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Georgios Vasilios Sotiropoulos as executor of the estate of the late Maria Sotiropoulos v Vlasios Vasilios Sotiropoulos - [2015] NSWSC 1277 - NSWSC 2015 case summary — Zoe
On 1 July 2015, I delivered reasons for judgment in these proceedings: [2015] NSWSC 855.
The plaintiff is the brother of the defendant, and the sole executor of the will of their late mother. The plaintiff and the defendant are entitled to share equally in the residuary estate under the will.
For reasons that do not require consideration, the deceased gave one of her properties solely to the plaintiff.
Three of the properties that were owned by the deceased at the date of her death were the subject of mortgages to the National Australia Bank Ltd. One of the subject properties was the property that the deceased left solely to the plaintiff.
For the last period of her life, the affairs of the deceased were managed by the NSW Trustee & Guardian (the NSW Trustee).
The deceased was in default of her loan arrangements with the Bank, and the Bank pressed the NSW Trustee to sell property owned by the deceased to reduce the amount of her indebtedness to the Bank to a level that the Bank was satisfied could be serviced by the income of the deceased.
The NSW Trustee entered into a deed of forbearance on behalf of the deceased with the Bank on 20 October 2011. The deed of forbearance contained a number of terms that were directed towards the sale of one of the properties that form part of the residuary estate of the deceased. The meaning of the deed is not transparent. I have discussed the relevant terms in my principal judgment.
If the effect of the deed of forbearance was that it signified a contrary intention of the deceased to all of the properties the subject of the mortgages to the Bank bearing the total amount of the debt proportionally, then the effect of s 145 of the Conveyancing Act 1919 (NSW) would be that the property that was the subject of the deed of forbearance would be required to be applied wholly in repayment of the debt, before other properties within the estate had to be applied proportionally in repayment of the balance of the debt.
While the question has been explored more fully in my principal judgment, it will be sufficient for the purpose of these reasons to state simply that, if the property the subject of the deed of forbearance was required to be applied first in repayment of the debt, that would benefit the plaintiff as against the defendant. The reason is that that property is, as stated above, part of the residuary estate, in which both the plaintiff and the defendant are entitled under the will to share equally. The application of that property in payment of the debt in priority to any of the other properties in the estate, would pro tanto relieve the property that was left solely to the plaintiff.
The plaintiff commenced the proceedings by summons in which he sought judicial advice under s 63 of the Trustee Act 1925 (NSW). The questions upon which judicial advice was sought were formulated in a manner which, if answered affirmatively by the court, would have favoured the plaintiff.
In taking this course, the plaintiff acted on the advice of his solicitors and counsel. The plaintiff acted on an opinion given by senior counsel, and was represented at the hearing by a different senior counsel.
At pars 10 to 12 of my principal judgment, I made a number of observations concerning the circumstances in which it is appropriate for trustees and executors to seek judicial advice under s 63 of the Trustee Act, rather than to commence proceedings to which suitable defendants are joined for the purpose of obtaining substantive relief.
It is sufficient to note for present purposes that, at a technical level, it was legitimate for the plaintiff to seek the judicial advice that he did in his summons, without serving the summons on the defendant. Section 63 contains provisions which have the effect of enabling beneficiaries who wish to challenge the advice given by the court to do so after the court has given that advice.
In the present case, however, the defendant, being aware of the plaintiff's application, appeared by counsel to dispute the appropriateness of the course followed by the plaintiff, and to contest the issue of whether the court should give affirmative answers to the questions posed.
In the manner that I outlined in pars 16 to 19 of my principal judgment, the plaintiff acted reasonably and practically, with the encouragement of the court, to amend his claim so that the issues that had been the subject of the request for judicial advice in the summons became claims for relief in substantive proceedings, with the defendant being joined formally as a party.
That course had the effect, as it were, of collapsing the steps that may have been required, if s 63 of the Trustee Act had been implemented fully, so that the matter was turned into a substantive claim, and dealt with accordingly, on the evidence that was before the court in support of the application for judicial review.
Had the matter proceeded as an application for judicial review, it is probable that the court would have ordered that the costs of the application be paid out of the estate, as that is the costs order that is usually made. I appreciate that, because the defendant was in fact before the court, although not initially a party, he would probably have sought to agitate the issue, and have argued for some different costs order.
The fact remains that, by cooperating with the reformulation of the proceedings, with the encouragement of the court, and at the request of the defendant, the plaintiff subjected himself, in practical terms, to a greater risk of bearing the costs, if he was unsuccessful, than would have been the case as the proceedings were originally constituted.
For the reasons contained in my principal judgment, I found in favour of the defendant.
In par 134 of my principal judgment I said:
As, in substance, these proceedings have raised a legitimate question about the proper administration of Mrs Sotiropoulos' estate, and as alternative views could reasonably be taken as to the correct answer to the question, I am inclined to the view that the appropriate costs order is that the plaintiff pay the costs of both parties out of the residuary estate. There is no basis for treating the plaintiff, as executor, differently to the defendant, as the contest has in substance been between two interested beneficiaries with conflicting interests. The costs of each party should probably be paid on the indemnity basis. However, I will give the parties an opportunity to make submissions, if they wish, in support of a different costs order.
The defendant has availed himself of the invitation in this paragraph, and has delivered written submissions dated 8 July 2015, in which he submits that the proceedings were instituted by the plaintiff in his own interests, as the result if he succeeded would be that he would gain a higher proportion of the deceased's estate than he otherwise would, so that the costs of the proceeding should be dealt with on the basis that they were in substance contested proceedings inter partes in which the plaintiff failed; costs should follow the event; so that the plaintiff should be ordered to pay the defendant's costs, without recourse to any indemnity from the estate. I am not entirely clear as to what the defendant submits in relation to the plaintiff's own costs, but I infer that it is the defendant's position that the plaintiff should have to bear those costs. In saying this, I have interpreted the defendant's submission concerning their being no recourse to any indemnity from the estate to extend both to the costs that the plaintiff is ordered to pay the defendant, and the plaintiff's own costs.
I will not set out all of the defendant's arguments, but as I understand it, the defendant submits that the present case falls within class 3 of the rules set out in Haines, Construction of Wills in Australia (LexisNexis Butterworths 2007), where the learner author said at [42.2]:
Kekewich J in Re Buckton; Buckton v Buckton enunciated certain rules for the guidance of the profession in construction cases. His Lordship divided the rules into three classes:
…
3. Where the application is made by a beneficiary 'who makes a claim adverse to other beneficiaries', making use of the procedure by originating process to pursue what is really litigation inter partes. In these cases, costs are to follow the event and be paid by the unsuccessful litigant.
By submissions dated 10 July 2015, the plaintiff submits that I should proceed in the manner that I provisionally indicated in par 134 of my principal judgment.
I have decided that the proper costs order to make is that which I foreshadowed in par 134 of my principal judgment, although I have given careful consideration to the submissions made by the defendant that I should reconsider my provisional view.
It is true that in this matter, the plaintiff found himself in the position that he was both executor and beneficiary. A question arose as to the effect of the deed of forbearance. The circumstances in which the deed of forbearance had been entered into by the NSW Trustee were unusual and relatively exceptional. I am satisfied that there was genuine scope to dispute the meaning of the deed of forbearance, and its effect in relation to the operation of s 145 of the Conveyancing Act.
In the events which have happened, the plaintiff lost the argument. It does not follow, however, that it was not properly arguable that the plaintiff's position should prevail.
The plaintiff acted on the advice of two senior counsel, which was not only given in the context of an application for judicial advice under s 63 of the Trustee Act, but supported that application, and the formulation of the questions that were set out in the summons.
Of course, acting upon the advice of senior counsel does not generally provide protection to an unsuccessful litigant in contested, substantive proceedings, but the court looks at the position differently in cases involving the administration of estates. As the author of Construction of Wills in Australia said, in setting out class 1 of the rules suggested by Kekewich J at [42.2]:
1. Where the personal representatives are applicants seeking guidance as to the construction of a will or settlement or as to some question arising in the administration of trusts. In these cases, costs are incurred for the benefit of the estate and are almost invariably ordered to be paid out of the estate. Indeed, the cost of the personal representative in construction proceedings are testamentary expenses if personal estate is involved and if the problem as to interpretation was caused by the testator the costs of all necessary parties will be payable out of the estate, even if only one particular fund is concerned…
In the present case, it cannot be said that the issue was caused by the deceased, as she was incapable at the time. However, the NSW Trustee, acting properly in the execution of its duties as the manager of the deceased's estate, entered into the deed of forbearance, in order to protect the deceased from potential recovery actions by the Bank, but this step gave rise to the questions that were sought to be addressed by the plaintiff in his application for judicial advice.
It may often happen, that one person is the executor or trustee, and, at the same time, one of a number of beneficiaries. It may also happen that a question arises in the administration of the estate which, if answered one way, will benefit the executor or trustee in the capacity of a beneficiary. It may be necessary for the question to be answered, so that the estate can be administered properly. While the court should be astute to identify cases where, in reality, the executor or trustee has instituted proceedings for his or her own personal benefit, rather than primarily for the purpose of administering the estate, the court should hesitate to reach the conclusion too readily that that has happened in the case before it. It will often be in the interests of the beneficiaries as a whole for the question of how the estate should properly be administered to be resolved in the simplest and least expensive way possible. That may justify an executor or trustee, who is also a beneficiary, in seeking judicial advice on questions the answers to which are capable of benefiting the executor or trustee in comparison to the other beneficiaries.
In the present case, I am satisfied that the plaintiff has acted properly in accordance with his obligations as executor, and has only taken steps in these proceedings upon the basis of appropriate legal advice.
At least to the stage when the plaintiff cooperated in the reformulation of the proceedings as substantive proceedings between himself and the defendant, the proceedings were a genuine application for judicial advice. I am satisfied in the circumstances of this case, that if the proceedings had finally been dealt with as such an application, it would have been appropriate for the court to order that the plaintiff's costs be paid out of the estate on the indemnity basis.
It would be wrong for the court to act upon the basis that the plaintiff abandoned this prospective entitlement to a costs order, when he cooperated in the reformulation of the proceedings.
As to the balance of the proceedings, which in real terms constituted, perhaps, two thirds of the hearing on 24 March 2015, I can see no good reason for the court to take a different course in respect of costs.
I will, therefore, make an order that the plaintiff's costs be paid out of the deceased's estate on the indemnity basis.
The usual position would be that the court would make an order that the plaintiff pay the defendant's costs on the ordinary basis, with the plaintiff being entitled to indemnify himself in respect of that costs order out of the estate.
Notwithstanding that usual position, I have decided that the proper order in the present case should have the effect that the defendant should also be indemnified in respect of his costs out of the estate. In my view, the fact that the plaintiff stood to benefit personally as a beneficiary, if the issues in the proceedings were decided by the court one way, is a sufficient ground for ensuring a result that the defendant is not disadvantaged on the question of costs.
I therefore order that the costs of both parties be paid out of the estate of the deceased, Maria Sotiropoulos, on the indemnity basis.
In his written submissions, the defendant sought in par 7 that the court make a declaration to the effect that there was no contrary intention or other intention for the purposes of s 145 of the Conveyancing Act. The effect of the orders made by the court on 1 July 2015, that the plaintiff's amended summons be dismissed, effectively established this position as between the parties as a matter of res judicata. The defendant did not formally file any cross claim in which he claimed the making of a positive declaration as now sought. I have not been given an indication by the plaintiff of whether or not he consents to the making of this positive declaration. As the defendant has not to date formally sought this declaration from the court, I would not make it now, without the consent of the plaintiff. However, if I am informed that the plaintiff does consent to the making of the declaration, I will do so.
[2]
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Decision last updated: 02 September 2015
Parties
Applicant/Plaintiff:
Georgios Vasilios Sotiropoulos as executor of the estate of the late Maria Sotiropoulos