Chow v Chow

Supreme Court of NSW|2016-02-19|Before: Robb J

Chow Kwork Ching (as executor of the estate of Chow Cho Poon & co-trustee of the testamentary trust of the residuary estate of Chow Cho Poon) (first defendant) Chan Pik Yun Peggy Chow (as co-trustee of the testamentary trust of the residuary estate of Chow Cho Poon) (second defendant) Representation: Counsel: PH Blackburn-Hart SC/DM Tucker M Walton SC/MW Sneddon (defendants)

Solicitors: Arnold Bloch Leibler (plaintiffs) Minter Ellison (defendants) File Number(s): 2013/190172 Publication restriction: None

Introduction

The application before the court is made by a notice of motion filed on 24 August 2015 by Chow Kwok Ching and Chan Pik Yun Peggy Chow, who are the executors and trustees of the testamentary trust of the residuary estate of the late Chow Cho Poon (the "deceased"). For convenience, I will call the applicants the "trustees".

Accounts prepared for the trustees

As appears from the affidavit of Mr Brett Adam Mitchell, who is the chartered accountant currently retained by the trustees, the accounts prepared on behalf of the trustees were exhibited to the affidavits of Dr Chow Kwok Ching sworn 28 August 2014 and 16 October 2014. For convenience, the trustees only tendered on the hearing of the review application a sample of the accounts, being the accounts for the year ended 30 June 2008 (exhibit A).
Mr Mitchell is a partner of KPMG. He explained that accounts for the period 1998 to 2003 were prepared for the trustees by Deloitte; the accounts for 2004 were prepared by Ernst & Young; and the accounts for the period 2005 to 2014 were prepared by KPMG, based upon information and source documents provided to KPMG by the trustees' solicitors.
The accounts for the period 2005 onwards were prepared by KPMG in accordance with "APES 315: Compilation of Financial Information". Mr Mitchell said that he understood that in prior years this format was followed by the previous accountants retained by the trustees, and was accepted by the trustees and the beneficiaries of the estate. (There is no direct evidence of any of the accounts prepared on behalf of the trustees being sent to the beneficiaries of the estate, or of those beneficiaries accepting those accounts.)
Mr Mitchell said that, due to the size and complexity of the estate, the accounts were processed through a well-recognised accounting software ledger package known as "Xero". As I understand his evidence in cross examination, Xero was used for the period from 2010/2011 onwards, while previously MYOB software was used, back to the inception of the testamentary trust.
KPMG prepared the accounts in the format that the trustees have submitted to the court to be passed during 2014. They did so using the data stored in their computer system using the Xero or MYOB software, and documents provided by the trustees' solicitors, in relation to the period from 2005. KPMG used whatever materials could be provided to them by the solicitors for the trustees in relation to the earlier period, when they did not prepare the accounts for the trustees.
The evidence is that annual accounts were prepared for the trustees in each year, in the usual way some six to nine months after 30 June. To the extent possible, KPMG used the available data to produce more extensive accounts for the trustees for the purpose of submitting those accounts to the court to be passed. That process was eventually simplified, where KPMG had available the relevant data stored electronically.
Mr Mitchell explained the format in which the accounts were prepared in 2014, for the period in which KPMG had prepared the original accounts; that is from the 2005 year. They consist of a profit and loss statement, a detailed balance sheet, a cash summary statement, a summary of the bank accounts and their movements for the reporting period, a detailed transaction report (similar to a general ledger, which lists every deposit and withdrawal during the reporting period and the account to which it has been allocated), the previous statement of administration (which Mr Mitchell understood had been prepared in the same format since the inception of the trust), and distribution schedules, which detail for each beneficiary the share of the profit allocation for the reporting period (which records the net profit of the estate as shown in the profit and loss, the capital items that were included in the profit and loss, i.e. unrealised revaluation of assets, and the amount available for distribution to the beneficiaries).
For the years up to 2004, KPMG prepared a "reduced disclosure" set of accounts, based on the information the previous accountants were able to locate. Each year had a varying amount of information and the reduced disclosure aimed to reconcile the accounts to the best of KPMG's ability with the documents available. Mr Mitchell explained that the accounts prepared for the early years of the testamentary trust only contained limited information, which was very limited in the case of the first two years' of accounts.
As the only full accounts that were tendered on the application to review Registrar Studdert's determination were the 2008 accounts, the court does not have all of the evidence that was placed before Registrar Studdert. It is not clear what the expression "reduced disclosure" means in relation to each of the accounts for the period before the 2005 accounts.
Mr Mitchell said in his affidavit: 18. The Accounts have been prepared in accordance with the recognition and measurement aspects of applicable Australian Accounting Standards adopted by the Australian Accounting Standards Board. 19. I am of the opinion that due to the size, complexity and longevity of the Estate which is the subject of these proceedings, the format of the Accounts presented in this way is both appropriate and necessary to meet the needs of the users of the Accounts.
Mr Mitchell expressed the view that, due to the longevity of the estate, and the number of estate bank accounts, it was warranted that the accounts be prepared in this manner; that is, using a recognised accounting package, and adopting the recognition and measurement aspects of applicable accounting standards. He said that the preparation of the accounts in this manner was suitably accountable and "risk averse". He said in par 27(c) of his affidavit: … A good example of this is the recognition of the market value of the listed shares and the current Australian Dollar value of foreign bank accounts as required under the AASB's which, if not adopted, would over the 16 year period be representing the assets of the Estate at significantly different values than they would be worth".
At this stage, it is sufficient to note that the accounts were prepared in a manner that complied with relevant Australian Accounting Standards, and were prepared in a manner that would ordinarily be prepared in respect of any enterprise that operated over a considerable period, and held assets whose value fluctuated, and held funds in currencies that are susceptible to exchange rate fluctuations.
The beneficiaries challenged the need in this case for the trustees to have accounts in this format prepared by professional accountants. They asserted that, far from the testamentary trust engaging in any form of business, in reality, all that the trustees did was hold, for the period from the death of the deceased on 3 August 1997, a relatively small number of parcels of shares, most of which by value had been held by the deceased at the date of his death. The beneficiaries submitted that the trustees made relatively few new acquisitions, and engaged in relatively little trading. In broad terms, the factual basis of this submission is made out by an analysis of the share holdings of the testamentary trust, which became MFI 1 in the proceedings.
However, if the matter is put into perspective, the share holdings of the testamentary trust were of substantial value, and the trust seems by and large to have sailed through the Global Financial Crisis without significant loss being suffered. To their credit, the trustees bore a substantial responsibility for the preservation and investment returns of the testamentary trust. In hindsight, it appears that they have achieved a notable level of success by being judicious in the number of changes they made to the share holdings of the trust. It does not follow that, in any particular year, they could be sure that they would not have to make substantial changes in the future. It is likely that the market value of the share holdings fluctuated, as did the value in Australian currency of any assets held in foreign currencies. A review of the full accounts for the year ended 30 June 2008 shows that there were a significant number of payments and receipts, for which account had to be made.
I will return later to a consideration of the issues raised by the parties as to the appropriate format for the accounts for the estate to take, for the purpose of the accounts being passed by the court.
The trustees have not yet prepared accounts for any period after 30 June 2014. The beneficiaries have pointed out that it will be necessary for the trustees to do so at least up until 31 December 2014, as, after the closing date for the 30 June 2014 accounts, the trustees caused a sum of almost $3 million to be paid back into the testamentary trust. The payments are itemised in a schedule that became exhibit 2. The payments are described as "amounts reimbursed on without admissions basis for legal and professional services". There are 3,296 line items. The payments the subject of the reimbursements were originally made, principally to legal firms, for services provided between 22 January 2007 and 10 February 2014.
The beneficiaries submit that the fact of these reimbursements having been made, albeit on a without admissions basis, is highly material to the correctness of the decision of Registrar Studdert under review. The reason put is that it will be necessary for the beneficiaries to match each of the individual reimbursements with the item in the accounts relevant to the original disbursement of that amount. The submission made by the beneficiaries is that that exercise will be very difficult, if it must be carried out using accounts in the format prepared on behalf of the trustees. That is a matter which, if necessary to be decided, will arise later. However, it is to be noted from the schedule that detailed information is provided in relation to each reimbursement, concerning the precise reference in the accounts, the year of payment, the page reference and the item number. It is not obvious that there will be any difficulty in matching reimbursements to disbursements.

Interlocutory steps

By 3 December 2014, a substantial part of the trust fund had been distributed by the trustees, and on that date the proceedings were listed before Hallen J, for the purpose of his Honour giving directions to further the trustees' preparation for the passing of their accounts.
Counsel for the trustees informed his Honour that the trustees no longer pressed a claim for commission.
Hallen J asked counsel for the beneficiaries whether the beneficiaries had had an opportunity to see or consider the accounts that had been prepared. Counsel advised his Honour that the accounts had been referred to the beneficiaries' accountants for their considered advice, and that advice had not been provided.
Hallen J explored the possibility of avoiding a probate registrar being encumbered by the need to undertake a formal passing of the trustees' accounts, by giving the beneficiaries an opportunity to consider the accounts prepared by the trustees, to find out what the issues were, and to see whether, with a degree of cooperation, the accountants for the respective parties could determine whether there were any real issues about the accounts. As his Honour noted (T 1): "Everyone knows the taking of accounts is an extremely time-consuming and costly exercise". Hallen J also suggested that the parties could undertake an informal falsification, and the respective accountants could confer to see whether there was any room for reconsideration on one side or the other, with a view to limiting the ambit of any dispute.
It appears that Hallen J entertained the hope, now proved forlorn, that the parties, with the assistance of their respective accountants, could examine the accounts that had been professionally prepared by KPMG, identify entries that the beneficiaries may wish to challenge, and negotiate to see whether any disputes could be resolved, and if not, to at least narrow the scope of the dispute.
The issue arose as to whether the accounts that had been prepared on behalf of the trustees by KPMG were in a form appropriate for the taking of accounts. Hallen J gave a direction in the following terms: The court directs that Mr John Poole meet with the Defendants' accountant, within 7 days, to discuss and, if possible, agree upon, the form of accounts into which the present accounts prepared by the Defendants' accountant should be placed.
Mr Poole is the expert retained by the beneficiaries in relation to the proper form of the trustees' accounts, for the purpose of the taking of accounts. Hallen J appears to have appreciated that there may be a need to recast the accounts from the format in which they had been prepared for the purpose of submitting them for passing by a probate registrar.
Mr Poole said, in his first affidavit, that he spoke to Mr Mitchell on 10 December 2014, for about 30 minutes. Mr Poole outlined to Mr Mitchell the format in which accounts are usually filed in the court, where an executor seeks an order that they be passed. He outlined some of his concerns about the accounts that had been filed. He discussed with Mr Mitchell the importance of the need to distinguish between capital and income in the preparation of estate accounts. He said that Mr Mitchell appeared to be reluctant to prepare the accounts in the format he suggested. The discussion ended without any arrangements being made for the accountants to meet face-to-face.
It does not appear that any attention was given by Mr Poole to the question of whether any of the individual transactions that were recorded in the accounts that had already been prepared might be challenged by the beneficiaries, or how the parties might go about cost effectively resolving their differences.
The possibility expressed by Hallen J that the parties might resolve any issues that the beneficiaries had with the conduct of the trustees, as reflected in the existing accounts, in a commercially sensible and convenient manner, was not pursued.
On 18 December 2014, Hallen J noted that there was a dispute between the parties as to whether the form of the estate accounts which had been filed on behalf of the trustees was able to be vouched. His Honour stood the matter over to the list of the Registrar Studdert on 2 February 2015.

Hearing before Registrar Studdert

On 2 February 2015, the parties appeared before Registrar Studdert. The trustees initially objected to the evidence of Mr Poole, on the basis that he had not complied with the court's code for expert witnesses. The final position taken by the trustees was that they would inform the court later that day as to whether they would maintain the objection. The trustees acknowledged the correctness of Mr Poole's opinion that the accounts prepared were not in the usual form for the passing of accounts in the Probate Registry. They submitted, however, that there was no prescribed form for the presentation of accounts, and that the accounts that had been prepared were adequate for the purpose. The trustees also informed Registrar Studdert that they had abandoned their claim for commission. Registrar Studdert referred the dispute to chambers, subject to the trustees advising whether they objected to Mr Poole as an expert witness.
The trustees and the beneficiaries both delivered written submissions to Registrar Studdert, and invited him to act upon the submissions without the submissions being put orally. The parties are agreed that I also should have regard to those written submissions. Unsurprisingly, they mirror the extensive written submissions that the parties have put before the court on the review application.
The beneficiaries described the form of the accounts as being company balance sheets and profit and loss statements, with various ledgers. They complained that the accounts departed from the usual form, as described by Mr Poole, which involves an account for receipts and a separate account for payments, with each transaction being numbered and listed in chronological order, and identified as either capital or income. The beneficiaries submitted that, as the accounts did not include numbered and chronologically listed receipts and payments, the accounts "will result in great delay and additional expense in the process of making and reviewing any objections the [beneficiaries] may raise", and that the accounts "complicate the process of identifying whether the [trustees] have preserved capital and distributed income as required" (par 17).
The trustees submitted that the beneficiaries had not articulated any benefit to the beneficiaries in reformatting the accounts. They pointed to the fact that the trustees were not pressing a claim for commission, so that there was no need for the accounts to separate income and capital transactions, for the purposes of applying different rates of commission. Further, there are no separate income and capital beneficiary classes in the trust that would benefit from a distinction between capital and income receipts. The trustees submitted that the beneficiaries' concerns, at their highest, appeared to be that it would be easier for them to analyse the accounts if they were reformatted in the usual form.
Neither of the submission entered into any detail upon the concrete, practical steps involved in a registrar vouching accounts prepared in the usual form, compared to accounts prepared in the form submitted by the trustees, in a manner that would permit the court to make an objective comparison of the consequences of the two competing account formats.
The trustees did not put before Registrar Studdert any evidence from Mr Mitchell, to make good their submission that the form of accounts adopted by the trustees was as convenient for the purposes of the vouching process as the usual form; or if not quite as convenient, was sufficiently so to justify the court in accepting the form proffered, in order to avoid subjecting the trustees to the need to expend an amount, described as $25,000 plus GST, to reformat the accounts to conform with the usual form.
Accordingly, when viewed from the perspective of the court hearing an application for a review of Registrar Studdert's determination, there appears to have been very little evidence concerning the precise steps in the vouching process, and the full ramifications for the process of the change in the format of the accounts prepared by the trustees, when compared with the usual format. The matter appears to have been left to the very considerable expertise of Registrar Studdert; as well as the evidence of Mr Poole concerning the usual practice; although the status of Mr Poole's evidence was left unresolved at the end of the hearing before Registrar Studdert.
In the course of discussion with counsel for the parties, Registrar Studdert made a number of observations, concerning the nature of the process that the court was being asked to implement; as follows: I would suggest that you bear in mind that accounts in probate are not the same as the taking of accounts in equity. I don't know what the dispute between the parties will be, but under s 85 the only powers of the court are to disallow wholly or in part disbursements in the accounts or to refuse to pass the accounts. Accounts in probate are not an administration suit… (T 2) All I will say is this, having vouched [accounts] far longer than I've enjoyed vouching them, the essence is that the accounts should number chronologically all the receipts and all the disbursements and in the receipts you should be able to go to the inventory of property and say yes I can see where that appears and I can see where that appears, and you should be able to account for all the matters in the inventory of property and the receipts and, of course, on the other side the disbursements should be a chronological list of all payments out of the estate. Just remember under s 85 it's about the administration of the estate, not other trusts… (T 4) … Well there's a third aspect of this, no matter what you say, it will also come down to the opinion of whoever will vouch and as to whether they can understand them… (T 5) It's a matter for the parties, but my experience is that people avoid as far as possible having to attend on vouching of these matters because it's tedious and time-consuming… (T 5) … I will say subject to the defendant getting instructions on whether to object to Mr Poole as an expert witness I will refer the proceedings to the Registrar in chambers. I do warn you though that these proceedings under s 85 are not an administration suit, so I don't know what's in those folders, but I think you should bear that in mind (T 7).

Mr Poole's evidence

In summary, Mr Poole, who is an extremely experienced solicitor in the field of preparing accounts for estates of deceased persons with a view to having them filed and passed in the Supreme Court, expressed the following opinions: 1. The accounts the subject of the trustees' application are not in an appropriate format to enable a registrar to pass the accounts (par 12). 2. Whilst neither the Act nor its predecessor legislation prescribes a format, the court has a long and well established format for estate accounts (par 14). Mr Poole referred to generally accepted texts that have precedents for the format of estate accounts. He set out an extract from Hastings and Weir; Probate Law & Practice (2 ed) which, in outline, stated in respect of the form of accounts that they should consist principally of a cash statement of receipts and disbursements, being numbered and dated and providing specified information, and distinguishing between capital and income items. The learned authors stated that, where a business is being carried on, trading, and profit and loss accounts must be included. The implication is that, in cases where a business is being carried on, the requirement for a trading and profit and loss account is in addition to the cash statement. 3. Mr Poole said that the essential feature of accounts to be filed in the Supreme Court for passing is that they should comprise a cashbook style statement, and separate totals for capital realisations and income collections should be provided, as different rates of commission are allowed on capital compared with income (par 15). 4. One of the features of accounts in proper form identified by Mr Poole is that all receipts and payments be consecutively numbered, to enable the registrar to identify receipts and payments with respect to which he and any objectors require further information, in the process of vouching the accounts (par 16(b)). 5. Mr Poole annexed to his affidavit (marked C) an example of the compilation report prepared by KPMG for the financial year ending 30 June 1999, as part of the accounts proffered by the trustees (par 22). This is an example of one of the accounts that Mr Mitchell described as "reduced disclosure" accounts. 6. Mr Poole listed what he said were the difficulties with accounts prepared in the form of this compilation report in par 23. First, it does not distinguish capital from income in receipts and payments, or give totals. The receipts and payments are not listed consecutively, but are categorised by type and listed at various places in the supporting documents. Thirdly, the receipts and payments are not numbered, which makes it very difficult and time-consuming for the registrar to identify particular receipts or payments for the purposes of seeking further information in the process of vouching the accounts. Fourthly, Mr Poole identified a negative figure of $9,648,263.62 in the profit and loss statement. This represented an unrealised reduction of $9,418,169.76 in the value of the investments of the estate during the year. According to Mr Poole, this is an example of not distinguishing capital from income, which hinders the registrar in the process of vouching the accounts. 7. Mr Poole advised that he had been informed that, after the close of the accounts on 30 June 2014, the trustees reimbursed the trust approximately $2.9 million, and that the total number of items of reimbursement exceeds 3,200. He expressed the opinion that the receipt of the money into the estate would be very difficult for the registrar to reconcile with the expense that the reimbursement represents, given the current format of the accounts. 8. Mr Poole gave a detailed explanation of the practice adopted by the registrar in vouching accounts in par 26 of his affidavit. 9. The registrar compares the capital realisations, as shown in the accounts, with the assets listed in the inventory attached to the probate. The purpose of this comparison is to make sure that assets have been correctly collected, and to assess the extent to which asset collections are the collections of reinvested assets. The reason for this is that commission is not allowable on the realisations of reinvested assets. 10. The registrar looks at the income collections to make sure that income has been collected correctly. 11. The registrar ensures that assets collected are correctly shown amongst the capital realisations, and that the income is shown correctly amongst the income collections, and not vice-versa. Errors would affect the total of the capital realisations and the income collections for commission calculation purposes. 12. The registrar considers payment details in order to ensure that they have been allocated correctly between capital and income, although this step is not as important as the consideration of receipts, because the details of payments do not affect commission. 13. The registrar requires production of bills for legal costs, accountancy fees, and other charges for professional work, to ensure that the charges for which payments have been made are appropriate and reasonable, and necessary for the benefit of the administration of the estate. The registrar may moderate charges and allow them in full, or direct that refunds be made of amounts not considered appropriate, reasonable and necessary. 14. The registrar seeks evidence of publication of the notice of intention to pass accounts. 15. The registrar seeks confirmation of the balance held to the credit of the estate at the close of the accounts. 16. The registrar seeks the production of receipts for distributions to beneficiaries. 17. The registrar considers the objections of any defendant to the proceedings to pass accounts and determines whether those objections are allowed or disallowed. 18. The registrar may review any other aspect of the accounts as filed that he or she considers necessary. 19. If the executors make refunds to the estate, then the registrar needs to be satisfied as to what those refunds represent. 20. The registrar may in some circumstances, require the filing of supplementary accounts if the refunds are significant. 21. Circumstances may require the executors to file supplementary accounts, where there are significant further capital realisations or income collections or significant payments. 22. Once the registrar is satisfied with any further information provided, then he or she will provide details of the total capital realisations, the total income collections and the total value of assets transferred in specie. 23. The registrar then requests the provision of a draft certificate of correctness of accounts. If that is in order, the registrar issues the certificate. The figures in the certificate become the figures for determination of commission, and the assessment of costs for the preparation and filing of the accounts and of any application for commission. 24. The chronological listing of entries and the numbering of items in the usual format of the estate accounts facilitates the vouching process.
As will be seen, the steps considered by Mr Poole in (1), (3) and (15) are of particular significance when a claim for commission is made. Mr Poole did not address the issue of how, if at all, it might be feasible for accounts to be prepared in a way that departs from the usual format, if a claim for commission is not made.
The steps in (1), (2), (3), (4) and (10) appear to require the registrar to review the whole of the accounts. Steps (5), (6), (7), (8) do not appear to require a consideration of the actual form of the accounts; these steps could be taken irrespective of the form of the accounts.
Insofar as step (9) requires the registrar to consider objections to the accounts, it would be necessary for the objectors to be able to identify the items to which objections are made in some convenient form, and for the registrar to be able to readily identify the items objected to in the accounts. This step may support the observation made by Mr Poole in step (16), where he says that the numbering of items in the usual format of estate accounts facilitates the vouching process.
Mr Poole has not given a reason for his opinion expressed in step (16) that the chronological listing of items facilitates the vouching process. He does not explain why it is preferable for items to be listed chronologically, rather than by subject matter.
Step (11) will require that the accounts conveniently show refunds made to the estate, and provide a means for the registrar readily to identify where in the accounts the payments have been recorded which are the subject of refunds.
Steps (12), (13), (14) and (15) do not appear to be dependent upon the format in which the accounts have been prepared.
In par 32 of his affidavit, Mr Poole deals with the practice of the registrar, after making an order passing accounts and allowing commission, in relation to the making of an order allowing for the costs of the application. He said that costs are allowed in a fixed sum plus GST, plus any filing and advertising fees; as such, an order is never intended to be a full indemnity to the executor, as the executor - by seeking such an order - is deriving a benefit. For that reason, the order is a party and party allowance of costs.

Registrar Studdert's determination

The Registrar declined to make the order sought by the trustees, and on 27 July 2015 published the following short reasons: 1. On 18 December 2014 Hallen J noted that there was a dispute as to the form of accounts filed for vouching and stood over the proceedings to the registrar's Probate Directions List on 2 February 2015. 2. On 2 February 2015 I referred the matter to Chambers subject to the defendant instructing his solicitor as to whether there would be objection to Mr John Poole as an expert witness. I have not received confirmation as to whether there is objection to Mr Poole. Given the passage of time I have now examined the 9 folders of material said to be the accounts and have come to the conclusion that they are not accounts in a form appropriate for passing under s 85 Probate Act. 3. Assuming that there would be no objection I have taken the liberty of reading Mr Poole's affidavit of 17 December 2014. Mr Poole sets out his expertise and experience in respect of executors' accounts. Having worked almost exclusively in the Probate Division/List since 1979 I am aware of Mr Poole's extensive knowledge, insight and understanding of executorship and executors' accounts and I think he is being exceedingly modest in claiming expertise in the formal aspects of executors' accounts. I agree with Mr Poole's comments and observations at paragraphs 12 to 26 and I agree that the accounts are not in a form that I would pass for reasons he sets out. There's really nothing for me to add - his affidavit says it all. 4. I also agree with Mr Poole's observations as to the costs of commission proceedings. Unlike other proceedings brought by executors which are for the advancement or protection of the estate, the principal purpose of an application for commission is to benefit the executor personally and accordingly it has long been the practice of registrars, particularly now that filing of accounts is re rarely compulsory under s 85 Probate Act, to approach moderation or assessment of the costs of such proceedings more on the ordinary basis than the indemnity basis.

Trustees' application for review

By their 24 August 2015 notice of motion, the trustees seek an order, pursuant to UCPR r 49.19, that the decision of Registrar Studdert made on 27 July 2005 be set aside.
The trustees lodged grounds of appeal, which are as follows: The Senior Deputy Register erred, in that: 1. The accounts prepared for the defendants, and vouched, were in a proper or appropriate form for the passing of accounts, particularly having regard to the circumstances of this particular estate; and the Senior Deputy Registrar was in error in holding otherwise. 2. The decision of Senior Deputy Registrar was devoid of any or adequate process of reasoning.
At par 14 of their written submissions, the trustees referred to Registrar Studdert's reasons, where he said: "I also agree with Mr Poole's observations as to the costs of commission proceedings", and said that he "proceeded to assess costs accordingly". The trustees made submissions at pars 30 to 32 of their written submissions, as to why they are entitled to be indemnified out of the assets of the testamentary trust for their costs of causing the accounts to be prepared.
It is true that, at par 4 of his reasons, Registrar Studdert made an observation concerning the costs of applications for commission. That observation was not relevant to the issue before Registrar Studdert, as the trustees no longer pursued their application for commission. It appears that Registrar Studdert's decision is to be found in his short reasons. He does not appear to have made any formal orders. In particular, he has not made an order that the trustees are not entitled to their costs of having the accounts prepared.
In their supplementary submissions, the beneficiaries referred, at par 3(i), to an intention to tender an email from Registrar Studdert, dated 3 August 2015, in which he noted that his "determination about the form of accounts deliberately made no mention of costs". It does not appear that the email was tendered into evidence. However, in my view, it is clear from his reasons that Registrar Studdert did not make any order as to the trustees' costs of having the accounts prepared.
Accordingly, the need for the court to review a determination made by Registrar Studdert concerning the trustees' costs of having the accounts prepared does not arise.

Positions of parties on review

The different positions adopted by the trustees and the beneficiaries on the application to review Registrar Studdert's determination may be summarised relatively simply. The trustees freely acknowledged, as they did in argument before Registrar Studdert, that the accounts that they had prepared were not in the usual form. They said, however, that all the information that was required for the passing of their accounts was contained in the accounts that they had prepared, and the only material difference was that it was in a different order than would be contained in accounts prepared in the usual form. In particular, the accounts were prepared in accordance with universal current accounting practice, whereby payments and receipts were organised by common subject matter, and not chronologically. The trustees submitted that this is an inherently more logical and convenient arrangement than to list payments and receipts chronologically, as the chronological relationship of the transactions will almost inevitably be irrelevant (save for the collection of all transactions in the accounts for a particular year). They submitted that, once the process whereby modern accounts are prepared is understood, it is a simple matter to navigate through the accounts (using the embedded cross referencing system) to identify payments and receipts and connect those transactions to the relevant vouchers.
The trustees submitted, in effect, that any residual problems that the modern form of accounting may have encountered had been removed in the present case by the abandonment of the trustees' claim for commission. Further, there was only one class of beneficiaries, who were entitled to different shares in the capital and income of the residuary trust, had the result that it was not necessary that the accounts distinguish between capital and income. Nonetheless, the accounts prepared by the trustees do, they said, readily permit the identification, tracking and verification of capital and income transactions.
The beneficiaries maintained the position that is reflected in Mr Poole's affidavit, which was also read on the review application.

Further evidence on review

The only additional evidence called by the trustees was the evidence given by Mr Mitchell. In essence, Mr Mitchell gave expert accounting evidence that supported the trustees, in the ordinary course of their administration of the testamentary trust, causing accounts to be prepared by professional accountants in accordance with current accounting standards. He also explained how all of the necessary accounting information required for the purpose of vouching the accounts could be found in the accounts prepared by the trustees.
Mr Mitchell did not, however, claim to have any direct experience of the practices adopted by registrars within the Probate Office concerning the actual vouching and passing of the accounts of executors and trustees. He was therefore unable to explain in precise terms why the accounts in the format prepared for the trustees would not be significantly less convenient than accounts prepared in the usual form.
The beneficiaries, on the other hand, accepted that the accounts prepared for the trustees contained all of the information that would be required in the vouching process, for the purpose of passing the accounts. They said, however, that there are significant practical differences in the two formats, which will necessarily have the effect that great inconvenience will arise if the trustees are permitted to pursue an order for the passing of their accounts while those accounts remain in their current format.
The beneficiaries relied upon a second affidavit of Mr Poole, sworn on 21 October 2015. Mr Poole disagreed with the assertion made by Mr Mitchell that the format of the accounts prepared on behalf of the trustees was both appropriate and necessary to meet the need of the users of the accounts. The basis of his disagreement was that the relevant user is, according to Mr Poole, the registrar, for the specific purpose of passing the accounts. Mr Poole referred to the decision of Street J (as his Honour then was) in In the Will of White (1908) 8 SR (NSW) 582 at 585-6, focusing on the statement: "I think that in every case separate accounts should be brought in of capital and income, showing the receipts and disbursements on account of each…" Mr Poole explained the difference between a "cashbook", which is the form adopted for the usual form of accounts, and a "ledger", which is the underlying basis for the format of the accounts prepared on behalf of the trustees. Mr Poole's explanation is uncontroversial, although he does not actually explain why accounts prepared on a ledger basis will necessarily be inconvenient for the vouching process.
At pars 10 and 11, Mr Poole responded to Mr Mitchell's opinion that, because the beneficiaries under the will of the deceased in this case participate equally in capital and income, there is no reason to differentiate between capital and income in the accounts. Mr Poole said that, in his experience, generally, it remains important to know the amount of capital, or the amount of income, on hand at the end of an accounting period, regardless of whether the executors are seeking commission, or whether or not the beneficiaries participate equally between capital and income for two reasons. First, if capital is differentiated in this way, then that indicates the amount of capital available for reinvestment or for distribution to beneficiaries (if capital distributions are allowed); secondly, the income available for distribution to beneficiaries (if income distributions are allowed) is known.
The first observation that may be made is that the testamentary trust in the present case does not allow distributions of capital to the beneficiaries until the vesting date. Clauses 5A and 7 of the will do permit distributions of income. That has led Mr Poole to assert that, as part of the passing of the accounts, the registrar will need to be able to confirm that only income was distributed during the life of the testamentary trust.
Secondly, and more importantly, Mr Poole does not attempt to explain why accounts prepared in the modern format used by the trustees will not show the amount of capital and income available at the end of an accounting period. It appears to me that they do, although it may be necessary to make adjustments to the income reported to differentiate between income actually received, and notional income flowing from revaluations of the trust's assets. That, I understand, is not a difficult exercise.
Mr Poole also stated, in par 12, that contrary to Mr Mitchell's opinion that it is better to order transactions by account type than by date, it will be easier for the registrar to reconcile the receipts of monies after 30 June 2014 that were reimbursed by the trustees, by identifying the receipts and payments by item number.
In my view, both Mr Mitchell and Mr Poole have stated opinions concerning the respective account formats that they contend are the more appropriate for the purpose of the vouching and passing of the trustees' accounts, without giving clear, practical reasons in support of their opinions, or explaining in a concrete way the effect of the adoption of the different formats will have on the process required to be undertaken by the registrar.
The beneficiaries, particularly in their supplementary submissions (see par 2(c)), and by means of a document headed "Examples of Difficulties with the Trust Accounts in their Current Form" (which was used by their counsel in aid of submissions), attempted to show in a practical way why the format adopted by the trustees was not satisfactory for the purpose of the vouching and passing of the accounts by the registrar.
The principal difficulties suggested by the beneficiaries are: 1. The individual transactions are not numbered, which makes it difficult to identify particular transactions. The beneficiaries pointed out that, for the year ending 30 June 1998, the relevant report lists all dividends received that year under the same accounting code of "198", and each transaction is listed as dated 30 June 1998. The accounts up to 30 June 2006 all record 30 June as the receipt date for all dividends received in the year. The individual transactions are not numbered. The beneficiaries said that, if the usual format had been used, it would have been easier for the registrar to see that a dividend recorded in the 1998 accounts was in fact received on 15 April 1997, before the date of the deceased's death, so that it should have been treated as capital rather than income. 2. The format in which the trustees' accounts have been prepared is different for various periods. This flows from the fact that the trustees used different accountants for different periods, and possibly also from the growing sophistication of the accounting programs used, which have apparently permitted accounts to be prepared in more sophisticated forms. The beneficiaries refer to the concession made on behalf of the trustees that, up until 2004, only "reduced disclosure" accounts could be prepared, because of the limited information available. They also refer to Mr Mitchell's evidence that, from 2005 onwards (presumably until KPMG started preparing the accounts itself), the accounts were prepared "from the information and source documents" provided by the trustees' solicitors. 3. Income and capital are not accounted for separately, which obscures the task of identifying the income available in any year for disbursement to the beneficiaries, and inhibits the task of the registrar to certify the totals of capital realisations, income received, assets unrealised, and assets transferred in specie, as he or she is required to do. The beneficiaries say that each year's accounts as prepared by the trustees contain a calculation of "operating profit", which is calculated as the sum of (a) total dividends, (b) total interest, plus (c) the change in the value of unrealised shares; less total expenses. The beneficiaries note, in relation to the 1999 accounts, that a loss of $9,418,196.76 was recorded, so no income was distributed. The loss was due to an unrealised devaluation of shares, and if that devaluation was ignored, there was $258,375.52 of net income available for distribution. The beneficiaries say that the usual form of accounts would separately account for income and capital. The change in the value of shares not sold is irrelevant for the purposes of trust accounts: see Heydon and Leeming; Jacobs' Law of Trusts in Australia, 7th edition at [1950] and Re Angas [1906] SALR 140 at 150. 4. There will be difficulty in reconciling the substantial number of reimbursements made by the trustees after 30 June 2014 to the original entries in the accounts. The beneficiaries point to the fact that the trustees reimbursed $2,861,498.58 on 19 November 2014 and $43,446.76 on 26 November 2014. That sum represented in excess of 3,000 separate items of reimbursement. The beneficiaries give a particular example of a reimbursement of $5,850 made in 2014, in respect of an Ernst & Young invoice dated 28 May 2004 for $5,850. To find the transaction to which the reimbursement relates, it is, say the beneficiaries, necessary to search through the "Detailed Account Transaction Report" in the accounts for the 2005 year, to check each "professional fees-accounting" entry (all dated 30 June 2005), and because no invoice number or invoice date is listed, to find an amount of $5850, and assume it is the same transaction because the amount owing is the same. 5. The trustees' accounts contain inadequate descriptions of the nature of amounts received and paid. The beneficiaries point to a particular example, being an expense of $3,106,348 in the 1998 accounts, which is described as a Singapore tax expense. Further, there is no explanation as to why this tax was payable by the estate. 6. There is an absence of individual entries to facilitate the auditing task. 7. The trustees' accounts record the payment of all "operating expenses" from income only. 8. Mr Mitchell made an erroneous assumption that the beneficiaries participate equally between capital and income, whereas until the vesting date, each beneficiary was only entitled to receive income arising from his or her presumptive entitlement from the time he or she attained 21 years of age. 9. Mr Mitchell erroneously understood that the trustees had a power to allocate receipts from capital to income, in order to deal with shortfalls of "income" to meet operating expenses. 10. Mr Mitchell's reliance on "APES 315: Compilation of Financial Information AASB 139", as the relevant standard, has meant that receipts and payments have been dealt with in categories and account codes, when the standard is not a conclusive methodology, when the purpose for the preparation of the accounts is properly understood.
As I have taken these suggested difficulties with the format adopted by the trustees from two separate sources, there may be some overlap between the descriptions of individual difficulties. I will merely observe that the reason why some of these matters present difficulties is not self-evident.

The parties' open offers

The parties have exchanged open offers to resolve the dispute concerning the appropriate format for the accounts of the trustees for the purpose of the accounts being passed by a registrar.
The making of the open offers have not led to a resolution of the issue. The fact that open offers were made, taking into account certain information contained in them, is relevant to the determination of the trustees' application for a review of Registrar Studdert's determination. Although the letters by which both of the open offers were made are lengthy, it is appropriate that they be set out in full.
On 15 October 2015, the solicitors for the trustees wrote a letter to the solicitors for the beneficiaries, in which they made the following open offer on behalf of the trustees: The contents of this letter, and the offer contained herein, is an open offer (not intended to be confidential) for the purposes of s 131(2)(d) of the Evidence Act 1995 (NSW). Our clients (the trustees), along with the writer, are greatly concerned as to the amount of legal costs of all parties to be incurred, coupled with the fact that important Court time will be utilised, when the amount in issue is only in the order of $30,000 plus GST, being the cost to prepare the original accounts or, alternatively, $28,000 plus GST, being, the cost to convert those accounts. This is in the context of accounts for an estate in the order of $50 million. It is, in our view, incorrect to categorise the passing of accounts as an act of self-protection by the trustees. Rather, the passing and vouching of accounts by the Court is to determine that the Estate and trust have been duly administered - the Court in this regard is acting as akin to an auditor. Our clients, as trustees, are entitled in the circumstances to be indemnified from the Estate in respect of the preparation and passing of those accounts. We maintain that the preparation of the accounts by KPMG in their current form was a proper exercise of the trustees' powers and that they have, at all times, acted reasonably and appropriately in this regard. It is not to the point to say your clients as beneficiaries cannot consent to such a costs order or to indemnity. We do not ask that they do so. The ordinary order that the Court would make in such a case is one indemnifying the trustees in respect of their administration of the Estate, including the passing of accounts, which is for the benefit of the Estate and its beneficiaries, including your clients. Accordingly, all your clients need do is not oppose our client's prima facie right to indemnity. In our letter to you dated 15 September 2015, we indicated our clients' willingness, on a without admissions basis, to have the accounts converted by KPMG into the format proposed by Mr Poole in his affidavit sworn on 17 December 2014, if the Estate bears the costs of this process, which is estimated to be $28,000 plus GST. We say that this is a minimal cost compared with the legal costs which your clients are no doubt accumulating in pursuing this matter. Put in perspective, your clients' objections to the KPMG accounts and in particular to our clients' offer of 15 September 2015, appear to be aimed so as to render the trustees personally liable for the KPMG fees of $30,000 to prepare the accounts. In other words the present dispute which has been orchestrated by your clients (who are four out of sixteen beneficiaries in an Estate worth approximately $50 million), is over who shall bear the $30,000 in fees. Given the amount in dispute, it beggars belief that your clients are maintaining their objections to the accounts, which appear to be only as to form rather than substance, and in particular to the trustees being indemnified out of the Estate for the costs of preparing them. It will also be recalled, that his Honour Justice Hallen made orders on 11 August 2014, which required our clients to serve progressively on your clients copies of accounts duly verified in respect of the administration of the Estate. Pursuant to his Honour's orders, our clients served, 4 September 2014, a form of accounts which were in the same form or to the same effect as those that are now disputed. We note that as and from the time of service of those accounts, no objection was taken by your clients as to the form of the accounts. Accordingly, our clients proceeded to have prepared the second tranche of accounts, under cover of letter dated 17 October 2014. Again no objection was taken by your clients at the time as to the form of these accounts. Indeed, the first time your client raised any objection as to the form of the accounts was by your letter dated 26 November 2014, over two months later, by which time considerable expense had already been incurred in preparing the accounts in their present form. In view of these matters, we are instructed to make the following open offer (for the purposes of s 131(2)(b) of the Evidence Act 1995 (NSW)) in settlement of our client's Motion: 1. the accounts be converted by KPMG into the format proposed by Mr Poole in his affidavit sworn on 17 December 2013; 2. KPMG's costs to prepare the original accounts ($30,000 plus GST) and their costs to convert those accounts ($28,000 plus GST) be born in full by the Estate; 3. the plaintiffs and defendants be indemnified from the Estate assets for the costs of and incidental to the Motion and of the hearing before the Senior Deputy Registrar; and 4. the Motion otherwise be dismissed. (Points 1 to 4 collectively comprise "the Offer"). Please obtain instructions and let us have your clients' response to the Offer within seven (7) days of the date of this letter.
It appears from this letter that the costs that the trustees incurred in having KPMG prepare the accounts in the format that the trustees have applied to be passed by the court was about $30,000 plus GST. As I understand it, that is the cost of actually preparing the accounts that were prepared during 2014, starting with whatever information was electronically recorded by KPMG, and the additional information that the trustees' solicitors were able to gather and provide to KPMG for the purpose of preparing the actual accounts to be submitted to the court for passing. It is not the cost paid by the trustees in each year for the preparation of the annual accounts for that year.
It is apparently possible for KPMG to prepare accounts in the usual format (as described by Mr Poole) for a further sum of $28,000 plus GST. Mr Mitchell elaborated upon this process in his evidence. Where KPMG has the relevant information stored electronically, it will be possible for KPMG to prepare accounts in a cashbook format, using the Excel program. Where KPMG does not have all of the necessary information stored electronically, the same result can be obtained by a process of entering the necessary information into a spread sheet manually.
I note the trustees' claim that they provided their accounts to the beneficiaries on a serial basis, and the beneficiaries did not complain about the format of the accounts until after the completion of the exercise.
I also note the observation made on behalf of the trustees that "the passing and vouching of accounts by the court is to determine that the estate and trust have been duly administered - the Court in this regard is acting as akin to an auditor". It is not entirely clear what the trustees meant by this observation. The comment I made above concerning the effect of s 85(3) of the Act will be remembered, as well as the observation of Registrar Studdert "that accounts in probate are not the same as the taking of accounts in equity". I will return to this subject below.
It appears that the trustees' primary position on the issue of costs was that, it was reasonable for the trustees to prepare their accounts in the format that has been used, and the costs of both that exercise and the reformatting of the accounts into the usual format are so small a proportion of the final value of the testamentary trust assets, that commercial common sense dictated that the parties should stop arguing about the format of the accounts of who bears the costs, but should cooperate in producing accounts in whatever format the beneficiaries desired, on the basis that the costs of the trustees and beneficiaries would be borne by the trust.
The cost of reformatting the accounts prepared by the trustees into the usual format is so small in proportion to the value of the testamentary trust assets before their distribution to the beneficiaries, that the trustees in submissions embraced the proposition that it would be justifiable for the court to proceed directly to the point of declining to review the determination by Registrar Studdert, without deciding the merits of the application for review, so that the trustees would be obliged to reformat the accounts into the usual format; provided that the court was prepared to approach the issue of costs in a commercial way by making orders for the costs of the parties, and the preparation of the accounts in both formats, to be paid out of the assets of the trust.
The beneficiaries' solicitors responded with an open counter offer by letter dated 23 October 2015, which was in the following terms: We refer to your letter dated 15 October 2015. We are instructed to reject the offer and make the following comments and counter offer. 1 We agree that it is troubling that the parties should be expending costs in debating this issue or in taking up the Court's time with it. We have said this before. This letter contains our clients' open offer to resolve the matter, set out in paragraph 10 below. This offer would dispense with the requirement for any further steps, and would avoid further legal costs being incurred. The offer also deals with the question of legal costs incurred in relation to this issue to date, resolves the question of costs as to the reformatting of the accounts and preserves your clients' position as to the costs of the initial preparation of the accounts until the time of the passing of the accounts. 2 To understand why our clients' offer is an entirely reasonable one in all the relevant circumstances, it is necessary to respond to some matters in your letter, in particular where you have sought to wrongly characterised the scope of the dispute. For example, it is wrong to characterise the dispute as being about "who shall bear the $30,000 in fees". That may have been the case had your clients adopted the position they now do, in November 2014. However, they did not and, as a result, both parties incurred significant, and unnecessary legal costs which are also in dispute. That is, the dispute necessarily includes the legal costs that have been incurred to date, in addition to the $30,000 in preparing the accounts on the first occasion. 3. It is also disingenuous, as well as being incorrect, to state as you do at page 2 of your letter, that the dispute "has been orchestrated by" our clients. Our clients did not "orchestrate" any dispute. Rather, in a letter dated 26 November 2014, our clients brought to your clients' attention Mr Poole's opinion that the accounts were not in a form capable of being passed by the Registrar. They did so having regard to the delay they foresaw that if the accounts in that form were lodged, inevitably they would be rejected by the Registrar. The decision of the Registrar confirms Mr Poole's opinion of what was required to pass the accounts. 4. You place significant reliance on the proposition that your clients are entitled to be indemnified from the Estate in respect of the preparation and the passing of the accounts, come what may. As explained in our 21 September 2015 letter, that is not correct. The cost of preparing and passing accounts are initially borne by the executors and, at the end of the process, the Registrar may make an order fully or partially indemnifying the executor out of the Estate assets. Senior Deputy Registrar Studdert noted in his decision that such an order is rarely a complete indemnity. 5. You are conflating the costs of preparing the current accounts (both KPMG's costs and your legal costs) (Account Costs) and the legal costs of your clients and ours in the current proceeding, as to the form of the accounts (including two directions hearings and the hearing before Senior Deputy Registrar Studdert) (Proceeding Costs). 6 We agree that the Proceeding Costs are costs that the parties can agree as between each other and seek an order from the Court. However, in relation to the Account Costs, the usual practice should be adopted, which is as follows: (a) your clients, as executors, pay the Account Costs upfront, or come to an arrangement for payment with KPMG; (b) at the end of the passing of the accounts, your clients obtain an order for reimbursement (either wholly or partly), out of the estate. If your clients have paid KPMG already out of the estate, the Registrar may require them to reimburse the estate. That is his decision, not our clients. Nor can our clients speak for all beneficiaries; (c) that order for reimbursement will be informed by our clients' consent (or lack of objection) to your clients paying KPMG's costs out of the Estate, and the position taken by the other beneficiaries. Without those other consents, our clients' position on this issue is irrelevant. 7 That is, in relation to any compromise of Account Costs we believe your clients require the consent of all beneficiaries, obtained after fully informing them of the usual practice and seeking their consent to a departure from the usual course, alternatively an order from the Registrar at the end of the passing of the accounts. 8 It remains open to your clients to withdraw their application for review of the Studdert decision and to prepare the accounts in a form capable of being passed by the Registrar. The cost of preparing the accounts can be reviewed by the Registrar when the accounts are passed, in accordance with the usual practice of the court. As stated in our letter dated 21 September 2015, it is what our clients see as your clients' refusal, and the apparent rejection of Mr Poole's advice by a partner of KPMG in a telephone conversation with Mr Poole last December, to follow the usual practice as to the correct form of the accounts, that has led to the escalation of wholly avoidable legal costs. The cost of reformatting the accounts is likely to be less significant in comparison to the Proceeding Costs. 9 We reiterate that our clients would prefer to resolve the issue without further costs and time. That requires compromise from both parties, in circumstances where your clients have never explained how the accounts came to be prepared in a format that was ultimately not acceptable to the Registrar. The cost incurred could have been easily avoided if early attention had been given to what was required by the Registrar. 10 With these matters in mind, our clients make the following open counter offer; (a) Subject to (b) to (e) below, your clients withdraw their Motion; (b) Within 4 weeks, the accounts be converted by KPMG into the usual format, as explained by Mr Poole in his affidavit sworn 17 December 2014, at a cost of not more than $28,000 (including GST) and paid, initially, out of the Estate and to be reviewed by the Registrar in the process of passing the accounts. Our clients will not object to those costs in that amount or in any lesser sum; (c) KPMG's cost of preparing the original accounts be paid out of the Estate, if not paid already, and those costs, whether or not paid out of the estate, be reviewed by the Registrar in the process of passing the accounts; (d) The defendants be indemnified by the Estate for their costs of and incidental to the Motion and the appearance before Senior Deputy Registrar and related directions hearings; and (e) Our clients' costs of and incidental to the Motion and of the appearance before Senior Deputy Registrar and related directions hearings (excluding travel costs), being the total sum of $89,101.18 (excl GST), such amount being accepted by your clients as a reasonable estimate of our clients' recoverable costs on an indemnity basis, to be paid within seven (7) days of an order being made. (f) Should the court require consents of all beneficiaries, as is likely, your clients be responsible for obtaining those consents. Nature of correspondence 11 You state that your letter is an open letter not intended to be confidential. On page 2 you refer to your without prejudice letter dated 15 September 2015. You also appear to be responding to the points raised in our 21 September 2015 letter. In the circumstances, we have taken that to mean that you no longer assert that the 15 September 2015 correspondence is without prejudice. We enclose a copy of your letter and our response dated 21 September 2015, also now on an open basis.
The principal difference between the parties seems to have been as to how the costs of the preparation of the accounts (both the accounts prepared by KPMG and accounts prepared in the usual format), and the proceedings to determine the appropriate format for the accounts, should be dealt with. The beneficiaries submitted that the issue of whether the trustees' costs of preparing both forms of the accounts should be paid out of the trust fund should be dealt with by the registrar as part of the process of passing the accounts. The beneficiaries agreed that the trustees' costs of the determination of the proper format for the accounts should be paid out of the trust fund on an indemnity basis, provided that their own costs in the agreed amount were paid in the same way, and the trustees were responsible for obtaining the consent, if necessary, of all of the other beneficiaries.
One observation that should be made is that the exercise in which the parties are engaged has wholly become one of determining the appropriate format for the trustees' accounts, for the purpose of an application for the passing of those accounts. Nothing has come to light as to what are the true issues between the parties concerning the legitimacy of any of the transactions recorded in the trustees' accounts, and the parties appear to be no closer than they have been to the heart of whatever issue may exist between them.

Principles governing review

There was no issue between the parties concerning the principles that are to be applied by the court in carrying out a review of the Deputy Registrar's determination.
The review is governed by UCPR r 49.19, which is in the following terms: 49.19 Review of registrar's directions, certificates, orders, decisions and other acts If in any proceedings a registrar gives a direction or certificate, makes an order or decision or does any other act, the court may, on application by any party, review the direction, certificate, order, decision or other act and make such order, by way of confirmation, variation, discharge or otherwise, as the court thinks fit.
A comprehensive summary of the principles that are to be applied by the court has been set out by Hallen J in Noble Earth Technologies Pty Ltd v Hampic Pty Ltd trading as Cyndan Chemicals [2012] NSWSC 935, which I respectfully adopt: 39. Relevant principles drawn from authorities relating to the nature of a review are: (a) The review power conferred is not an appeal and, accordingly, is not subject to the limitations that apply to proceedings by way of appeal: Tomko v Palasty (No 2) [2007] NSWCA 369; (2007) 71 NSWLR 61 at [6], [10], [50], [52]; Al-Shennag v Statewide Roads Pty Ltd [2009] NSWSC 210 per Hall J at [44]-[46]; it is "not restricted" to a reconsideration of the primary material before the Registrar: Lollback v Brakepower Pty Ltd [2010] NSWSC 1457 at [10]. (b) It is unnecessary for the applicant for review to demonstrate any material error of fact, or principle, in the order under review. On the review, the court may exercise its powers regardless of error. However, review, in the relevant sense, involves discretionary intervention: Tomko v Palasty (No 2) at [52]; Lollback v Brakepower Pty Ltd at [13]; the discretion extends to a discretion whether, and if so, how, to intervene. (c) The conduct of the review is at large and in the discretion of the Court. Notwithstanding the foregoing, the review is not accurately described as a hearing de novo: Perpetual Ltd v Barghachoun [2010] NSWSC 108 at [3], although it involves many of the features of a hearing de novo. (d) There is an onus on a person seeking to have a court set aside, or vary, a registrar's decision to make out a case that the court conducting the review, in the interests of justice, should exercise its discretion to do so: Tomko v Palasty (No 2) per Hodgson JA at [7]. In other words, there must be a basis shown for setting aside, or varying, the decision or orders of the registrar. (e) Although on review, the Court should consider the matter afresh, it does not follow that the reasoning of the registrar should be ignored, or that variations in the material presented to her, or him, and the evidence that was adduced are irrelevant. The starting point is, therefore, the decision that is to be reviewed. The court does not merely cast that decision to one side and proceed as if it had never been made. The court will have regard to the basis on which the decision was made and the material placed before the court itself on the application for review: Wily re LED (South Coast) Pty Ltd [2009] NSWSC 946 at [24]-[26]. The real question is whether there are any grounds, or any reasons, which would warrant a review of the orders that have been made by the registrar: Al-Shennag v Statewide Roads Pty Ltd at [47]. (f) What will be required to make out a case for intervention will vary depending upon the nature of the registrar's decision under review: Groeneveld v Wollongong City Council [2009] NSWLEC 149 (2009) 168 LGERA 260, per Preston CJ at [12]. However, the court should inform itself of the material before the registrar at the time when he, or she, made the decision, should consider the reasons for the decision, and then should make its own decision based on the material before it after having the benefit of the submissions of each party. (g) It is proper for the Court to exhibit a natural inhibition against the unrestrained substitution of the reviewing Court's views for those of the registrar: Westpac Banking Corp v Abemond Pty Ltd; Westpac Banking Corp v Cameron (NSWSC, 3 November 1994, unreported). (h) When it comes to matters of practice and procedure, there should be a natural inhibition against overturning a registrar's decision: Wentworth v Graham [2002] NSWSC 397; (2002) 55 NSWLR 638 at 640-641. However, where substantive error is established, then the Court would consider reviewing the registrar's decision and would make such other order as it is authorised to make: Al-Shennag v Statewide Roads Pty Ltd at [46]. (i) In the case of a decision which finally determines a party's rights, or which (albeit one of practice or procedure) has a decisive impact on those rights, a Court may be more willing to intervene. It may permit further evidence to be led that does not satisfy the strict requirements for fresh evidence, if it is satisfied that the interests of justice require this. It may decide to substitute its own discretionary decision for that of the registrar, even though no House v R [1936] HCA 40 ; (1936) 55 CLR 499 error is shown, again if it is satisfied that the interests of justice require this: Tomko v Palasty (No 2) at [5]-[9], [50], and [52]. (j) If fresh, or additional, evidence, is produced, it may be received by the court and taken into account (Fenwick v Wambo Coal Pty Ltd [2011] NSWSC 176, per White J, at [46]), or the court may refer the matter back to the Registrar for consideration as a fresh application: Portal Software v Bodsworth [2005] NSWSC 1115 at [17]. The court may be more inclined to intervene on a review based on fresh evidence, changed circumstances, or where error is demonstrated in the decision under review: Tomko v Palasty (No 2) at [52]. (k) The decision of the registrar stands until it is set aside: Lawteal Pty Ltd v Ofo [2005] NSWSC 984, per Malpass AsJ at [19]. (l) The registrar must give sufficient reasons for his, or her, decision: Thompson v New South Wales Land and Housing Corporation [2008] NSWSC 74 per Malpass AsJ at [9]-[16].
This statement of principle was adopted by Kunc J in Estate of Falco; Falco v Lambert (No 3) [2015] NSWSC 1343 at [43].
A similar summary of the principles applicable to the review by the court of a determination by the registrar was given by Lindsay J in Re Estate of Gowing; Application for Executor's Commission [2014] NSWSC 247; (2014) 11 ASTLR 128 at [100] to [107], in the context of an application by an executor for review of a decision by a registrar in the Probate Registry of the amount of commission allowed to the executor.
Both Kunc J at [44] and Lindsay J at [108] emphasised the need for the court to have regard on a review to the guiding principles set out in Part 6 Division 1 of the Civil Procedure Act 2005 (NSW).
In Re Estate of Gowing, Lindsay J made the following observation concerning the expertise of registrar's who routinely exercise the court's probate jurisdiction: 20. Secondly, there is a need to understand the strong administrative flavour encountered, in the context of [s 86(1) of the Act] no less than in the context of other heads of probate or equity jurisdiction, in the assessment of executor's commission, arising from which officers of the Court routinely engaged in dealing with the Court's probate business (including Senior Deputy Registrar Studdert) have generally acquired specialist expertise.

The usual format for accounts

The trustees did not contest that there is a usual format for accounts required to be passed by a probate registrar, or that the format of the accounts is not in the usual format. They accepted that the court has published a standard format for the preparation of accounts; but they relied upon the fact that the court has not prescribed that format as being mandatory.
The trustees also accepted the following statement by Powell J (as he is Honour then was) in Re Estate of Orre (unreported, Supreme Court of New South Wales, 19 December 1991: BC9101324): In contrast to the position when such matters were dealt with by the Ecclesiastical Courts in England, the function of the Court, on such an application, is not merely to see that sums entered on the disbursements side of the Accounts have in fact been disbursed and proper vouchers or receipts produced, but, rather, is one akin to that of an auditor, concerned not only with ascertaining whether alleged disbursements have in fact been made, but also with determining whether disbursements have been properly, or improperly, made, in the latter of which cases the disbursements are to be disallowed (see, for example In the Will of W W Jenkins (1904), 4 SR 625; In the Will of Lucas-Tooth (No. 1) (1931) 49 WN 18; In the Will of Lucas-Tooth (No. 2) (1932) 50 WN 86). In relation to disbursements sought to be claimed, it should be noted that, as a general rule, and subject to any provision to the contrary in his testator's Will, (see, for example, Re Smith (1916) 16 SR 422) an executor is bound to keep accounts, and attend to his duties personally - it is for this that he is allowed commission - and that, except in the situations to which I will next refer, if he chooses to employ some other person to do the work which he should have done, he must pay such person himself, and cannot seek to charge the estate with the cost (see, for example, In the Estate of Purton (1935) 53 WN 148); where, however, the nature of what was to be done was particularly onerous, or was such as to make it prudent to do so, the cost incurred by an executor in having the work done by another may be allowed (see, for example, In re Corsellis; Lawton v Elwes (1887) LR 34 Ch D 675; Macartney v Macartney (1909) VLR 183, 191-2). In order that the Court might properly fulfil its role as an auditor, and in order that it might ascertain the sum, or sums, in respect of which commission might properly be allowed, and the rate, or rates of commission which might properly be allowed, the Accounts which are sought to be passed should include separate accounts of capital and income, showing the receipts and disbursements in respect of each. Further, where the Accounts include the accounts of a business carried on by the executors, there should be separate, supplementary, accounts either in the form of a Balance Sheet and Profit and Loss Account or in such other form as will sufficiently reveal the result of the year's operations (In the Will of HC White (1908) 8 SR 582). Further, if, by reason of the provisions of the Will, or as a result of an appropriation made pursuant to the provisions of s46 of the Trustee Act 1925, the executor has, in effect, set up sub-trusts for individual beneficiaries - a subject to which I will later return - the Accounts sought to be passed should also include, or be accompanied by, proper subsidiary accounts in relation to such sub-trusts . Finally, the Accounts should contain a statement of unrealised original assets, a statement of investments made by the executor - it being noted, in this respect, that any bank accounts held, or investments made, should be in the name of the executor described as such - in the case of more than one, in the names of all executors described as such - or in the name of the relevant estate.

Consideration

I have decided that this is not an appropriate case to vary the order made by Registrar Studdert, and that I should exercise the discretion of the court not to interfere with the determination made by the registrar.
The initial issue for consideration is the trustees' complaint that Registrar Studdert's decision was devoid of any or adequate process of reasoning. I do not accept that submission.
It must be noted that the trustees did not take issue with the fact that Registrar Studdert took into account the evidence given in Mr Poole's affidavit.
In my view, the short reasons given by Registrar Studdert were sufficient to explain why he reached the result that he did. In particular, when the logic of Mr Poole's affidavit is taken into account, it was a proper course for the Deputy Registrar to explain his reasons by stating that he agreed with Mr Poole's comments and observations at pars 12 to 26 of his affidavit, and that he agreed that the accounts are not in a form that he would pass, for reasons Mr Poole had set out.
It is significant that the trustees ultimately did not oppose the beneficiaries relying on the evidence in Mr Poole's affidavit, but did not put before Registrar Studdert any expert evidence to challenge the opinions expressed by Mr Poole; and in particular, to explain in detail how the accounts prepared on behalf of the trustees were, although not in the usual format, in a form that was adequate for the convenient passing of the accounts. Nor was there any evidence given to explain the adjustments in the process of vouching and passing the accounts that should be made in order for the process to be implemented in a practically convenient and effective manner using the accounts in the format prepared for the trustees.
Accordingly, Registrar Studdert could not have been expected to have engaged in detail in his reasons as to why the accounts prepared on behalf of the trustees were not in a form that he would pass.
It may be observed, however, that given the principles that the court applies when reviewing a determination made by a registrar, the need for full reasons for the registrar's decision may not be as acute as it may be in the case of an appeal in the strict sense from a decision of a subordinate judicial officer.
In deciding that the court should not disturb the determination made by Registrar Studdert, I have taken account of the fact that, in par 4 of his reasons, the registrar has stated his agreement with Mr Poole's observations concerning the costs of commission proceedings. Registrar Studdert was advised in the oral and written submissions that the trustees had abandoned their claim for commission. I do not think Registrar Studdert's comment concerning the costs of commission proceedings is sufficient to establish that he had lost sight of the trustees' abandonment of their claim for commission, so that he had decided the application before him on the basis that it would be necessary for him to decide the commission to which the trustees would be entitled, as part of the process of passing and vouching the trustees' accounts.
I have based my decision not to disturb Registrar Studdert's determination on a number of considerations.
First, not only does the determination relate to an issue of practice, but it relates to an issue of practice that is conferred by the Probate Rules on a registrar. The registrars who exercise this jurisdiction of the court have, as Lindsay J has observed, developed particular expertise. Accordingly, the court will be slow to interfere with practice decisions made by a registrar under the Probate Rules, unless there is a clear case for intervention.
It would be a bold judge, who is usually engaged in the exercise of the court's general equitable jurisdiction, to disturb a determination made by a registrar as experienced as Registrar Studdert, without first being sure that his or her intervention was based on a sound foundation. At one stage during argument, I asked whether it would be appropriate for the court to make inquiry of the Probate Registry concerning relevant aspects of its practice, but the beneficiaries responded that they did not invite the court to do that, and the trustees were silent (T 25).
As I have observed above, the trustees did not attempt to meet Mr Poole's evidence with the evidence of an expert in the practices of the Probate Registry, who was able to explain, in a clear and positive way, the steps that could be taken by the registrar charged with the duty to pass the accounts, to execute his or her duty in a way that was at least reasonably as convenient as if the accounts had been prepared in the usual format.
There was thus an element of abstraction about the argument that the accounts in the format prepared for the trustees were as adequate for the purpose of passing the accounts as accounts prepared in the usual format. Ultimately, I have not been satisfied that I understand in sufficiently precise terms what the practical consequences of the different format will be, to justify my disturbing the determination of Registrar Studdert in this case.
In that regard, I have not lost sight of the observation made by Registrar Studdert at the hearing before him in this matter, when he observed that the suitability of the format adopted on behalf of the trustees would "come down to the opinion of whoever will vouch and as to whether they can understand them", and that the process is "tedious and time-consuming". The court should not ignore the possible impact of a determination by the court that will require a registrar in the Probate Office to pass accounts prepared in a novel format on the internal processes of the Probate Office, which may require the registrar to adapt well understood processes to the new circumstances, and which may well (for all I know) impose an unwarranted pressure and burden on the registrar who is required to vouch and pass the accounts. The sufficiency of the format adopted on behalf of the trustees as a theoretical matter would not be determinative, as the change in format from that which is usually adopted may have practical consequences that the evidence does not permit me to understand.
Perhaps the most significant consideration is, as Registrar Studdert observed in argument, that the passing of accounts for probate purposes is a different judicial exercise than the taking of accounts in equity to determine whether a trustee has properly accounted for the trust fund. The probate registrar is to satisfy him or herself that the provisions of the will have been properly executed, and that the assets in the estate have been dealt with in accordance with the will; further, that income to which the estate is entitled has been received and accounted for, expenses have been properly incurred, and distributions made as required by the will. Much of the information required for that purpose may be found in accounts prepared in the modern format in accordance with accounting standards, but perhaps some may not be, or not be set out conveniently. For instance, it may not be a straightforward exercise to trace the assets listed in the inventory of property through accounts prepared in the modern format, and an arithmetical computation will be required to dissect actual receipts out of income that includes notional receipts represented by revaluations in assets. Accounts prepared in order to be passed by a probate registrar are not prepared for the sole purpose of facilitating the resolution of any disputes that may exist between the trustees and the beneficiaries concerning the propriety of individual transactions.
I have also been influenced by the evidence that it will be possible for the trustees' accounts in their present form to be reformatted into the usual format at a cost of only about $28,000 plus GST. I do not suggest that that amount is inconsequential, but in view of the total value of the estate, and the fact that the beneficiaries have demanded that the accounts be prepared in the usual format, I do not think that the evidence as a whole justifies the court in ignoring the uncertainties that may arise if a registrar is required to pass the accounts in their present form, when all potential problems can be avoided by causing the accounts to be reformatted.
I am sceptical about the force of the beneficiaries' submissions that the departure from the usual format in this case would have deleterious consequences as serious as the beneficiaries have suggested. I rest my decision on the basis that the evidence in the present case of the consequences of changing the format from the usual format is not sufficiently clear to justify the intervention of the court, given the relatively small cost of reformatting the trustees' accounts.
I do not think that it is necessary for me to consider in detail all of the deficiencies in, or difficulties that will arise from the use of, the accounts in the format prepared by the trustees, that have been raised by the beneficiaries. Registrar Studdert had before him the accounts for the whole of the period from 1998 to 2014; while I only had the accounts for 2008. The 2008 accounts were based on accounts initially prepared by KPMG, and as I understand it, they contain all of the information required for the purpose of passing the accounts, although not in the usual format. As I have noted above, Mr Mitchell acknowledged that the accounts prepared for the period before 2005 involved "reduced disclosure". I do not know what the nature and effect of that reduction is. As appears from the summary of the parties' arguments that I have set out above, the beneficiaries supported their arguments concerning the inadequacy of the format of the accounts prepared by the trustees by reference to accounts prepared before 2005, while the trustees relied upon the format of the 2008 accounts to justify their adequacy.
The evidence does not make clear what the nature of the "reduced disclosure" in fact is, and what effect it will have on the process of passing the relevant accounts. While it is not possible for the court to make a definite finding on this issue, it may reasonably be suspected that the deficiency in the information disclosed by the accounts may have the effect that the registrar will be unable to pass them at all, in whole or in part, because of the absence of necessary information; and not just the inconvenience of attempting to pass the accounts prepared in an unusual format.
It does not follow from the conclusion that I have reached that the court should never entertain a departure from the usual format of accounts, when accounts in a different format, particularly one that is consistent with generally accepted accounting principles, are the subject of an application for their passing.
These reasons should not be taken to be an unqualified defence of the traditional format in which the court has required accounts to be prepared, for the purpose of the passing of the accounts.
The court should be slow to ignore the probability that modern accounting standards have evolved from the cashbook format upon which the usual format for executors' accounts for good reason, or to reject absolutely the possibility that cases may arise in the future where the cost or inconvenience of requiring accounts that have been prepared in accordance with the accounting standards to be reformatted into the usual format is so great that it would be reasonable for the court to explore the possibility of whether the case is appropriate for the court to adjust its usual approach to the passing of accounts.
That is a question for another day, and for my own part I doubt that it would be appropriate for a judge of the court to impose an unusual accounting format on the registrar charged with the duty to pass the accounts, without the issue first being submitted to the registrar for the purpose of determining whether, and if so which, adjustments or other arrangements should be made to facilitate the registrar's task.

Further conduct of the application

The parties agree that the court should reserve the costs of the application to Registrar Studdert, and the subsequent application to review the registrar's determination. I will accordingly reserve those costs.
The beneficiaries have submitted that the entitlement of the trustees to their costs of preparing their accounts in the present format, and the trustees' costs of reformatting the accounts into the usual format, should be left for the determination and moderation by the registrar who ultimately deals with the passing of the accounts. That approach would be in accordance with the usual procedure, but I propose to defer dealing with that question until I deal with the parties' costs of the two applications.
It will be necessary for the court to make further directions concerning the future conduct of the application.
I do not know what the present status is of the beneficiaries' claim in order 1 of their summons for an order that the trustees account for their dealings with the testamentary trust. It seems that the beneficiaries' claim for an account may have prompted the trustees to apply for the passing of their accounts. It may be that there is a sensible reason for the course that these proceedings have taken, which has not yet been explained to the court. As part of the process of formulating appropriate directions for the future conduct of the application, I will require the parties to explain the purpose of the trustees' application for the passing of their accounts, in relation to the beneficiaries' application for an account from the trustees. I would not want a probate registrar to have to engage in the onerous exercise of passing the trustees' reformatted accounts in the present case, without first being satisfied that the exercise will resolve the real dispute between the trustees and the beneficiaries, or otherwise have some worthwhile purpose.
As part of the process of formulating directions for the future conduct of the application, I will require the parties, and in particular the beneficiaries, to give an outline to the court of the real issues between the parties. As I have noted above, nothing appears to have come of Hallen J's suggestion that the parties should identify the real issues, and attempt to co-operate in resolving those issues without having to go through a formal accounting process. Whatever might be the shortcomings in the format adopted by the trustees for the purpose of the passing of their accounts, in my view, those accounts present the accounting history of the testamentary trust in at least sufficient detail to enable the beneficiaries to provide a reasonably clear indication of the nature of the real dispute between the parties.
I will not deal with the issue of the reserved costs until I am in a position to understand the relationship between the applications that have been made to date in the proceedings and the determination of the real issues in dispute between the parties.
I should record that I have not decided an issue that was given some attention by the parties during the hearing. That issue is whether the trustees were, in the first place, justified in incurring the costs of having annual financial statements prepared in accordance with the relevant accounting standards. The beneficiaries put an argument that the testamentary trust in the present case is not in reality a trading trust; and the number of actual transactions in which the trustees engaged was so limited that it would have been adequate for the trustees themselves to prepare accounts in cash book form in the first place.
That is not a question that arises on an application for review of Registrar Studdert's determination in this case. It would only arise during the course of the giving of an account by the trustees, or in the passing of the trustees' accounts by a probate registrar, if the beneficiaries challenged the reasonableness of the trustees' costs of having annual financial statements prepared.
When I publish these reasons for judgment, I will invite the parties to formulate appropriate short minutes of order, and appoint a date for a directions hearing to consider what directions should be made for the future conduct of these proceedings.

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: 05 July 2016

(2009) 168 LGERA 260

At a glance

Court

Decision date

Before

Source

Judgment (17 paragraphs)

Parties

Legislation Cited (5)

Cases Cited (19)

Cited By (4)