Carrington v Wallace

Supreme Court of NSW|2022-09-28|Before: Ward P, The J, Robb J

Judgment

HER HONOUR: On 16 August 2022, I published reasons for judgment in a dispute in relation to the administration of the estate of the late Edward Carrington (the deceased) (see Carrington v Wallace [2022] NSWSC 1078). By the time the proceeding came before me for hearing (there having been an earlier hearing on the question of construction of the deceased's Will before Robb J), the complaint by the plaintiffs (Mischa and Dean, two of the three children of the deceased) was that the sale by the defendants (Ashley, the remaining child of the deceased, and Matthew, Mischa's ex-husband), as executors, of the deceased's property in Shoalhaven (the Manyana Property) to Ashley for the sum of $465,000 breached the rule in equity against self-dealing by trustees and executors.

Scheme of the proposed orders

Broadly speaking, the structure or scheme of the orders proposed by the parties encompasses the following: first, the replacement of the defendants as executors of the deceased estate and the appointment of an independent administrator (proposed orders 1-7); second, the retention by Ashley of the Manyana Property until its sale (the parties agreeing that the Manyana Property is to be marketed for sale as soon as is reasonably practicable) and the provision to the independent administrator by Ashley of a power of attorney for the purpose of effecting the sale of the Manyana Property (proposed orders 8-9A); third, the taking of an account (by the independent administrator, who is to be appointed as a referee for that purpose) of the various offsets and allowances payable to or by Ashley in relation to the Manyana Property, and for the net proceeds of sale of the Manyana Property to be paid to the estate and disbursed to the parties once that account has been taken (see proposed orders 10-18); and, finally, notations and orders as to costs of the proceedings (proposed orders 19ff).
There is a large measure of agreement on the proposed orders (other than as to costs, to which I will turn in due course). It is, however, relevant to note at this stage that there have already been some orders made as to costs: first by Robb J and then by Kunc J.
On 5 February 2020, Robb J made the following order as to costs: 1. Order that the parties' costs of the proceedings relating to the construction of the last Will and Testament of the late Edward Carrington, and the cross claim, be paid out of the estate on an indemnity basis as agreed or assessed.
On 23 April 2021, in the context of an application for the hearing then listed before his Honour to be vacated, Kunc J relevantly made the following orders: 1. Vacate the hearing fixed for 28 and 29 April 2021 before Kunc J. 2. The plaintiffs are to pay the defendants' costs thrown away by reason of order 1. … 4. Reserve the question of costs in relation to the matters abandoned by the plaintiffs in the further amended statement of claim.
As to the areas in which there is dispute other than as to costs, they are as follows.

Profit relating to the rental of the Manyana Property

Proposed order 10, which appears in the proposed orders under the heading "[a]ccounting", relates to the matters for which Ashley is required to account to the estate in respect of the Manyana Property since its acquisition by him.
Order 10(a) relates to any rental income obtained by Ashley from leasing out the Manyana Property. There is no doubt that from time to time Ashley rented out the property - he gave evidence to that effect in the substantive proceeding and there is no dispute as to his liability to account to the estate for the income thereby received by Ashley. The dispute between the parties is as to whether the proposed order should include the word "net" (i.e., "any net profits made by [Ashley] in respect of the Manyana Property" for the relevant period).
The defendants contend that Ashley ought only be required to account for the "net" profit received (for example, after deduction of agency or other fees incurred in relation to the sale), rather than the gross rent charged to a tenant. The defendants say that there is no proper basis to require Ashley to account in respect of the gross amount received in circumstances where, had the estate leased or rented out the property instead of Ashley, it would have been required to pay agency or other related fees, and that Ashley did not receive any benefit by reason of paying any agency or other related fees.
The plaintiffs' position is that the inclusion of "net" in this context is an unnecessary gloss on the principal reasons and can be accommodated in the accounting process. Moreover, the plaintiffs submit that, in the event of disagreement (which they appear to suggest would be in an exceptional scenario although to my observation disagreement between the parties is more often the norm), there is liberty to apply to the referee or administrator.
In reply submissions, the defendants say that the intent of the word "net" in this proposed order is to ensure that if Ashley incurred costs and expenses in connection with the renting out of the property (such as agents' fees), an account is made in that regard.
On this issue, I consider that there should be as little room for ongoing disputation as possible. I do not consider the inclusion of the reference to "net" as an unnecessary gloss. Subject to proof of the relevant deductions, I see no reason why Ashley should not simply account for the net rental income, after deduction of agent's fees or other expenses of the sale, if any. I note that no particular "related" fees have been identified as such. However, if there is a dispute as to whether other fees were incurred in relation to the sale, then I accept that this is a matter that would appropriately be raised with the independent administrator in the context of the accounting process to be carried out by him or her as Court appointed referee. Therefore, I will adopt the defendants' wording of the proposed order 10(a).

Occupation fee

Proposed order 10(b) relates to an occupation fee for the period in which Ashley "occupied" the Manyana Property.
The plaintiffs (although referring - I suspect incorrectly - to order 12(b) rather than proposed order 10(b)) submit that the appropriate period for which Ashley ought be required to pay an occupation fee is the period of his ownership of the Manyana Property (i.e., from the time of its acquisition to the date on which the Manyana Property is ultimately re-sold), less any period in which it was rented out by Ashley. The plaintiffs say that, on one view, the occupation fee is, in essence, an approximation of equitable damages payable by reason of the estate being deprived of the opportunity to earn rental income on the property (referring by way of analogy to Richardson v Richardson [2021] NSWSC 353). The plaintiffs point out that, although Ashley was not in occupation at all relevant times, he had the benefit of possession at all relevant times.
The defendants, on the other hand, place emphasis on the fact that at [360] of the principal reasons (set out in full below) I referred in terms to the "period in which Ashley has occupied the property". What I there said was: 360. In my opinion, the appropriate relief is for the sale to be set aside and (subject to one qualification) to order that the Manyana Property be reconveyed to the executors of the deceased's estate to be held by them as an asset of the estate (with Ashley to be reimbursed the purchase price with interest plus the value attributable to any permanent improvements effected by him to the property and the cost of maintenance of the Manyana Property since its acquisition but less any profits earned from the use of the property since its acquisition and less an occupation fee for the period in which Ashley has occupied the property). That accounting exercise should be referred out to a court appointed referee; and there should be an independent market valuation by a suitably qualified valuer both as to the current market value of the property and as to the value of any permanent improvements effected to it by Ashley since its acquisition.
The defendants say that this sets out the method of calculation for the accounting which is required to be undertaken in respect of the Manyana Property; and that, given those findings, their proposed wording for order 10(b) should be preferred.
It was not my intention, when referring to the period in which Ashley had occupied the property in the context of the occupation fee to be paid by Ashley, to draw a distinction between occupation and physical possession of the property. Such a distinction would fail to take into account that Ashley at all times other than those in which he rented out the property has had the benefit of its possession and, for example, some of the period in which he did not physically occupy the property was when it was renovated with the intent that it be his home upon retirement. To the extent that [360] of the principal judgment inadvertently suggests that such a distinction was intended, that is a slip that should be corrected in accordance with the principles outlined in (Newmont Yandal Operations Pty Ltd v The J Aron Corporation & The Goldman Sachs Group Inc (2007) 70 NSWLR 411; [2007] NSWCA 195 at [111]-[145] per Spigelman CJ, with whom Santow JA and Handley AJA agreed). More correctly phrased, my intent was that Ashley should pay an occupation fee for the period of time in which he has had the benefit of possession of the property (other than periods in which he has rented it out, in respect of which periods he will be accounting to the estate for the net rental income achieved in respect of the property). The estate has lost the benefit of an occupation fee or rent for the whole of that period, irrespective of whether Ashley has chosen physically to occupy the property for the whole of that time. Therefore, the plaintiffs' wording of proposed order 10(b) should be preferred.

Stamp duty

Proposed order 12 sets out the various matters for which the estate is required to account to Ashley.
Proposed order 12(a), as put forward by the defendants, includes "the purchase price paid for the Manyana Property being $465,000 plus stamp duty".
There is no dispute that Ashley is to be repaid the purchase price that he paid when acquiring the property from the estate. However, the plaintiffs dispute that account be made from the estate to Ashley in relation to the stamp duty paid by Ashley in relation to his purchase of the Manyana Property.
The defendants point out that the purchase price has been said to include the aggregate cost to the purchaser, elements of which are incidental costs, fees and disbursements; the underlying principle being recognised as concerned with the cost to the purchaser of the conveyance rather than the benefit to the vendor (the defendants here citing JD Heydon and MA Leeming, Jacobs' Law of Trusts in Australia (8th ed, Lexis Nexis, 2016) (Jacobs' Law of Trusts) at [12-11], in particular fn 83 and the cases there cited, namely Currie v Hamilton [1984] 1 NSWLR 687 at 691 per McLelland J; Ryan v Dries (2003) 10 BPR 19,497; [2002] NSWCA 3 (Ryan v Dries) at [53] per Hodgson JA, with whom Sheller and Giles JJA agreed; Black Uhlans Inc v NSW Crime Commission (2002) 12 BPR 22,421; [2002] NSWSC 1060 at [144] per Campbell J, as his Honour then was; Dinsdale v Arthur (2006) 12 BPR 23,509; [2006] NSWSC 809 at [11] per Brereton J, as his Honour then was; and Buffrey v Buffrey (2006) 12 BPR 23,619; [2006] NSWSC 1349 at [10] per Palmer J).
The defendants say that these incidental costs, fees and disbursements include stamp duty and that it is appropriate for an account to be made in favour of Ashley in that regard.
The plaintiffs contend that the purpose of reimbursing the trustee wrongdoer is not to provide the defaulting trustee with compensation for any losses that the trustee may have suffered but, rather, to ensure that the estate does not make a windfall profit. Thus, it is said that the defaulting trustee is reimbursed for any expenses that otherwise would have been incurred by the estate, or in respect of which the estate would benefit. The plaintiffs say that the estate should not be required to reimburse the stamp duty that the defaulting trustee paid but from which the estate obtained no benefit. In their reply submissions, the plaintiffs maintain their opposition to an order that the amount to be repaid to Ashley should include the stamp duty paid by him.
The plaintiffs argue that the authorities cited by the defendants on this aspect of the matter relate to resulting trust cases and have no application in the present case. The plaintiffs say that in a resulting trust case, the purchaser is required to pay the purchase price and stamp duty; and that a resulting trust recognises the contributions towards the expenses to the benefit of the contributories jointly. However, the plaintiffs argue that in the present case the effect of the orders made is to require the defaulting trustee to put the estate back into the position in which it would have been had it retained the property (and thus the defaulting trustee is given credit for matters such as any renovations to the benefit of the property, and must give credit for any income he has generated).
The plaintiffs argue that stamp duty that Ashley paid on the purchase was not to the benefit of the estate; and they say that if he were now given credit for that sum, then the estate would be worse off to that extent by reason of the defaulting trustee's wrongdoing. Thus, it is submitted that the defaulting trustee should be given credit for expenses to the benefit of the estate but not for those (such as stamp duty) from which the estate gains no benefit.
In the principal judgment I considered the circumstances in which the discretionary remedy of rescission might not be available because restitutio in integrum was not possible (see the discussion in the principal judgment from [354]ff); and noted the observations by Austin J in Aequitas Ltd v AEFC Leasing Pty Ltd [2001] NSWSC 14 (Aequitas) at [426]-[427] as to the flexibility of the remedy of rescission in equity. I concluded that an order for rescission required that the parties in substance be restored to their original pre-conveyance position. For that to occur in the present case, it is necessary that Ashley be recompensed for the stamp duty he paid (and which would not have been paid by him but for his acquisition of the property). For this to occur, the defendants' version of proposed order 12(b) would be preferred. I accept that the estate obtained no benefit from the stamp duty paid by Ashley (and that for it to account to Ashley for that amount means that the estate is in a worse position at least as to the stamp duty than if the transaction had not occurred). I also note that there is force to the plaintiffs' submission that the authorities cited by the defendants as to the inclusion of stamp duty in the "purchase price" pertain to resulting trusts, and are therefore of limited utility in the present case; and that, as the defendants noted in their submissions in the substantive hearing, the traditional duty of the defaulting trustee is to effect restitution to the estate.
However, when effecting restitution in the present case involves rescission or setting aside of the sale transaction, then discretionary issues also arise, including (as the plaintiffs appeared to accept at the substantive hearing and as reflected in the plaintiffs' reply filed in the substantive proceeding) whether restitutio in integrum can be achieved. I accepted the plaintiffs' submissions to the effect that rescission should be granted on the basis that I considered that restitution was possible in a practical sense. As noted in my principal judgment, the concept of restitutio in integrum and considerations of practical justice on an application for rescission were summarised by Austin J in Aequitas at [426]-[427], his Honour there noting that rescission in equity is a more flexible tool than at common law and that equity has the means to ascertain and provide adjustments necessary to restore the parties "substantially to the status quo".
The dispute between the parties on this issue as to whether Ashley should be recompensed for the stamp duty he paid, appears largely if not wholly to turn on the perspective from which the issue is approached - the plaintiffs say in effect that the estate should be placed in the position in which it would have been had the breach of the rule against self-dealing not occurred (and hence no amount should be allowed for the stamp duty paid by Ashley); the defendants say that the parties should be put back into their pre-transactional positions (and that it is therefore equitable in the circumstances that Ashley be recompensed for the stamp duty, that being a cost which was an incidental aspect of the rescinded transaction - see the defendants' reply submissions at [2]).
On the basis that rescission in equity does not require precise restitutio in integrum and recognising that the appropriate relief in equity can be moulded to achieve what is practically just (to adapt the words of Austin J in Aequitas), and in circumstances where the plaintiffs made very clear their election to have the sale set aside (even if that might not ultimately produce a benefit to the estate) I consider that the appropriate order is to require Ashley to be compensated for the stamp duty paid by him (which, in passing, I note was less than the stamp duty that an arm's length purchaser would have had to pay and hence the liability for the estate is not as great as had the sale to a third party purchaser been set aside).

Holding and maintenance costs

As to proposed order 12(c), the parties agree that an account should be made in favour of Ashley from the estate in relation to costs paid by him in respect of the Manyana Property from the date of purchase, including council and water rates, land tax, and insurance premiums.
The defendants describe those costs in proposed order 12(c) as costs incurred in "holding and maintaining" the property. The plaintiffs cavil with the inclusion of the word "holding".
The defendants submit that limiting the costs for which account is to be made to those which only fall under the category of "maintaining" the property would unfairly confine the scope of that category (although they did not, at least in their initial submissions, indicate what other costs they had in mind in this regard). The defendants say that the accounting exercise that is here involved is designed essentially to compensate and reimburse Ashley in relation to amounts paid by him which protected and preserved the asset; and that removing the word "holding" will run the risk that some cost which has been reasonably incurred and paid by Ashley which ought to be taken into account would be unfairly excluded.
The plaintiffs say that the description of "holding" costs is (as with the reference to "net") an unnecessary gloss on the reasons for judgment and that this is another issue that can be accommodated in the accounting process in the event of disagreement between the parties.
In their reply submissions, the defendants explain that the intent of the wording proposed by them in this regard is that account be taken of costs and expenses which may not be "maintenance" costs but which were nonetheless incurred reasonably and for the purposes of protecting and preserving the property. So, for example, they say that insurance (which is included at proposed order 9A and 12 by consent) is arguably not a "maintenance" cost. For the avoidance of doubt, the defendants say that Ashley is not seeking financing, or other costs or expenses, in addition to the purchase price and interest in respect of it.
My concern with the defendants' formulation of this sub-paragraph of the order is that it is unclear (and remains unclear even after the reply submissions) what precisely the defendants comprehend would be included in the description of "holding" costs. In ordinary parlance, I would have assumed that what was meant by "holding" costs would be costs such as the interest incurred on borrowings while the land is retained (as, say, would be a developer's holding cost of land prior to its development). However, interest is already encompassed by proposed order 12(b) and the defendants in their reply submissions disavow any claim for "financing or other costs/expenses" in addition to the purchase price. In circumstances where the defendants have not here identified any particular "holding" costs that would be encompassed by this expression, and with a view to minimising the scope for ongoing disputation between the parties, I consider that the formulation by the plaintiffs should be preferred, noting again that issues as to whether particular costs were incurred or reasonably incurred in maintaining the property can be raised in the course of the accounting process by the referee.

Costs

This brings me to the principal area of dispute between the parties as to the proposed orders, namely costs.

Defendants' submissions on the question of costs

The defendants identify the costs of the proceedings as falling into three categories: first, the Manyana Property claim; second, the "Wallace Loan Claim"; and third, other claims maintained by the plaintiffs but ultimately abandoned.
As to the first (being the costs relating to the issues heard and determined by me in the principal judgment), the defendants note that it is agreed between the parties that the defendants should pay the plaintiffs' costs relating to that claim on the ordinary basis as agreed or assessed, and should not have recourse to the estate in relation to their own costs.
As to the second (being the costs relating to the Wallace Loan Claim), this relates to the making by the plaintiffs of various allegations against the defendants in relation to a loan payable to the estate by Matthew. The defendants note that this issue was raised before Robb J during the hearing in August 2019 (see Carrington v Wallace [2019] NSWSC 1301).
The defendants note that the hearing before Robb J proceeded on the basis that the plaintiffs alleged that a loan totalling $50,342.72 had not been repaid by Matthew to the estate (and that it was not then asserted that any other amount was due and owing - referring to the transcript of that hearing at T 19.42-20.15).
It is noted that Robb J (at 115-(10)) proposed that an order be made requiring Matthew to repay the loan at the agreed amount; and that those orders were subsequently made by consent on 28 November 2019 (orders 9 and 10), and the loan was repaid. The defendants note that in a subsequent judgment concerning costs, on 13 January 2020, Robb J noted that the order made in relation to the repayment of the Wallace Loan was made without judicial determination and an agreed position of the parties to resolve those disputes: (see Carrington v Wallace (No 2) [2020] NSWSC 5 at [5]).
However, when the matter proceeded (with the filing of a statement of claim on 31 December 2019 and an amended statement of claim on 21 February 2020), the plaintiffs sought further relief concerning the loan. The defendants' response to those pleadings was (among other things) that the Wallace Loan Claim had been resolved by reason of the parties' agreement and the orders made by Robb J; and that the plaintiffs were estopped from seeking the relief sought.
It is noted that the Wallace Loan Claim was maintained by the plaintiffs until the filing of the further amended statement of claim on 21 July 2021; and that the costs of the Wallace Loan Claim were reserved by Kunc J on 23 April 2021.
The defendants now seek an order that the plaintiffs pay the defendants' costs relating to the Wallace Loan Claim on an ordinary basis up to 28 November 2019 (being the date on which Robb J made orders finalising the issue concerning the Wallace Loan), and thereafter on an indemnity basis as agreed or assessed.
The defendants argue that the proposed order is justified in the present circumstances because: the claim was abandoned, and costs should follow the event; the defendants' costs were "thrown away" by reason of the plaintiffs' pleading amendment; and that the claim should never have been brought or maintained following Robb J's orders on 28 November 2019. It is submitted that, aside from the general merits of the claim, the matter had been resolved by agreement between the parties and recorded in the orders of the Court.
Alternatively, the defendants argue that their costs of the Wallace Loan Claim should be paid on the ordinary basis as agreed or assessed.
As to the third (being the costs referable to additional claims abandoned by the plaintiffs), the defendants seek an order that their costs of the proceeding other than the costs of the Manyana Property Claim and the Wallace Loan Claim be paid by the plaintiffs on the ordinary basis as agreed or assessed.
The defendants do not identify the additional claims that it is said were brought and abandoned, other than by reference to those summarised in Robb J's first judgment. These abandoned claims appear to include a claim pertaining to the realisation of the deceased's opal collection at an alleged undervalue (see [2019] NSWSC 1301 at [30]-[31]).
The defendants submit that the plaintiffs should be ordered to pay the defendants' costs of those claims in the ordinary course as costs thrown away by reason of the amendments to their claims or as claims which were abandoned.
As to costs more generally, the defendants seek an order, in respect of any costs of the defendants that the plaintiffs are ordered to pay, that, to the extent they remain unpaid, they be paid out of the estate from the plaintiffs' entitlements under the deceased's Will. It is noted that the plaintiffs propose a corresponding order in relation to costs of the plaintiffs which may be ordered to be paid by the defendants. The defendants submit that this is a conventional order, and should be made in respect of both the costs ordered to be paid by plaintiffs and defendants respectively.
Finally, the defendants seek an order (other than in respect of the costs of the Manyana Property Claim), confirming their entitlement to reimbursement of their costs from the estate. The defendants submit that, in respect of the costs incurred in responding to allegations made by the plaintiffs but ultimately abandoned, the defendants have conducted the proceedings honestly and reasonably. The defendants say that they are not aware of any reason which ought to disentitle them to their right to reimbursement from the estate.

Plaintiffs' submissions on the question of costs

In relation to the question of costs, the plaintiffs rely on an affidavit of their solicitor, Lauren Gidley, affirmed on 9 September 2022 (in addition to the other materials referred to in their submissions).
The plaintiffs identify the outstanding costs as relating to two main topics: first, the hearing of the further amended statement of claim (the Manyana Property Claim); and second, the costs of the balance of the proceeding (including the abandoned Wallace Loan Claim), and any other costs not caught by the orders made by Robb J (as set out above).
As to the first, as noted above, there appears to be no dispute that there should be the usual order as to costs with respect to the Manyana Property Claim (that claim being the only issue arising for determination following the filing of the further amended statement of claim on 14 May 2021), on which the plaintiffs were wholly successful. Moreover, the defendants do not seek an order that they be indemnified out of the estate for those costs (and hence it is not necessary to consider the submissions made by the plaintiffs in support of their opposition to any such indemnification).
The plaintiffs argue that, because of the representative character of the proceeding, the plaintiffs should receive the balance of their costs not paid by the defendants (being the difference between their ordinary and indemnity costs) from the estate of the deceased. That order is also not resisted by the defendants.
As to the appropriate costs orders in relation to the balance of the proceeding, the plaintiffs make the following submissions, referable to costs for particular time periods in the course of the litigation.
First, as to the time up to the filing on 31 December 2019 of the initial statement of claim (i.e., from the filing of the summons on 3 August 2018 to 31 December 2019), the plaintiffs submit that, to the extent that the parties had incurred costs up to the filing of the first statement of claim that are not covered by the orders made by Robb J on 5 February 2020, those costs (of both parties) should be paid from the estate of the deceased on an indemnity basis.
The plaintiffs note that the original summons principally sought relief seeking a distribution, which involved determination of substantially the same questions as the cross-summons filed by the defendants (namely, whether the plaintiffs had a vested entitlement to their respective shares of residue). It is said that other questions posed in the original summons in relation to the administration of the estate were not heard by Robb J at the original hearing but were case managed by his Honour, resulting in the filing of the statement of claim (an exercise that the plaintiffs say was designed to facilitate the resolution of the real issues involved in the balance of the administration of the estate).
Second, as to the costs incurred between the filing of the first statement of claim on 31 December 2019 and the final iteration of the statement of claim (being the further amended statement of claim which was filed on 14 May 2021), the plaintiffs note that the amended statement of claim filed on 21 February 2020 removed the relief sought for an interim distribution, amended the relief sought in relation to the Wallace Loan (including seeking an accounting of the loan) and removed the claim for a final account and a final distribution; and that the final amended statement of claim removed the loan relief (and added prayers of relief with respect to the Manyana Property Claim).
The plaintiffs say that, although Kunc J ordered that the costs of the abandoned Wallace Loan Claim be reserved, many of the costs of that abandonment will be caught by the order that the plaintiffs pay the defendants' costs thrown away by reason of the vacation of the hearing date.
The plaintiffs submit that the usual order with respect to the balance of the claims (i.e., that costs of successive amendments thrown away or that costs of abandoned relief be paid by the plaintiffs) should not be made.
The plaintiffs submit that, as trustees, the defendants were required to provide information (particularly following a reasonable request) as to, at least, how the residuary beneficiaries' entitlement to the estate had been calculated (this being information in the nature of an account, which trustees have a duty to keep), reference here being made by way of example to what was said in Spellson v George (1987) 11 NSWLR 300 at 315-316 per Powell J; and to Jacobs' Law of Trusts at pp 349-354.
The plaintiffs refer to the correspondence between January 2016 and February 2020 by which financial information and bank account statements relating to the estate were requested from the defendants; and to the varying responses to those requests over that time.
As to the Wallace Loan, the plaintiffs say that the first substantive response to their requests for information (providing a breakdown of the amount paid and said to be payable including interest calculations) was received by the plaintiffs' solicitor on 28 February 2020 (see Annexure D to Mischa's affidavit affirmed 11 June 2020 at [18]), shortly after the filing of the first amended statement of claim. It is noted that between that date and until 22 July 2020, the plaintiffs' solicitor posed further questions to the defendants with respect to the breakdown that had been provided, seeking clarification of a number of matters, to which responses were given (referring to Ms Gidley's affidavit affirmed 9 September 2022); and that, in a letter dated 22 July 2020, the defendants' solicitors advised that the matters raised in the plaintiffs' solicitors' letter of 14 July 2020 (which summarised some previous requests), would be addressed in their clients' evidence.
The plaintiffs say that it was only upon the service of the affidavit sworn by Matthew on 24 July 2020 (which gave a comprehensive and detailed explanation of terms and amounts of the loan that had been repaid including calculations) that the plaintiffs were in a position to consider whether any further accounting or explanation for the loan was warranted.
It is submitted that, on one view, this exchange of correspondence and evidence in the context of the first and second statements of claim was, in essence, a process by which the executors were acting in accordance with their duty to respond to reasonable requests made for information by beneficiaries, and to account for their dealings with the deceased's estate.
As to the Wallace Loan Claim, the plaintiffs say that if the substance of the document served on 28 February 2020 (Annexure D), as expanded upon in correspondence and then in Matthew's affidavit sworn on 24 July 2020, had been conveyed to the plaintiffs in response to their repeated requests, then there would have been no need for that claim to be brought at all.
The plaintiffs maintain that it was appropriate for Matthew, a debtor of the estate (and also an executor in that capacity), to account in a detailed, clear and comprehensive way the basis upon which he calculated the amounts he owed to the deceased's estate. The plaintiffs say that repeated assertions about what was owed was not adequate; rather, that what was required (which the plaintiffs accept was eventually provided), was the basis of the calculations.
The plaintiffs submit that they should not be personally burdened with Matthew's costs of articulating such matters to the residuary beneficiaries.
In reply submissions responding to the defendants' submissions (at [20]-[35]) relating to the Wallace Loan Claim, the plaintiffs note that the relevant order made by Robb J on 28 November 2019 was in the following terms: Note the first defendant has agreed and informed the Court that he accepts that he is indebted to the estate of the deceased in respect of the loan of $50,342.72 listed in the inventory of property of the deceased, and that the debt is repayable immediately.
The plaintiffs say that neither that, nor any of Robb J's other orders, contains any notation of an agreement by the plaintiffs in relation to the loan (and, they emphasise, certainly not any agreement by the plaintiffs that the amount agreed to be repaid was the entire extent of moneys said to be owing by Matthew). It is noted that, in his judgment, Robb J did not decide a number of issues in relation to the deceased's estate (that were ultimately raised in the statement of claim as the orders contemplated). The plaintiffs say that such agreement between the parties as there was is contained in the agreements noted in the 28 November 2019 orders (referring to [5] of the costs judgment relied upon by the defendants) and that those orders contained no agreement or concession on the part of the plaintiffs that the extent of the indebtedness of Matthew was limited to $50,342.72.
The plaintiffs say that, in circumstances where his Honour did not decide the issue (and in the context of what was essentially an exchange in the nature of directions or case management), the section of the transcript cited by the defendants should not be taken as grounding any estoppel or forming an admission of any kind that would have a bearing on costs or otherwise.
The defendants, in their reply submissions, cavil with the submissions by the plaintiffs as to the costs of the Wallace Loan Claim. First, the defendants point out that the Wallace Loan Claim brought by the plaintiffs was not for an enquiry or account (or some other claim relating to an alleged failure to provide information); rather, the defendants say that the plaintiffs made positive allegations concerning the existence of a loan and questioned amounts said to have been outstanding (even during the period in which Mischa was a party to the loan). Second, the defendants say that the plaintiffs' submissions at [29] tacitly concede that the claim was brought without a reasonably arguable basis and was doomed to fail. The defendants say that it is entirely inappropriate for a plaintiff to assert in pleadings that a trustee has committed a breach of trust in relation to unknown facts and circumstances and then, after putting the defendant to the costs of defending the claim, seek to withdraw it without any cost or other consequences. Third, the defendants say that, irrespective of any grievances the plaintiffs may have had concerning requests for information, the issue concerning the Wallace Loan Claim was finally resolved by agreement between the parties during the course of the hearing before Robb J in 2019 (in the circumstances set out in the defendants' initial written submissions). The defendants maintain their position that this claim should not have been brought or prosecuted following that agreement.

Determination as to costs

As noted, there is no dispute that there should be an order that the defendants pay the plaintiffs' costs of the Manyana Property Claim, without recourse to the estate, on the ordinary basis; and that, insofar as any such costs remain unpaid, they should be paid (to the extent that such moneys are available) out of the share of the deceased's estate that passes to Ashley under the deceased's Will. Nor is there any dispute that the defendants should bear their own costs of the proceeding in relation to the Manyana Property Claim without recourse to the estate of the deceased (i.e., without indemnification). Orders to that effect will be made.
As to the costs of the Wallace Loan Claim, the competing contentions (as set out above) effectively are that: on the defendants' version of the costs orders, the plaintiffs should pay the defendants' costs on an ordinary basis until 28 November 2019 (the date of the orders made by Robb J) and thereafter on an indemnity basis (with an order that insofar as those remain unpaid they be borne, to the extent that such moneys are available, out of the share of the estate that passes to the plaintiffs under the deceased's Will); whereas on the plaintiffs' version, the parties should bear their own costs (and insofar as the defendants are concerned without recourse to the deceased's estate).
In relation to the costs of the Wallace Loan Claim, there is a tension between the competing positions arising from the fact that, at least on one view (though the plaintiffs say there was no agreement that this was the case), the claim seemed to have been resolved by the consent orders made by Robb J in November 2019 for the repayment of the then claimed amount of the loan. It does not appear that any order was sought for the costs of that claim when it was resolved by those consent orders and when the matter was before Robb J.
To the extent that relief was subsequently sought in relation to the Wallace Loan, seemingly based on the residuary beneficiaries' entitlement to an account from the executors (even though by this stage orders had been made for the repayment of an agreed amount in respect of that loan), there is some force to the complaint by the defendants that, in effect, this was revisiting the issue in relation to that dispute but equally there appears to have been some failure on the part of the executors to appreciate their duties to provide information to the residuary beneficiaries.
In any event, the position in relation to those costs is not dissimilar to that which is considered in cases where costs are sought in respect of a claim which was not the subject of a final determination on its merits. In Re Minister for Immigration and Ethnic Affairs (Cth); Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 (Lai Qin), McHugh J expressed the view that where there has been no hearing on the merits, ordinarily in the proper exercise of the Court's discretion there will be no order as to costs (having regard to the undesirability of embarking on an hypothetical trial in the guise of a costs application) (see at 624-625). In that regard, I note the observations of Payne JA in Nichols v NFS Agribusiness Pty Ltd (2018) 97 NSWLR 681; [2018] NSWCA 84 at [25]-[30], and the application of those principles in TOMRA Collection Pty Ltd v Minto [2021] NSWSC 1323 at [56].
Taking the respective contentions in sequence, and noting the Court's broad discretion as to costs (s 98 of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act); see Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 (Oshlack)) but that the discretion must be exercised judicially (see Oshlack at [22] per Gaudron and Gummow JJ), and having regard to the requirement imposed by s 56 of the Civil Procedure Act to give effect to the overriding purpose of the facilitation of the just, quick and cheap resolution of the real issues in dispute in the proceeding, my conclusions are as follows.
I do not accept that there should be an order (as the defendants contend) that the plaintiffs pay the defendants' costs relating to the Wallace Loan Claim on an ordinary basis up to 28 November 2019 (being the date on which orders were made finalising that issue). The plaintiffs had alleged that Matthew owed moneys to the estate for repayment of the alleged loan and orders were made for that loan to be repaid. It is by no means made clear by the defendants why the plaintiffs should pay the defendants' costs on an issue that was resolved (albeit without judicial determination) by an order providing relief to address the loan that the plaintiffs were alleging was owed to the estate - and which up until then had seemingly been resisted by the defendants (or at least by the relevant defendant, Matthew).
The plaintiffs, as I understand their submissions, propose that all parties' costs up to the filing of the first statement of claim (other than costs the subject of Robb J's orders of 5 February 2020) be paid out of the estate on an indemnity basis. I consider that to be an appropriate order in circumstances where the remaining issues up to that point related to the proper administration of the estate.
As to the costs of the Wallace Loan Claim that were incurred by the parties after the filing of the statement of claim and then successive amended statements of claim: first, I see no reason to disturb Kunc J's order of 23 April 2021 that the plaintiffs pay the defendants' costs thrown away by reason of the vacation of the hearing fixed for 28 and 29 April 2021 (those costs presumably being limited, largely if not wholly, to the costs of any duplication in preparation for the re-listed hearing at a later stage); second, insofar as costs were "thrown away" by the pleading amendment(s), those costs would be limited to the cost of re-pleading and would not extend to costs of defending the claim per se; third, as to the defendants' claim for their costs of the Wallace Loan Claim on an indemnity basis because that claim was subsequently abandoned, in my opinion the usual position in relation to claims not heard on their merits would apply (see Lai Qin; and Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [54] per Hodgson JA, Tobias and Basten JJA agreeing) and see also, in the context of abandoned or discontinued claims Freelancer International Pty Ltd v Matthew O'Kane [2019] NSWSC 159; Murrumbidgee Irrigation Ltd v M & H Acar Pty Ltd [2019] NSWSC 807 should apply and there would be no order made as to the costs of the claim on that basis; fourth, as to the defendants' claim for the costs of the Wallace Loan Claim on an indemnity basis, on the basis that it should never have been brought or maintained following Robb J's orders, but in the alternative on the ordinary basis, that raises the tension referred to above between the bringing of a claim for an account in respect of a loan already the subject of consent orders but in circumstances where the residuary beneficiaries were entitled to and subsequently received such an account - and in all the circumstances I consider that the appropriate order is simply for each party to bear his or her own costs in relation to the Wallace Loan Claim without recourse to the estate of the deceased.
As to the balance of the costs of the proceeding, the competing positions appear to be that: on the defendants' version, orders are sought that the plaintiffs pay the defendants' costs on the ordinary basis (and any such costs that remain unpaid should be paid to the extent that moneys are available out of the estate that passes to the plaintiffs under the deceased's Will); and, on the plaintiffs' version, that all parties' costs up to 5 February 2020 (not otherwise the subject of Robb J's order) be paid out of the estate on an indemnity basis and the balance of the plaintiffs' costs be paid by the defendants personally, without recourse to the estate of the deceased (with a similar order that any amounts unpaid be paid to the extent there is money available out of Ashley's share of the estate).
In that regard, the defendants' contention that the costs of additional claims that were brought but later abandoned (as summarised in Robb J's judgment) should be borne by the plaintiffs (as costs thrown away by reason of amendments to the pleading or as abandoned claims), I have already noted my view that an order for costs thrown away by reason of an amendment to a pleading would ordinarily be limited to the costs of re-pleading. As to the abandonment of the claims, this calls to mind (although I accept is not on all fours with) the issue of whether there should be an apportionment of costs across particular issues where there have been multiple issues in a proceeding - i.e., whether a successful plaintiff should recover costs for issues on which the plaintiff did not ultimately succeed (see for example the discussion as to the issue of apportionment of costs in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 (Bostik) at [38] per the Court (Beazley JA (as Her Excellency then was) Ipp and Basten JJA); and Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373).
Having regard to the limited significance of the issues that were ultimately abandoned (particularly, the claim as to the sale of the deceased's opal collection at an alleged undervalue) in the context of the dispute as a whole, while I accept that there was much evolution of the plaintiffs' claim, ultimately I consider that the plaintiffs were successful in the outcome and that they should not be required to pay the defendants' costs of those aspects of the claim that were ultimately abandoned; nor should the costs order in their favour be limited in that regard; but, equally, that the defendants should be indemnified out of the estate for their costs of defending (up until their abandonment) those additional claims.
Finally, the defendants seek an order that (other than as to the costs in relation to the Manyana Property Claim) they be indemnified out of the estate of the deceased, whereas the plaintiffs seek an order that the defendants bear their own costs personally without recourse to the estate of the deceased. The plaintiffs also seek an order that the balance of the plaintiffs' total costs (being the difference, if any, between their ordinary and indemnity costs) not recovered from the defendants personally be paid from the estate of the deceased.
As to those last matters, it is certainly the case that, as executors of the estate, the defendants would normally be entitled to be indemnified from the estate to the extent that they have not acted unreasonably (see, in this context Bassett v Bassett [2021] NSWCA 320). Where an executor is pursuing or defending his or her own personal interests, a different result may follow (see for example Warton v Yeo (2015) 15 ASTLR 462; [2015] NSWCA 115 at [72]).
In the present case, the defence of the Wallace Loan Claim, at least as far as Matthew was concerned, involved a claim in which Matthew was personally involved. Insofar so far as the claim was seeking an accounting from the executors, Ashley also may be criticised for failing to respond to those enquiries but did not have a personal interest in that claim. I consider that Matthew should not be indemnified out of the estate of the deceased for the costs of defending the Wallace Loan Claim but that to the extent that Ashley separately incurred costs in defending that claim those should be indemnified out of the estate. As to the additional (abandoned) claims, as noted above, I consider that the defendants as executors should be indemnified out of the estate for those claims.
As to the claim by the plaintiffs for the difference between costs recoverable on an ordinary and indemnity basis to be borne out of the estate, I am not persuaded that such an order should be made. The issue which was the nub of the dispute that was heard by me was not one of the deceased's own making - it was a result of disputes between the executors and the plaintiffs; and the appropriate costs position is reflected by orders on the ordinary basis as indicated above.

Orders

For the above reasons, I now make the following orders (adopting the heading and numbering of the competing versions of the short minutes provided to me, for ease of reference). Independent Administrator 1. Order that the grant of probate dated 27 May 2016 of the Will dated 18 April 2015 of the late Edward Joseph Carrington (the deceased) to the first and second defendants be revoked. 2. Order that a person to be nominated by the President of the Law Society be appointed as the independent administrator of the deceased's estate (the Administrator). 3. Order that, subject to compliance with the Probate Rules, Letters of Administration with the deceased's Will dated 18 April 2015 annexed, be granted to the Administrator. 4. Order that the matter be remitted to the Senior Deputy Probate Registrar to complete the grant. 5. Order for dispensation of any requirement for an administration bond or sureties. 6. Order that the defendants transfer, deliver up, or otherwise take all such steps as might be reasonably necessary, to provide to the Administrator all property, real or personal, and all documents including financial records, comprising the deceased's estate, within 21 days of the date of these orders. 7. Order that the Administrator shall be entitled: 1. to make and be paid from the estate of the deceased all usual and proper charges at the hourly rates applicable to the legal practice in which the Administrator is engaged on its usual terms for payment: 1. for his or her work as administrator or trustee of the estate or both; 2. for the professional and non-professional services rendered by his or her or that legal practice in the administration of the estate of the deceased pursuant to these orders; and 1. to engage the services of any other legal practitioner, accountant or other professional adviser in relation to the administration of the estate where the Administrator considers it necessary to do so and to pay from the estate the costs incurred in having those services provided. Sale of the Manyana Property 1. The Court notes the agreement of the parties that: 1. the Manyana Property will be marketed for sale as soon as reasonably practicable; 2. the second defendant will provide a power of attorney to the Administrator authorising the Administrator to do all things reasonably necessary to market for sale and sell the Manyana Property, including engaging a selling agent, setting a reserve price, and negotiating and executing a contract for sale; 3. the first registered mortgagee will be paid at settlement; 4. the net proceeds of any sale are to be paid to the deceased's estate or otherwise as directed by the Administrator; 5. the second defendant consents to the lodgement of a caveat over the Manyana Property in favour of the deceased's estate in respect of his obligations under this agreement; 6. the Administrator will be solely responsible for facilitating the sale of the Manyana Property including the engagement of a selling agent, the setting of a reserve price and otherwise providing instructions to any selling agent concerning the sale of the Manyana Property; and 7. all costs and expenses, including taxes (if any) relating to the sale of the Manyana Property be paid by the deceased's estate. 1. The Court notes the undertaking by the second defendant, by his instructed solicitors, that he will do all things reasonably necessary to facilitate the sale of the Manyana Property, including executing any documents as requested by the Administrator. (9A) Order that the maintenance costs for the Manyana Property including, but not limited to council and water rates, land tax, insurance premiums and general maintenance costs be paid out of the deceased's estate until the Manyana Property is sold. Accounting 1. Order that an account be taken of the amount owing from the second defendant to the deceased's estate for: 1. any net profits made by the second defendant in respect of the Manyana Property from 6 February 2017 to the date upon which the Manyana Property is sold; 2. an occupation fee referable to the Manyana Property for the period from 6 February 2017 to the date upon which the Manyana Property is sold, less any period in which the Manyana Property was leased by the second defendant; and 3. any amounts paid at settlement in discharge of the mortgage to the first registered mortgagee of the Manyana Property as part of the sale contemplated by these orders plus interest at a rate to be determined. 1. Order that the second defendant pay to the Administrator the balance of the amounts payable pursuant to the accounts referred to in the immediately preceding order, after taking into account any amounts payable under order 12 below. 2. Order that an account be taken of the amount owing from the deceased's estate to the second defendant for: 1. the purchase price paid for the Manyana Property being $465,000 plus stamp duty paid by the second defendant on the sale to the second defendant of the Manyana Property; 2. interest at a rate to be determined on the purchase price of $465,000 from 6 February 2017 to the date upon which the Manyana Property is sold; 3. the costs paid by the second defendant of maintaining the Manyana Property, including, but not limited to, council and water rates, land tax, insurance premiums and general maintenance costs, from 6 February 2017 to the date upon which the Manyana Property is sold; and 4. the value of any permanent improvements effected by the second defendant to the Manyana Property from 6 February 2017 to the date upon which the Manyana Property is sold. 1. Order that the Administrator pay to the second defendant the balance of the amounts payable pursuant to the accounts referred to above at order 11 of these orders, after taking into account any amounts payable under order 12 of these orders. 2. Order, pursuant to UCPR r 20.14 and r 20.15, that the Administrator be appointed as a referee to provide a report as to the amount of the accounts to be taken which are referred to in orders 11 and 12 above (the Referee). 3. Order that the Referee obtain assistance as required (whether by formal reports or otherwise) from one or more (as the Referee may deem fit) suitably qualified: 1. valuers as to the value of any permanent improvements effected by the second defendant for the purpose of assessing the matters in order 12(d); 2. real estate agents as to the market rental value of the Manyana Property for the purpose of assessing the matters in order 10(b). 1. Order that the Referee shall be entitled to be paid from the estate of the deceased for the Referee's professional fees and disbursements in accordance with his or her usual terms of business in performing the matters set out in these orders. 2. Order that the Referee may require the parties to provide submissions or documents as to matters upon which he or she is required to report pursuant to these orders and to impose such requirements as they consider appropriate and reasonable, including as to the timing of said submissions, with respect to the same. 3. Order that the Referee may consider and give effect to any agreement of the parties to these proceedings, in writing, in whole or in part, as to the matters upon which he or she is required to report pursuant to these orders. Notation as to Costs 1. The Court notes order 1 of the orders made by Robb J on 5 February 2020, namely: Order that the parties' costs of the proceedings relating to the construction of the last Will and Testament of the late Edward Carrington, and the cross claim, be paid out of the estate on an indemnity basis as agreed or assessed. 1. The Court notes orders 1 and 2 of the orders made by Kunc J on 23 April 2021, namely: 1. Vacate the hearing fixed for 28 and 29 April 2021 before Kunc J. 2. The plaintiffs are to pay the defendants' costs thrown away by reason of order 1. Liberty 1. Grant liberty to the parties and to the Administrator/Referee to apply, in the present proceeding, for consequential and ancillary orders for the purpose of, or with respect to, giving effect to and implementing these orders. Costs 1. Order that the parties' costs of the proceeding up to 19 December 2021 that are not otherwise dealt with pursuant to order 1 of the orders made by Robb J on 5 February 2020 be paid from the estate of the deceased on the indemnity basis. 2. Order that the plaintiffs' costs relating to the "Manyana Property Claim", referred to at prayers 4A, 4B, 4C and 5 of the further amended statement of claim filed in this proceeding (and in the previous iterations of this pleading) be paid by the defendants personally, without recourse to the estate of the deceased, on the ordinary basis, and otherwise that the plaintiffs bear their own costs. 3. Orders that insofar as the costs pursuant to order 23 remain unpaid, they are to be paid (to the extent that such moneys are available) out of the share of the deceased's estate that passes to the second defendant under the deceased's Will. 4. Order that the defendants bear their own costs of the proceeding in relation to the "Manyana Property Claim" without recourse to the estate of the deceased. 5. Order that each of the parties bear his or her own costs relating to the "Wallace Loan Claim" (see prayer 2, 3, 4 and 6 of the statement of claim filed on 31 December 2019, and prayers 2, 3, 3A and 3B of the amended statement of claim filed on 21 February 2020), from 5 February 2020, without recourse to the estate of the deceased. 6. Order that the plaintiffs' costs of the balance of the proceeding be paid by the defendants on the ordinary basis as agreed or assessed. 7. Order that insofar as the costs pursuant to order (27) remain unpaid, they are to be paid (to the extent that such moneys are available) out of the share of the deceased's estate that passes to the second defendant under the Deceased's Will. 8. Order that, other than their costs relating to the Manyana Property claim and the Wallace Loan Claim (save as to any costs separately incurred by the second defendant in relation to the Wallace Loan Claim), the defendants be entitled to reimbursement of their legal expenses from the deceased's estate in respect of their costs.

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: 28 September 2022

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Judgment (12 paragraphs)

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Cases Cited (26)