four motions or in relation to the motions before Lindsay J order that the executors be indemnified out of Maureen's estate or Dolf's testamentary trust. 7. Order that to the extent that the Backhouse brothers have incurred costs in settlement negotiations or other ancillary costs in relation to the four motions or in relation to the motions before Lindsay J, the Backhouse brothers are to bear those costs personally. 8. Direct that Belbridge Hague, solicitors, and the Backhouse brothers respectively by Friday, 25 June 2021 shall each make a Calderbank offer (which must remain open until 4pm on Friday, 2 July 2021) to the other, in respect of the issue of "any reasonable loss or expense incurred [by Belbridge Hague] in complying with the subpoena" issued by the Backhouse brothers to Belbridge Hague. 9. Substitute the sum of $50,204.16 for the sum of $48,096.16 in Order 3 of the orders made on 25 November 2020. 10. Direct the parties by Friday, 2 July 2021 to bring in agreed short minutes of order to provide for the disposition of the remaining issues in these proceedings in accordance with the steps outlined in these reasons, and if the parties cannot agree upon a single set of orders for that purpose, then by Tuesday, 6 July 2021 the parties shall provide to the Court a single set of draft orders marked up to show the drafting differences between them. 11. List these proceedings for further directions at 9.30am on 8 July 2021. 12. Grant liberty to apply.

Amendments 17 June 2021 - [76] - line 3 - "Backhouse" inserted between "Daniel" and "children's" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 June 2021

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Judgment (14 paragraphs)

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