Mr Grosfeld's right to be indemnified out of the estate in respect of his costs of defending the proceedings
20The costs Mr Grosfeld incurred in defending the proceedings were paid to his solicitors and counsel from time to time as the proceedings progressed. On 23 February 2011, I made an order, until further order, restraining Mr Grosfeld from disbursing estate funds otherwise than in payment of reasonable legal costs and disbursements in connection with the proceedings, or in respect of other expenses reasonably incurred in respect of the administration of the estate, or liabilities of the estate (other than any liability for executor's fees or remuneration). It was not then argued that Mr Grosfeld should not be entitled to use estate funds in payment of reasonable legal costs and disbursements. There was no argument about this issue. The exclusion of payment of reasonable legal costs and disbursements from the injunction against the disbursement of estate funds did not imply an authority to use estate funds in payment of costs and disbursements in defending the claims against Mr Grosfeld personally for his removal as executor. Nor did Mr Lakeman for Mr Grosfeld contend to the contrary. Rather, Mr Lakeman submitted that Mr Grosfeld was entitled to be indemnified out of the estate for the legal costs he reasonably incurred in defending the attack made on him.
21Mr Lakeman relied upon passages in Jacobs' Law of Trusts in Australia, 7th ed at [2104] and [2109] (pp 567, 571). There, the learned authors said, in relation to the trustee's right of indemnity out of trust assets:
"But what of defaults by the trustee dehors the transaction in respect of which he claims indemnity? The better view is that the right is not lost by any such breach of trust for so to deprive the trustee is, as Sir George Jessel MR put it, a violent exercise.
... Ordinarily, in litigation relating to the administration of trust property, unless a trustee has been guilty of some misconduct, the trustee is entitled as of right to costs out of the estate, or at least as between solicitor and client."
22Mr Lakeman submitted that the allegations on which the plaintiffs did not succeed were the subject of and included in 11 volumes of court books of affidavits and submissions and involved matters relating to the administration of the estate which Mr Grosfeld as executor could reasonably be expected to defend as part of his administration of trust property. The allegations included that he had failed to comply with orders of the Court, that he had failed to comply with reasonable requests for information, that he had failed to pay the estate's debts, and that he had failed properly to defend the family provision proceedings. These allegations were not upheld. There were also allegations about the timing of the sale of the Abbotsford property and the transfer of the Lexus motor vehicle to one of the beneficiaries that did not succeed. I accept that Mr Grosfeld would have acted reasonably in defending those claims if those were the only claims against him. Mr Lakeman submitted that Mr Grosfeld's removal as executor was not due to the maladministration of the estate, but through the deficiencies in his accounting for the use of trust funds that emerged following cross-examination, whereas the vast majority of the preparation and some of the hearing time was spent on matters of administration on which the plaintiffs were unsuccessful and which Mr Grosfeld was reasonably entitled to defend. He submitted that in defending his actions in relation to the administration of the estate, Mr Grosfeld was acting not for his own benefit, but for the benefit of the estate. He was entitled, so it was submitted, to defend those actions and recoup himself from the estate the costs of doing so.
23I do not think that the passages cited from Jacobs or the authorities cited in Jacobs in support of those passages assist Mr Grosfeld. The "transaction" in respect of which Mr Grosfeld claimed indemnity out of the trust estate was the defence of the claim that he be removed as executor. The question whether Mr Grosfeld was entitled to indemnify himself for the costs of defending himself against that claim is unaffected by any defaults unrelated to that claim. Mr Grosfeld was unsuccessful in defending the claim for his removal because I found that he was guilty of misconduct. The expenses for which he obtained indemnity out of the estate were not unrelated to that default.
24Mr Lakeman's submission for Mr Grosfeld was in substance that he was entitled to defend himself against most of the allegations made about his administration of the estate and therefore was entitled to be indemnified out of the estate for the costs of doing so.
25In Macedonian Orthodox Community Church St. Petka Inc v His Eminence Petar [2008] HCA 42; (2008) 237 CLR 66, Gummow A-CJ, Kirby, Hayne and Heydon JJ said (at [74]) that a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings. Mr Grosfeld did not seek such advice. Had he done so, and had he made disclosure of all material facts, as he would have been bound to do to obtain the benefit of the protection of judicial advice, he would not have been advised that he was entitled to use the estate's assets to defend the claim. That is, had Mr Grosfeld applied for judicial advice as to whether he was justified in defending the claim for his removal, and disclosed that he had used moneys of the estate for his own purposes and had concealed having done so in the form of his account, he would not have received judicial advice that he was justified in defending the proceedings, nor that he was justified in using the moneys of the estate to do so.
26In Re Will of Skaftouros; Skaftouros v Dimos [2002] VSC 198, Mandie J held that it was improper for an executor to use the funds of the estate to defend a claim for his removal as executor, because it was for the Court to decide at the conclusion of the proceedings (or some other appropriate time) whether the executor was entitled to his costs out of the estate (at [206]-[211]). This decision was referred to with approval in Williams v Williams [2004] QSC 269; [2004] 1 Qd R 105 at [30]. In light of the High Court's decision in the Macedonian Church case, this proposition must be correct.
27The authorities on the question whether a trustee, executor or other fiduciary is entitled to be indemnified out of the estate for costs incurred in the unsuccessful defence of a claim for his or her removal from office are not uniform. In Mavrideros v Mack (1998) 45 NSWLR 80, the Court of Appeal ordered that the executor whose removal was warranted repay the estate his costs of the proceedings and not deduct his costs until his accounts had been passed. In Re Biposo; Condon v Rodgers (1995) 13 ACLC 1,271 Young J removed the liquidators of a company on the ground that they did not appreciate the independence required for the discharge of their duties, but ordered that their costs be paid out of the company's assets.
28In Fay v Moramba Services Pty Ltd [2010] NSWSC 725, the trustees of a testamentary trust successfully resisted a claim that they be removed. It was in that context that Brereton J said (at [4]):
"[4] ... Having been party to the proceedings in their capacity as trustees, the defendants are entitled to an indemnity from the trust fund for all of their costs (not just party/party costs) on an indemnity basis [UCPR, r 42.25; National Trustees Executors and Agency Co of Australasia v Barnes (1941) 64 CLR 268; Bovaird v Frost [2009] NSWSC 917, [26]-[45]; Drummond v Drummond [1999] NSWSC 923, [43]-[47]]. Although the view has been expressed that a trustee who defends an action for his removal thereby represents his or her own interests and not those of the trust estate [Miller v Cameron (1936) 54 CLR 572 at 578 (Latham CJ)], the predominant view is that if the costs are incurred as an incident of administration of the estate, the trustee is entitled to be indemnified in respect of them, and where trustees are sued by beneficiaries complaining of some act or omission, the trustee is entitled to defend his or her conduct as an incident of administration and to be indemnified in respect of the costs of so doing [Re Llewellin; Llewellin v Williams (1887) 37 Ch D 317 at 327; National Trustees Executors and Agency Co of Australasia v Barnes, 278-9]. It follows that to the extent that the defendants do not recover full indemnification of their costs from the plaintiffs, they are entitled to be indemnified by the trust estate. Here, the defendants were sued in their capacity as trustees of the testamentary trust, and are therefore entitled to be indemnified from the assets of that trust."
29The authorities were referred to by Ward J (as her Honour then was) in Frost v Fallon [2011] NSWSC 591 on an application for judicial advice. Her Honour said (at [66] and [67]):
"[66] There is certainly authority to support the proposition that if costs of the litigation are incurred as an incident of the administration of an estate, the trustee is entitled to be indemnified in respect of them, even where trustees are sued by beneficiaries complaining of some act or omission. In Fay v Moramba Services Pty Ltd [2010] NSWSC 725, Brereton J at [4] held that the trustee is entitled to defend his or her conduct as an incident of administration and to be indemnified in respect of the costs of so doing. While there is authority to the contrary, that a trustee who defends an action for his/her removal thereby represents his/her own interests and not those of the trust estate, and therefore should not be indemnified out of trust assets as the defence of such proceedings is not part of the proper administration of the trust (see, for example, Miller v Cameron (1936) 54 CLR 572 per Latham CJ at [578]), the predominant view seems to be that expressed by Brereton J in Fay v Moramba (above) (see National Trustees v Barnes at [278]-[279]; Arena Management Pty Ltd (rec & mgr apptd) v Campbell St Theatre Pty Ltd [2011] NSWCA 128; Kation Pty Ltd v Lamru Pty Ltd; Lewis v Nortex Pty Ltd (In Liq) [2009] NSWCA 145 at [213] per Hodgson JA). It has, of course, also been held that a lack of reasonableness in defending proceedings may disentitle a trustee to his or her costs (Drummond v Drummond [1999] NSWSC 923 at [44]-[47] per Austin J).
[67] Insofar as the present application is concerned, Brereton J in the very proceedings the subject of appeal noted that it was both desirable and prudent for a trustee promptly to obtain judicial advice as to possible proceedings, 'lest it otherwise be suggested that they have been gambling with money that is not their own' (Bovaird v Frost [2009] NSWSC 917 at [32] per Brereton J). Therefore, the conduct of the executors in seeking advice as to whether to prosecute the appeal now on foot in the Full Federal Court cannot be criticised."
30In Drummond v Drummond [1999] NSWSC 923, Austin J found that the executor was not entitled to be indemnified out of the estate for his costs of defending a claim brought by beneficiaries of the estate on the ground that he had acted obstructively, unreasonably and in disregard of his clear duty as executor (at [46]) and in substance was defending his own interests rather than representing those of the trust estate (at [47]-[48]).
31Mr Grosfeld was entitled to be indemnified out of the estate only in respect of costs properly incurred. The costs he deducted from the estate for defending the claim for his removal were not properly incurred by him in acting as executor for the following reasons. First, there was a challenge to the quantum of his executorial charges. He claimed to be entitled to charge a fee of $250 per hour plus GST for carrying out executorial work. He had a personal financial interest in remaining as executor. Secondly, he had been guilty of using the estate funds for his own private purposes and then concealing that conduct by the making of false statements in the verified account as to the identity of the payee of moneys and the purposes for which they were paid. Thirdly, he did not seek judicial advice as to whether or not he would be justified in defending the proceedings for his removal.
32It follows that Mr Grosfeld did not act properly in using the moneys of the estate to defend his own position. The fact that the plaintiffs made allegations Mr Grosfeld was entitled to resist loses its significance when one adds the fact that he had been guilty of misconduct that he concealed which warranted his removal. I conclude that he did not act properly or reasonably in using the estate funds to defend the claim for his removal. I will order that Mr Grosfeld repay the estate the moneys paid out of the estate for his costs of defending the proceedings.
33It should be clear that this order will relate only to moneys paid from the estate in defence of these proceedings. It does not affect Mr Grosfeld's entitlement to an indemnity in respect of costs properly incurred in the family provision proceedings, nor Mrs Fitzpatrick's proceedings, nor the probate proceedings brought by Jennifer Brown and Ian Chick, nor otherwise in relation to the administration of the estate.