Hopkins v Edwards [2020] VSC 456

Supreme Court of Victoria|2020-07-31|Before: LYONS J

COSTS - Plaintiffs removed as trustee of charitable trust - Proceeding for their reinstatement - Settlement during trial included reinstatement - Costs entitlement of plaintiffs - No determination on merits - Settlement constituted capitulation - Settlement consistent with pre-issue offer of plaintiff which was not accepted by defendant trustees - Whether entitlement to indemnity costs totalling $1.8 million against defendant trustees - Whether costs proportionate and/or incurred in breach of s 24 of the CPA - Proceeding involved personal and adversarial elements - Standard costs ordered.

TRUSTEES - Indemnity for costs of trustee defendants who capitulated - whether costs of $1 million 'properly incurred' - Beddoe application - order that defendant trustees justified in defending proceeding but indemnity not ordered on Beddoe application - Legal advice that reasonable prosects of success - Whether right to indemnity for costs of $1 million - Relevance of whether costs proportionate and/or incurred in breach of s 24 of the CPA - Standard costs properly incurred.

1 This application concerns the costs orders that should be made on the settlement of a proceeding for the reinstatement of two of seven trustees of a charitable trust called the Campbell Edwards Trust (the 'Trust').

2 The plaintiffs were removed as trustees on 13 September 2017. This proceeding was brought against the other five trustees at that time, four of whom determined to remove the plaintiffs (the 'removal decision') and who played an active part in the proceedings (the 'active defendants'). The plaintiffs sought declarations that the removal decision was invalid and for reinstatement. The active defendants defended the proceeding and the removal decision. The Attorney General (the 'Attorney') was a party to the proceeding in her capacity as protector of charities but took no active part in the lead up to the trial of the proceeding.

3 The trial was listed for hearing before me on 11 June 2019 with an estimated hearing of 8 to 9 days. After openings, and part of evidence from the first plaintiff, the parties attended mediation ordered by the Court at which the proceeding was settled. The proceeding was listed before me again on 18 June 2019 for the purpose of seeking orders in accordance with the settlement. The terms of settlement included that:

(1) the plaintiffs' removal as trustees was invalid and that they be reinstated as trustees from 13 September 2017; and

(2) advice be obtained from senior counsel on matters relating to the Trust which were relevant to the removal decision.

4 With the consent of all parties, I made orders in accordance with these terms.

5 However, the terms of settlement also included orders dealing with the costs of the parties, relevantly:

(1) the active defendants pay the costs of the plaintiffs from 13 September 2017 on an indemnity basis;

(2) the active defendants be reimbursed out of the Trust for the costs payable to the plaintiffs; and

(3) the active defendants be reimbursed out of the Trust for their costs in defending this proceeding on an indemnity basis.

6 These orders were sought with the consent of all parties save for the Attorney. Counsel for the Attorney expressed concern about the orders that the costs of both the plaintiffs and the active defendants be paid on an indemnity basis from the assets of the Trust.[1] This was because, to 18 June 2019, the costs of the plaintiffs were $1,724,846.32 and the costs of the active defendants were $1,042,300.87. These are significant sums. This is notwithstanding the Trust currently has assets in excess of $30 million.

7 As a result, I did not make costs orders in accordance with the terms of settlement on 18 June 2019. Rather I ordered that the parties file material and submissions on the appropriate costs orders to be made. Substantial affidavit material and submissions were filed in late June, July and August 2019. No party requested a further hearing. After considering this lengthy material, the Court sent a memorandum to the parties in early 2020 setting out some preliminary views and giving the parties the opportunity to make further submissions (the 'Memorandum'). As a consequence, the parties filed further material and submissions, and requested a hearing. That hearing took place over two days in April and June 2020.

8 In summary, the active defendants submitted that, as trustees, they are entitled to be indemnified for liabilities and legal costs properly incurred in litigation in respect of their duties, even if they are unsuccessful, and including the costs of the successful party. This is in circumstances where:

(1) the first to sixth defendants obtained a Beddoe order[2] from McMillan J that they were justified in defending, the claims made against them in their capacities as trustees of the Trust (the 'justification order');

(2) the active defendants obtained advice from counsel which justified their decision to defend the proceeding, some of which was produced on this application;

(3) there is only limited review of the exercise of the power to remove the plaintiffs as trustees; and

(4) the active defendants defended this proceeding consistent with the justification order and that advice in a proper and sensible way in light of the way in which the proceedings were pleaded and conducted by the plaintiffs.

9 The plaintiffs sought their costs from the active defendants on an indemnity basis to be paid from the Trust. This was because they submitted that, by the settlement, the active defendants had effectively capitulated. The plaintiffs also relied upon a letter of offer sent prior to this proceeding being issued which sought their reinstatement and foreshadowed indemnity costs if the offer was refused. That offer had not been accepted by the active defendants. They noted that the Attorney did not oppose a costs order on an indemnity basis in their favour, only that it be paid from Trust funds. They sought indemnity for those costs from the Trust fund on the basis that the proceeding was for the overall benefit of the Trust.

10 In summary, the Attorney submitted that it is not appropriate that the active defendants be reimbursed from Trust assets for their own costs of this proceeding or for the plaintiffs' costs of the proceeding, let alone on an indemnity basis. This was for a number of reasons. First, the Attorney submitted that the Court had to be satisfied that these costs and liabilities were properly incurred to give rise to any indemnity. That could not be established here as:

(1) the proceedings involved personal interest and were of an adversarial nature;

(2) the proceeding resulted in no real benefit to the Trust;

(3) the settlement of the proceeding involved a capitulation by active defendants as the plaintiffs were reinstated as trustees from the date of their removal; and

(4) in these circumstances, the conduct of the active defendants in defending the proceeding was inconsistent with the trustees' obligation to exercise the care and diligence that a person of ordinary prudence would exercise.

11 Second, the Attorney submitted that the justification order did not give the active defendants any costs protection. This is because, as part of the Beddoe application, the active defendants also sought an indemnity for their costs of this proceeding from McMillan J but her Honour declined to make such an order. As a result, the issue was left for the trial judge.

12 Third, the Attorney submitted that the Court, in exercising its discretion in relation to costs and the award of an indemnity in relation to costs from the Trust assets, was obliged to have regard to s 24 of the Civil Procedure Act 2010 (Vic) (the 'CPA') which provides that parties to a proceeding must use reasonable endeavours to ensure costs are reasonable and proportionate to the issues in dispute.

13 As is evident, in the course of the application, the active defendants chose to put into evidence some, but not all, of the advice they received in the course of this proceeding. In particular, they did not put into evidence the merits advice or the costs estimate that was provided to McMillan J on the Beddoe application (collectively the 'Beddoe material'). The Attorney submitted that there had been a waiver of privilege in respect of the Beddoe material. However, the Attorney did not seek inspection of that material. Rather, the Attorney submitted that the Court itself should review the Beddoe material for the purpose of determining this costs application. The active defendants opposed any review of the Beddoe material on the basis that that there was no application to appeal from the justification order or to set it aside. Further, they submitted that, in the absence of an application for inspection, it was not appropriate for the Court to review the Beddoe material.

14 In summary, for the reasons that follow, I have formed the view that:

(1) the active defendants should pay the costs of the plaintiffs from 13 September 2017 on a standard basis;

(2) the active defendants should be reimbursed out of the Trust for the costs payable to the plaintiffs; and

(3) the active defendants should be reimbursed out of the Trust for their costs in defending this proceeding on a standard basis.

15 In the absence of an application by the Attorney for production of the Beddoe material, I do not consider it appropriate for the Court to review that material.

16 I am concerned about the costs and expenses likely to be incurred if these costs orders were to be assessed at a taxation in the ordinary way, particularly given that it seems likely that the Attorney will need to be appointed as a contradictor. As a result, I will order that the parties confer about how the amount of costs are to be determined. In the absence of agreement within 21 days (or some other appropriate period), I will order that the parties file short submissions as to how the amount of those costs should be determined.

17 The material filed in support of this costs application is substantial. Prior to the Memorandum, the active defendants relied upon:

(1) the affidavits of their solicitor, Gavin James Forrest, sworn 18 June 2019 and 19 July 2019 (which with exhibits totalled over 480 pages) ; and

(2) the affidavit of Andrew Campbell Edwards sworn 22 July 2019.

18 The active defendants also relied upon their submissions dated 18 June and 22 July 2019.

19 The plaintiffs relied upon the affidavit of their solicitor, Nameeta Chandra affirmed 18 June 2019 (which with exhibits totalled 30 pages). They also relied upon their submissions dated 28 June 2019.

20 The Attorney relied upon submissions dated 21 June and 15 August 2019.

21 The Court sent the Memorandum to the parties on 12 February 2020. In response, the parties indicated they wished to file further material and requested oral argument. The oral argument took place over two days, on 30 April and 17 June 2020 (the 'costs hearing').

22 After the Memorandum, the active defendants filed:

(1) an affidavit of their solicitor Hayley Jade Phillips sworn 12 March 2020 (which with exhibits totalled over 280 pages, the 'first Phillips affidavit').

(2) an affidavit of Ms Phillips sworn 11 May 2020 (which with exhibits totalled over 230 pages, the 'second Phillips affidavit'), filed after the first day of the costs hearing.[3]

Further, they filed short submissions dated 29 April 2020. In addition, the active defendants produced a bundle of key documents for the costs hearing totalling 428 pages which included many of the exhibits to the affidavits relied upon.

23 The plaintiffs filed further submissions dated 27 March 2020. They also produced a bundle of key documents for the costs hearing totalling 77 pages.

24 The Attorney filed further submissions dated 17 April 2020. The Attorney also produced a bundle of key documents for the costs hearing totalling 228 pages.

25 Robert Campbell Edwards established the Trust by deed poll dated 21 November 1922. The terms of the trust deed have been varied since that time; by deeds dated 6 March 1924 (the '1924 Deed'), 1 October 1925 (the '1925 Deed'), 26 January 1929 (the '1929 Deed') and 14 June 1946 (the '1946 Deed'). I will refer to these collectively as the Trust Deed. The most comprehensive document containing the current terms of the Trust Deed is a composite document containing the 1922 deed, the 1924 deed and the 1925 deed. There is also a 34 page compilation prepared by a solicitor for the Trust in late August 2012.[4]

26 In summary, the Trust was primarily established 'to devote the funds of the Trust to the cause of primitive Christianity meaning the Church as it was in its beginning'.[5] The 1922 Deed also provided that funds may be 'devoted to charitable work for the benefit of poor children such for example as the Burwood Boys' Home or the like'.[6] Over time, amendments were made to the Trust Deed to expand the charitable objects. For example:

(1) the 1929 Deed provided that 'the trustees may from time to time permit a person or persons of indigent circumstances to occupy any real property held by the Trustees either with or without rent and upon such terms or conditions and for such periods as the Trustees in their absolute discretion deem fit';[7]

(2) the 1946 Deed provided that 'in the case the Trustees for the time being from time to time find it impracticable to discover churches or congregations conforming strictly to the pattern defined in this clause, [cl (a) of the 1922 Trust Deed] then the said Trustees shall be at liberty to devote the said funds to purposes which in their unanimous opinion are as near as they can find to the spirit and purpose of the present Trust ...'.[8]

27 Further, the Trust Deed places limitations on donating the yearly income of the Trust. These clauses are relevant to the matters in dispute among the trustees leading up to the removal of the plaintiffs. For example:

(1) clause A.2 of the 1929 Deed provided that 'the Trustees may make direct donations for the benefit of such Church and other charitable purposes as are in accordance with the Provisions of the Trust that such donations but such shall be limited to not more than ten per cent of the yearly income of the trust';

(2) clause A.2 was amended by the 1946 Trust deed to provide:

The Trustees may make direct donations for the benefit of such Church as is in accordance with the provisions of the Trust or varied by this present Declaration of Trust and also for any charitable purpose which my said trustees in their unanimous opinion from time to time consider to be such as I would wish to support and they are to be the final judges of the class of charity in which I would be interested but such donations shall be limited to not more than fifteen per cent of the yearly income from the Trust.

28 In light of these clauses, issues arose in relation to the charitable purposes of the Trust and the percentage of yearly income that can be applied by the Trusts for those purposes. Those issues form part of the background which gave rise to the dispute between the plaintiffs and the active defendants, and which ultimately led to the removal decision on 13 September 2017.

29 It is appropriate that I set out some of the other provisions of the Trust Deed relevant to this proceeding. First, cl (g)(3) of the 1922 Trust Deed in summary provides that the majority of the Trustees could remove a Trustee if they were of the opinion that a Trustee has 'for any considerable period of time not given due attention to his duties as trustee'. Second, cl (g)(2) of the 1925 Trust Deed provided that the chairman of the Trustees may be removed and another elected by a majority of Trustees.

30 I note that the annual information statement of the Trust for the year ended 30 June 2018 records the net assets of the Trust at $30,631,800.

31 Since the inception of the Trust, the majority of Trustees have been relatives of the founder. All act in an honorary capacity. They each spend a significant amount of time each year on Trust matters.

32 The first plaintiff, Fraser Hopkins ('Fraser'), was a trustee of the Trust from 2004 and chairman from 20 October 2016 until he was removed as trustee and chair on 13 September 2017. Fraser is a great grandson of the Founder. He has a Bachelor of Economics and had a career as a senior executive in a number of companies. He is now in his early 60s. He has been a trustee and director of a number of other institutions including Sydney Church of England Girls Grammar School and a member of the Museum of Contemporary Art Foundation Council.

33 The second plaintiff, Lindsay Mott ('Lindsay') was a trustee from 1993 until he was removed as a trustee on 13 September 2017. He was not a relative of the Founder. He has a Bachelor of Laws and a Bachelor of Commerce from the University of Melbourne. Since 1966 until his retirement in 2017, he worked as a stockbroker including as a partner and/or director of Baillieu Holst Ltd. He is now in his mid 70s.

34 The plaintiffs were removed as trustees by a letter dated 13 September 2020 signed by the active defendants, namely:

(1) James Campbell Edwards ('James'), a great grandson of the Founder and Fraser's cousin. James has a law degree. James works full-time as a principal of Edwards and Co Legal;

(2) Katherine Campbell Edwards ('Katie'), a great granddaughter of the Founder and James' sister. Katie is self-employed in a retail art business;

(3) Andrew Campbell Edwards ('Andrew'), a great grandson of the Founder and cousin of Fraser and James. Andrew is a partner in a financial consulting business; and

(4) Amanda Campbell Edwards ('Amanda'), a great granddaughter of the Founder and Fraser's sister. Amanda is a qualified architect who currently works as a sole practitioner and a yoga teacher.

35 The active defendants also removed Fraser as chair on 13 September 2017.

36 The other trustee at the time this decision was made was Eliza Bellmaine ('Eliza'), the fifth defendant. She is a great granddaughter of the Founder and Andrew's sister. She resigned as a trustee on 22 November 2017 and took no real part in the proceeding.

37 The active defendants who removed the plaintiffs also appointed 2 new trustees in place of the plaintiffs, namely Robin Campbell Edwards ('Robin') on 2 November 2017, who is the eighth defendant and James' father, and Abigail Campbell Edwards on 13 November 2017 ('Abigail'), who is the ninth defendant and James' sister. Abigail resigned as trustee on 27 January 2018. These replacement trustees took no active part in the proceeding.

38 In the period leading up to the removal of the plaintiffs as trustees of the Trust, issues arose about the meaning and effect of the Trust Deed and whether the trust funds were in fact being applied for the purposes of the Trust. These issues arose for the most part because of uncertainty about the meaning and effect of provisions of the Trust Deed. The most significant issues related to the 15% donation limit imposed by cl A.2 as set out above and whether the Trustees were distributing more than that sum. There were also related issues about:

(1) whether there is a distinction between 'devoting' funds and 'donating' funds under the Trust Deed; and

(2) whether the trustees were required to apply funds for religious purposes, or to or for specific religious organisations.

39 There were also other issues in which the plaintiffs appeared to take a different view to one or more of the active defendants, including:

(1) whether it was lawful for the trustees to approve the purchase of a headstone for the Founder's mother;

(2) how the trustees may make decisions and, in particular whether they are made by majority vote or unanimous vote in relation to particular matters;

(3) the obligations of the trustees in relation to the operation of bank accounts and approval of payments, including whether the Trust Deed required two signatories for a bank account; and

(3) whether trust funds could be used to employ a family member who required financial assistance.

40 The plaintiffs were keen to get independent legal advice on one or more of these issues, particularly whether the trust funds were in fact being applied for the purposes of the Trust, as a matter of urgency. They took some preliminary steps in this regard. The active defendants considered that the plaintiffs were rushing these proposals through. In their defence, the active defendants admit that there was a disagreement within the trustees about retaining a legal adviser external to the Trust and the process and timing of doing so.[9]

41 As a result, the active defendants purported to remove the plaintiffs as trustees and Fraser as chair relying upon the provision of the Trust Deed set out above. Although they were not obliged to give reasons, in their letters of 13 September 2017 to each of the plaintiffs, the active defendants gave reasons for the removal decision.[10] Further reasons were provided in their letter dated 17 October 2017 (the '17 October 2017' letter).[11] They may be summarised as follows:

(1) the plaintiffs supported obtaining external legal advice without allowing more time for internal legal review, primarily by James who is a solicitor;

(2) the plaintiffs were having a limiting effect on the class of potential providers of legal advice to the Trust;

(3) the plaintiffs acted in concert with each other, did not exercise an independent mind and created a political party with one another;

(4) Fraser breached obligations of confidentiality by his communications with a law firm for obtaining a fee proposal dated 7 September 2017 (the 'fee proposal') and a preliminary advice on the same date, and he refused to recognise legitimate concerns of co-trustees and work to rectify such conduct when challenged;

(5) Fraser inappropriately sent the fee proposal to the trustees' accountant asking if the questions would answer the auditor's queries, thereby 'potentially pre‑empting, prejudicing and fettering the proper exercise of discretion by the Trustees to first work with the accountants and auditors to properly excavate the nature and perspective of these queries and properly consider how these queries were best addressed';[12]

(6) Fraser used unnecessary and inappropriate pressure and influence to encourage co-trustees to be passive and not exercise an independent voice, and impaired the ability of co-trustees to exercise their discretion in a properly informed way; and

(7) Lindsay was unable to properly assess or identify important issues due to impaired cognitive processes following his stroke.

42 It is evident from this summary that there were serious divisions between the trustees at the time, in particular when and how the trustees were to obtain independent legal advice on the issues of concern.

43 The plaintiffs disputed that they had not given due attention to their duties as trustees. To the contrary, they asserted that by their conduct in seeking to obtain independent legal advice on these issues of concern, and to seek the agreement of the other trustees to obtain such advice promptly, they were properly fulfilling their duties as trustees.

44 As a result, they asserted that the removal decision was not made in the interests of the Trust but for personal reasons including a desire by them to avoid exposure to personal liability as trustees for breach of trust. They contended that the removal decision by the active defendants:

(2) was not done upon genuine and real consideration;

(3) was not done in accordance with the purposes for which the power was conferred or alternatively for an ulterior purpose;

(4) was done arbitrarily, capriciously, wantonly, irresponsibly, mischievously, irrelevantly to any sensible expectation of the settlor, irrationally and/or perversely;

(5) was done for reasons disclosed which were not sound or which did not justify the trustees' conclusion;

(6) was not done with an entire absence of indirect motive, with honesty of intention or with fair consideration of the subject; and

(7) could not have been done if the trustees were acting honestly and reasonably.

45 This was set out in an open letter from the solicitors for the plaintiffs dated 5 October 2017 (the '5 October 2017 letter') sent prior to the issue of this proceeding. The 5 October 2017 letter did three things. First, it set out the relevant facts relied upon by the plaintiffs leading to their removal and why the other trustees' decision to remove them was invalid. Second, it requested written confirmation by 5pm on 10 October 2017 that the plaintiffs would be reinstated and acknowledgement that their removal was invalid and of no effect, failing which proceedings would be instituted and indemnity costs sought against them. Third, it requested that the trustees not use any assets of the Trust to indemnify the trustees for the legal costs in respect of the removal as such costs were properly categorised for their own benefit and not for the benefit of the Trust, failing which interlocutory relief would be sought.

46 As to the circumstances leading to their removal, the letter noted disagreements between the trustees as to the purposes of the Trust including those set out in [38] above.

47 The active defendants replied by the 17 October 2017 letter. They asserted that 'the positive exercise of the discretion [to remove the plaintiffs] was in the welfare of the Trust'. As set out above, the 17 October 2017 letter put forward further reasons to justify the removal decision. The letter noted among other things that:

(1) Fraser had signed off on the last round of donations in June 2017 without raising any concerns about the 15% rule or the classes of charity to which the Trust was contributing;

(2) in these circumstances, it was difficult to comprehend the sudden environment of pressure and disruption created by the plaintiffs; and

(3) while a review of issues of ambiguity should be conducted, that required a careful and considered assessment by all co-trustees to develop a process to enable them to participate actively, mindfully and appropriately having regard to their duties as trustees.

48 The 17 October 2017 letter concluded that the then trustees were unable to agree that the removal of the plaintiffs lacked validity: they maintained there was no proper factual or legal basis to justify the claims in the 5 October letter. The letter continued:

Nonetheless, the majority have felt obliged to reflect in their hearts as well as their minds as to whether the situation with your clients is remediable, and whether there is a way they could rejoin the Trust as functioning members. As part of this, we have tried to consider what the founder, Robert Campbell Edwards, may have wanted, and in the process, amongst other matters we have reflected on the message of compassion, hope and redemption he found the New Testament.

49 The 17 October 2017 letter noted that the majority 'would be prepared to offer a remediation opportunity' to the effect that, in the event that Fraser was willing to agree to execute a Charter that had been approved by the majority within a reasonable time after receiving it, Fraser's removal 'would be stood aside'. The Charter was not provided with the letter. The 'remediation opportunity' involved the replacement, rather than the re-instatement of Lindsay. The remediation opportunity was not further explored by the plaintiffs.

50 This proceeding was issued on 2 November 2017 with a 68 page statement of claim. It sought the re-instatement of the plaintiffs as trustees. In addition to the parties to the proceeding referred to above, the corporate trustee of the Trust, Campbell Edwards Nominees Pty Ltd was the sixth defendant. The Attorney is the seventh defendant.

51 Before dealing with the conduct of the proceeding, I wish to deal with the Beddoe application.

52 The first to sixth defendants filed a separate proceeding seeking an ex parte declaration that they were justified in defending this proceeding and in paying the costs of defending the proceeding out of the Trust. None of the other parties to this proceeding were informed of this Beddoe application at the time it was made. Given the relevance of the Beddoe application, the Beddoe application was at Court during the costs hearings and available for inspection by the parties.

53 The Beddoe application was supported by an affidavit of Fraser sworn 29 November 2017 and an affidavit of Gavin Forrest sworn 29 November 2017. Mr Forrest exhibited the Beddoe material which consisted of an opinion of the senior counsel for the active defendants who appeared at the trial the (the 'Beddoe advice') and a costs estimate of Mr Forrest (the 'Beddoe costs estimate'). The Beddoe material was treated as confidential and placed in a sealed envelope on the file.

54 The application was heard by McMillan J on 2 February 2018. On 19 February 2018, McMillan J ordered that the first to sixth defendants were justified in defending the claims against them in this proceeding in their capacities as trustees of the Trust ('the justification order'). However, McMillan J did not make an order to the effect that they were justified in paying the costs of defending the proceeding out of the Trust.

55 With the consent of the first to sixth defendants, McMillan J did not give reasons for her decision. However, the indemnity costs order was sought both in the summons and the oral hearing. In the oral hearing, her Honour noted authorities to the effect that costs issues arising out of the proceeding in respect of which a Beddoe order is sought should not be addressed in the Beddoe application particularly if breaches of duty are alleged against the trustee.

56 As noted above, Mr Forrest's affidavit exhibited the Beddoe material. As I set out below, the active defendants have now produced on this application a great deal of privileged advice given to the active defendants from late 2017 relating to their prospects of success in this proceeding. This included an opinion of Dr Ian Hardingham QC dated 8 November 2017 (the 'Hardingham advice') prepared before the Beddoe application was made and file notes of the solicitor for the active defendants recording advice from counsel from early 2018 to June 2019 (collectively, the 'Phillips file notes'). However, the active defendants have not produced the Beddoe material. I will comment on this further below.

57 Before setting out how this proceeding was conducted, I wish to note that the plaintiffs always sought a declaration that their removal was invalid for the reasons set out above. For the most part, the active defendants did not object to the factual material relied upon by the plaintiffs. They defended this proceeding relying upon the nature of the discretion exercised by the active defendants to remove the plaintiffs, noting the limited grounds for challenging such a discretion and the onus on the plaintiffs. They maintained that the removal decision was valid and rejected the plaintiffs' characterisation of the factual material. Consistent with that position, they chose not file any witness statements in this proceeding.

58 The original statement of claim dated 2 November 2017 was 68 pages. The active defendants and sixth defendant filed their defence on 14 December 2017. A defence was not filed on behalf of Eliza or the Attorney.

59 There were four amendments to the statement of claim before trial: in May 2018, in December 2018, in May 2019 and in June 2019. The most substantial amendments to the plaintiffs' claim were made in May 2018 with the amended writ and statement of claim that comprised 131 pages. The active defendants and the sixth, eighth and ninth defendants filed a 9 page defence on 25 May 2018. The active defendants relied on that defence in response to all subsequent amendments to the statement of claim.

60 Additional particulars totalling 63 pages were provided in April 2019. Further particulars were provided in mid May 2019 to correspond with the opening submissions filed by the plaintiffs. Pursuant to the orders of the Court made on 6 June 2019, the plaintiffs served the third further amended writ and statement of claim on 7 June 2019. On that day, the plaintiffs also served amended particulars. For the most part, the active defendants either consented to or did not oppose these amendments

61 Between May and June 2018, the parties provided discovery pursuant to orders made by the Court on 10 May 2018. The plaintiffs' discovery included both electronic discovery and hard copy documents. The discovery was substantial.

62 A mediation took place on 19 July 2018. The Attorney did not participate in the mediation. Pursuant to the orders of the Court, the parties disclosed their costs to the mediation and the estimated costs to trial to each other. They were disclosed to the Court on this costs application. The active defendants disclosed that their costs to the mediation were $207,000 (which had been paid out of Trust funds) and that, on the basis of a 4 day trial, they anticipated their further costs would be $300,000. The plaintiffs disclosed that their costs to the mediation were $372,524 and that, on the basis of a 7 day trial, they anticipated their future costs would be $326,550.

63 There were five directions hearings prior to the trial of this proceeding. There was a directions hearing before an Associate Judge on 7 May 2018. There was a directions hearing before me on each of 7 September 2018, 6 December 2018, 19 December 2018 and 22 March 2019.

64 In the course of these directions, I made orders for the plaintiffs to provide witness statements. There was a delay in compliance. On about 14 December 2018, the plaintiffs filed 4 witness statements: of Fraser totalling 116 pages, of Lindsay totalling 62 pages, of Fraser's father John Hopkins totalling 5 pages, and of Dr Owen King who produced a 6 page report on the health of Lindsay. There were limited objections and they were resolved before trial. After consultation between the parties, it was ordered that evidence in certain paragraphs of those statements be the subject of evidence in chief.

65 The witness statements of the plaintiffs referred to many documents relating to the Trust and leading up to their removal. The documents were included in the court book of 9 volumes which totalled in excess of 3000 pages. For the most part these documents were admitted by the active defendants. At the directions hearing on 19 December 2018, the active defendants informed the Court and the other parties that they did not intend to file any witness statements in the proceeding.

66 I also made orders for lists of issues and for a chronology. These were finalised in early to mid 2019. The list of issues contained approximately 21 separate issues, including in relation to costs. I note the active defendants submitted that a more limited list should be adopted. The chronology was 54 pages.

67 The plaintiffs filed their outline of submissions totalling 57 pages on 14 May 2019. These submissions set out the background, the material facts and the legal principles relied upon by the plaintiff.

68 Relevantly they contained a section relating to the costs of the proceeding. First, the plaintiffs submitted that, in the event that they were successful, the active defendants should pay their costs on an indemnity basis. They relied upon the 5 October 2017 letter and the response thereto.

69 Second, they submitted that the active defendants should be denied indemnity out of the Trust funds. This is because they submitted that the proceeding was adversarial and that the defence was not advanced in the best interests of the Trust but as an attempt to justify the active defendants own position. They relied upon a note of the first defendant, James, circulated to the other active defendants on 12 September 2017 (the '12 September 2017 note'). That note referred among other things to the possibility of present and past trustees being personally liable for misapplied donations and to reputational damage. I will refer to this further below. Third, they submitted that, for the same reasons, the active defendants should repay the funds of the Trust used to pay the costs.

70 The active defendants filed their opening submissions on 28 May 2019 comprising 23 pages. Those submissions focused on the legal issues, namely the onus on the plaintiffs and the limited grounds for challenging the exercise of the trustees' discretion. There was limited analysis of the facts in this case.

71 The Attorney filed an outline of submissions dated 28 May 2019, which comprised 6 pages. In these submissions, the Attorney drew attention to matters which might constitute potential breaches of trust, including the headstone proposal, assisting a family member from Trust funds, the bank account signatories issue and the 15% donation limit. The active defendants filed short submissions disputing these matters.

72 The trial commenced on 11 June 2019. The plaintiffs opened on 11 and 12 June 2019, essentially taking the Court through the documents relied upon in the court book. The active defendants declined to open before leading evidence. Fraser was called to give evidence and cross-examined on 12 and 13 June. On 14 June the matter went to mediation.

(1) the parties returned to Court seeking orders in accordance with the settlement;

(2) I made all the orders sought save for those relating to costs; and

(3) the orders made included a declaration that the plaintiffs' removal as trustees was invalid and that they be re-instated as trustees from 13 September 2017.

74 It was a term of settlement that advice be obtained from senior counsel on matters relating to the Trust which were relevant to the decision of the active defendants to remove them as trustees. The plaintiffs had been seeking independent advice on these matters before their purported removal.

75 The costs sought by the consent of the parties, other than the Attorney, were as follows:

The first to fourth defendants pay the costs of the first and second plaintiffs incurred since 13 September 2017 or and incidental to this proceeding on an indemnity basis under rule 63.28 of the Rules.
The first to fourth defendants be reimbursed out of the funds of the Trust under section 36(2) of the Trustee Act ... or otherwise pursuant to the court's inherent jurisdiction in respect of:

(a) amounts payable by the first to fourth defendants to the plaintiffs, or either of them, pursuant to order 11;

(b) the costs, on an indemnity basis, of the active defendants incurred since 13 September 2017 of and incidental to their defence of this proceeding.

The costs, if any, of the fifth defendant incurred since 13 September 2017 of and incidental to the fifth defendant's defence of this proceeding be paid out of the Funds of the Trust under section 36(2) of the Trustee Act on an indemnity basis or otherwise pursuant to the court's inherent jurisdiction.[13]
The costs of the Attorney General for the State of Victoria of and incidental to this proceeding be paid out of the funds of the Trust.
The order made on 6 December 2018 the plaintiffs pay the active defendants' costs of the directions hearing on 6 December 2018 be vacated.

76 These orders were sought with the consent of all parties save for the Attorney. At the hearing on 18 June 2019, counsel for the Attorney expressed concern about the orders that the costs of both the plaintiffs and the active defendants be paid on an indemnity basis from the assets of the Trust.

77 As a result, I did not make costs orders in accordance with the terms of settlement on 18 June 2019. Rather, I ordered that the parties file submissions on the appropriate costs orders to be made. They were filed in late June, late July and mid-August 2019. Further affidavits were filed as noted above. The affidavit of Mr Forrest sworn 19 July 2019 related to the steps taken in the proceeding which I have had regard to in section 4.4 above.

78 The affidavit of Mr Forrest sworn on 18 June 2019 records that he expected total costs and disbursements incurred by the active defendants would be approximately $1,042,300 to 18 June 2019 (including Beddoe application costs of approximately $62,000 which McMillan J ordered to be paid from the Trust ). These included:

(1) the professional costs for work undertaken from 13 September to 31 May 2019 were $822,724 including for the Beddoe application and counsels fees of approximately $266,345; and

(2) the unbilled professional costs to 15 June 2019 were $231,522 with additional expected costs of between $35,000 - $45,000.

79 A monthly breakdown of fees was provided to May 2019 for solicitors and counsel for the work that had been undertaken. I was informed at the costs hearing that approximately $800,000 of these costs have been paid from the Trust fund.

80 The affidavit of Ms Chandra affirmed 18 June 2019 sets out the costs for the work done in relation to the claims of the plaintiffs from 15 September 2017 until 31 May 2019, with estimates after that time. She estimated that the total of fees and disbursements paid and outstanding to 18 June 2019 were $1,724,846 including GST if applicable. These were broken down in accordance (I assume) with bills sent and may be summarised as follows:

(1) fees between 15 September 2017 and 22 June 2018 including for work relating to pre-issue advice, pleadings, court books, draft witness statements and discovery totalling approximately $361,500;

(2) fees between 26 June and 30 September 2018 including for work relating to the mediation, reviewing the active defendants' discovery, preparation of witness statements, drafting further amendments to pleadings, and directions hearings: totalling approximately $223,000;

(3) fees between 6 September and 14 December 2018 including preparation of the court book, drafting a brief to Dr King, witness conferences and drafting witness statements, preparing correspondence, preparing for directions hearings, finalising the second further amended statement of claim in the preparation of the court book and witness statements: totalling approximately $615,000;

(4) fees between 17 December 2018 and 18 February 2019 relating to the directions hearing on 19 December 2018, reviewing categories of discovery, drafting supplementary affidavits of documents, editing the court book, and preparation of the plaintiffs' tender bundle: totalling approximately $42,000;

(5) fees between 25 February and 10 May 2019 relating to the list of issues, the active defendants' objections to witness statements, correspondence regarding objections to the plaintiffs' tender documents, further discovery, preparation and attendance at the directions hearing on 22 March 2019, preparing the court book, redacting witness statements, drafting further and better particulars and discovery: totalling approximately $145,000;

(6) fees between 10 May and 31 May relating to the drafting of submissions and chronologies, amending the statement of claim, reviewing the active defendants' submissions and preparing for the hearing on 11 June 2019: totalling approximately $115,000; and

(7) unbilled fees and disbursements for the period 18 June 2019, including counsel fees: totalling approximately $222,000.

81 The active defendants also relied upon the affidavit of the third defendant, Andrew, sworn 22 July 2019. He deposed that the trustees have always acted on a voluntary basis and that the active defendants are not independently wealthy and rely upon income from full-time employment for their livelihoods and to support their families. He also deposed as to the circumstances of each of the active defendants, some of which I have referred to above.

82 Andrew also deposed about the current financial position of the Trust. The corpus of the Trust at the date of his affidavit was $32,727,000. The corpus has grown by 30% in the last five financial years under the management of the trustees including the active defendants. The operating costs of the Trust since 2014 have been relatively small: between $115,000 and $366,000 per year.

83 Andrew also deposed that in each of the last 5 years, the Trust has donated between $975,000 and $1,184,000 to charities, all of which had deductible gift recipient status endorsed by the Australian Taxation Office. These include donations to the Lighthouse Foundation of $205,000, the Ardoch Youth Mission of $240,000, the Wayside Chapel of $125,000 and Lifeline of approximately $100,000.

84 As noted above, each of the parties prepared key documents for the purpose of this application. The key documents relied upon by the Attorney referred to below were part of the trial court book, and their authenticity and contents were admitted by the active defendants at the trial. They related to the motivation of the active defendants for the removal decision and their defence of this proceeding.

85 In summary, the Attorney submitted that these key documents demonstrated that the active defendants were not acting in the best interests of the Trust but were motivated by personal interest, in particular a desire that their conduct in the management of the Trust not be subject to review including to avoid claims for personal liability. Further, the Attorney noted that the underlying dispute seemed related to family divisions within the extended Edwards family and also reputations of the trustees both within and outside the Edwards family.

86 I will now deal with each of the key documents. For convenience, I will refer to passages relied upon by the Attorney and the active defendants. First, on 18 August 2017, James wrote an email to Katie recording that he had been discussing the removal of Fraser as chairman with Amanda. The email stated:

Have been discussing this with Amanda who is keen to remove Fraser after last night's performance. We don't need a reason, but the reason is we want a 'charities-first', 'heart-based' approach. We don't want to waste time with endless debates and things like applications to the Supreme Court and the Attorney-General.

87 Second, on 12 September 2017, James sent an email to the other active defendants attaching a confidential note, being the 12 September 2017 note. It was sent the day before the removal decision. The note is headed 'CONFIDENTIAL NOTE FOR MAJORITY TRUSTEES ONLY - DO NOT SHARE OF FORWARD - Summary of some major concerns re the actions of a hostile minority of Trustees'. It was prepared by James. The note states that it contained his thoughts. However, the note is expressed to be 'further to our various discussions and thoughts on these issues'. As I have noted, James is a practising lawyer. The note included the following statements:

It is considered by the Majority that their [the plaintiffs'] approach seems ill-thought through and potentially extremely damaging to the Trust, its assets, its beneficiaries and trustees (present and former) (together 'Trust Interests').

It is an approach that does not have majority support, and despite their [the plaintiffs'] knowledge of this, and advice that it is in breach of their Trustee duties and compromising the majorities' duties and potentially [sic]

To be clear, the majority are not saying external advice will not be required. It is that the approach of the Minorities seems to place the Trust interests in a very vulnerable position, which clashes head-on with our most basic duties as Trustees.

[...]

It is unclear whether the Minorities believe their duties lie in asking what seems to be ill-conceived, "knee jerk" questions of external lawyers that have not been fully considered yet, or approved by, the Trustees. Their questions appear naïve and reckless, as Trustees have not fully informed themselves about the issues. ...

By being seen to resist a third-party review, the Majority is being "shamed" and positioned as people with 'something to hide'.

This is a fear tactic which is oppressive and unduly influences trustees to acquiesce with the Minority view. 2. The tactic is heightened as [James'] professional credibility and ethics as a lawyer are being impugned to encourage acquiescence.

There is already a 'back story' that has been built that certain Trustees want to benefit from the Trust (e.g. Grace Anna headstone) - this is another shame tactic.
What is the true nature and scope of the "external review"? $20,000 has been flagged for the initial questions, but subject to the answers for these questions what are the next steps? Why is the Majority being "strong-armed into this process "blindly"?
Why is [James] (a free legal resource worth $500 per hour) being sidelined when his professionally trained to ask the right legal questions, and manage legal costs.

[...]

12. What is the chain of enquiry actually about? Is it about:

a. Who we give to - what beneficiaries are "entitled"?

How much we give and can give - have we given away millions of dollars we shouldn't?

c. The past conduct of Trustees?

d. The future conduct of Trustees?

e. Tax status of the Trust?

Whether the Trust can continue as a going concern or should be wound up or merged?

[...]

14. As Trustees, have we considered:

What use we would like to make of the lawyers' answers to the questions? To what extent are our powers and discretions relevant here? What control do we have over the process?
What use we are obliged to make of the lawyers' answers to questions? Depending on the nature of their reply - e.g. are we obliged to approach the Attorney-General or the ATO? If so, what is the timing of this?

How much of the Trust funds do [the plaintiffs] plan to use for this cause - it feels like a chain of inquiry that could easily costs $500k-$1m and we don't know where we end up.

Are the Minorities having reasonable (or any) regard to whether the approach being taken in the best interests of the Trust.
1. Is it recklessly squandering Trust assets (no overall legal budget or timeframe set
2. is it putting corpus at risk (no proper assessment by trustee about what might happen)

c. Is it putting future (and past) beneficiaries at risk

d. Is it putting [the Trust] at risk

22. How could the process potentially impact:

Trust corpus - Could the assets be impeached in some way, such as seized by the Attorney-General and used for purposes alien to what the founder intended?
Past donations to beneficiaries - could payments be clawed back from charities?

c. Our forward-year commitments to certain beneficiaries

Tax status of the Trust - could it be lost going forward? What about the past?

Could they be impugned and personally liable for misapplied donations or tax not paid?

ii. Reputational damage

iii. does this go back 95 years?

[...]

Next steps

As Trustees, we have duties to urgently consider with respect to the Minorities conduct, who are acting without regard to the desires of the Majority or the questions above. They are so unpredictable it is unclear what they will do next. E.g. prematurely contact the ATO or the Attorney-General without consulting other Trustees.

The Trust Deed affords powers in this regard, which the founder contemplated would be required, and which have never been invoked.

James Edwards

12 September 2017 - 7.40 am

88 Third, on 16 September 2017, James sent an email to Andrew attaching talking points which James prepared for an intended discussion between Andrew and Fraser. This was three days after the removal decision. The talking points record among other things that:

This is not personal, but we have duties as trustees, even if it makes us feel if it doesn't sit well with us [sic] or create ill feeling

We had serious concerns about your approach and what damage it might cause, including:

* It feels like you are indifferent to damage caused to the assets and trustees, or at least does not feel like you want to act in a protective way

* We don't understand your immediate or ultimate agenda (beyond getting "certainty")

* We don't understand the rush

[...]

* We don't want to jump to the conclusion that Trustees have breached their duties in respect of donations - that needs investigation

* We don't know what liability we and former trustees could have - e.g. could Wendy and John be exposed and have to give evidence?

* We have lost our voice in the process and feel legally exposed

* James is a lawyer and just wants to help us and the Trust, yet you want to attack and discredit him, so it makes everyone very uncomfortable.

89 Fourth, there is an email from the daughter of Robin Edwards, a former trustee, to Fraser dated 18 September 2017 in which she expresses her father's concern that , if the issues raised by Fraser go 'the wrong way, it could have real financial liability attached to all past and present living trustees'.

90 Fifth, Amanda sent an email to Fraser's father John (who was a former trustee) on 25 September 2017. It recorded that Fraser was making 'wild allegations' in writing that the trustees have breached the Trust, that he would not listen to the majority 'especially James, as a lawyer' and disregarded the other trustees' approach**.** The email continues:

[Fraser] was out of control, and exposing the trust assets, the beneficiaries and every living trustee, who in a worst-case scenario could be accountable for millions of dollars of tax and other liability. We still cannot understand why Fraser would act in such a risky and damaging way, and what he hopes to achieve, especially when he is putting himself at risk as much or more than anyone else.

91 While the active defendants opposed the Attorney relying upon selective documents in an application where there has not been a determination on the merits, they also relied upon some documents from this period.

92 In particular, they relied upon an email from Fraser to James and the other trustees dated 12 September 2017. This was the day before the removal decision and related to an extraordinary meeting of the Trust. Fraser wrote among other things:

There is a concerning level of uncertainty relating to trustee powers and the purpose of the trust and, whilst modern trust deeds have provisions whereby trustees can make amendments to the deed, this is not possible with the [Trust] deed.
The trust deed and the 1946 amendment clearly place considerable weight on supporting a specific type of Christian Church (or churches as near to the spirt [sic] of that purpose that the trustees can find) [...] We do not "devote" funds as stated in the deed [...] Also, the reference in the 1946 amendment to a cap of 15% for donations raises the question as to whether we, the current trustees, are allowed to make the current level of donations or, albeit with our best intentions, are we acting are outside our powers?

Some time ago a former trustee advised me we should be giving more to church groups, especially Churches of Christ which are still operating in Victoria and across Australia. [...] I believe our current interpretation of the deeds is too far away from what was intended, in particular, as the primary focus was clearly on religious purpose.

93 The active defendants relied upon this email to show that there were real and serious issues in dispute about the meaning and effect of the Trust Deed, with the plaintiffs on one side and the active defendants on the other. I will deal with this further below.

94 As noted above, in response to the Memorandum, the active defendants filed two further affidavits of Ms Phillips. The first Phillips affidavit produced the Hardingham advice and the advice obtained about the meaning and effect of certain provisions of the Trust Deed since settlement of the proceeding. The second Phillips affidavit related to advice given to the active defendants during the course of this proceeding about their prospects of success. I will deal with each in turn.

95 I have noted above that the settlement of the proceeding included an agreement on operational guidelines for the future and ongoing efficient administrative operation of the Trust. These guidelines related, among other things, to the role and power of trustees, the meetings of trustees, communications between trustees and bank accounts and investments.

96 The settlement also included an agreement on the Trust obtaining advice from senior counsel as to the areas of uncertainty in the interpretation of the Trust Deed and taking any steps recommended by senior counsel in that advice.

97 Advice was obtained from Jennifer Batrouney QC dated 12 December 2019 (the 'Batrouney advice'). In the course of providing that advice, Ms Batrouney requested approval to obtain the specialist views of the Rev Dr Gary Heard in relation to Primitive Christianity. Both of these advices were exhibited to the first Phillips affidavit.

98 The Batrouney advice recorded that there were real issues about the meaning and effect of certain provisions of the Trust Deed (including some of those raised by the plaintiffs) and that it may be necessary for the trustees to apply to the Court for directions or declarations as to their meaning and effect.

99 The active defendants relied upon the Batrouney advice to support the removal decision and in particular the views of the plaintiffs as to the meaning and effect of the Trust Deed were not correct. The plaintiffs also relied upon the Batrouney advice as justifying their position prior to the removal decision. It is appropriate I deal with these submissions now.

100 Senior counsel for the active defendants submitted that there was controversy about the affairs of the trust, the speed at which decisions were being taken and from whom advice was to be sought and that these were fair grounds of controversy. He submitted that whether these controversies founded an entitlement to terminate was not a matter for me to now determine.

101 Further, the active defendants submitted that the Batrouney advice did not always adopt the plaintiffs' interpretation and that the active defendants had a real basis to disagree. Indeed, a schedule was provided of paragraph references to the Batrouney advice which were inconsistent with Fraser's view in the 12 September 2017 email. I accept that the Batrouney advice is not always consistent with the plaintiffs' views of the meaning and effect of the Trust Deed.

102 Further and by contrast, the plaintiffs submitted that the Batrouney advice confirmed the plaintiffs' concerns about the Trust Deed, noting that Ms Batrouney considered that an application to the Court was appropriate to clarify the meaning and effect of some of the clauses in issue.[14]

103 Once again, I generally accept the submissions of the plaintiffs that the Batrouney advice confirmed many, but not all, of the plaintiffs' concerns about the Trust Deed. Thus the Batrouney advice shows that the plaintiffs were raising issues of significance for the Trust and which required further investigation.

104 The active defendants appear to have acknowledged this, for example in the 12 September 2017 file note and their defence referred to above. However, there was no evidence before me that the active defendants took steps to seek such advice between the removal decision and settlement. The absence of such evidence or any explanation as to why the active defendants and the replacement trustees did not themselves obtain such advice until the settlement of this proceeding does not reflect well on the active defendants. On a more favourable view it reflects a lack of appreciation of their duties as trustees. This seems particularly true of James, a qualified practicing lawyer, whose own 12 September 2017 file note records his substantial hourly rate as a solicitor and that he is 'professionally trained to ask the right legal questions'.

105 The first Phillips affidavit records that in early November 2017 the active defendants retained Dr Ian Hardingham QC, one of Australia's leading equity lawyers, to advise them in relation to this proceeding. Dr Hardingham was briefed with the Trust Deed and related documents. He was also briefed with correspondence between the defendants, and between the defendants and the plaintiff's lawyers between 13 September 2017 and 24 October 2017.

At a glance

Court

Decision date

Before

Source

Judgment (617 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (11)