James v Douglas

James v Douglas - [2016] NSWCA 178 - NSWCA 2016 case summary — Zoe

[4]

Overview This appeal is concerned with the construction of the will of Stanley Edward Douglas made on 4 May 2011 (the will). That will created a number of testamentary trusts. One such trust was the Capital Protected Trust (the CPT). The originally named trustees of that trust were the testator's widow, Zeta Douglas, his daughter, Marea Gilbert and a family friend, Janina Kik. David James, the husband of another of the testator's three daughters (Trudy James), was named in the will as "Appointor" of the CPT. Mr James sought to exercise on separate occasions a power to remove two of the three original trustees (Mrs Douglas and Ms Gilbert), and to appoint alternate trustees (himself and Mrs James) in their stead.

Those two former trustees brought proceedings against Mr James, the third remaining trustee, Ms Kik, and the other replacement trustee, Mrs James. They sought declarations that Mr James as Appointor did not have power to remove and appoint trustees of the CPT, that they had not been validly removed as trustees and that their purported replacements had not been validly appointed.
By an amended cross-summons, Mr James sought declarations to the opposite effect and, in the alternative, an order that the terms of the will be rectified. That claim was made in reliance on there being an equitable jurisdiction to rectify the will and, in the alternative, under s 27 of the Succession Act 2006 (NSW) (the Succession Act). Reliance on that statutory provision was abandoned at the commencement of the hearing.
The primary judge (McDougall J) resolved the question of construction in favour of the plaintiffs, holding that Mr James did not have power to remove and appoint trustees: Douglas v James [2015] NSWSC 299. He also dismissed the claim to rectification on the basis that there was no equitable jurisdiction to rectify the will.
In a later judgment, the primary judge ordered that the defendants pay the plaintiffs' costs of the summons and their costs (as first and second cross-defendants) of the amended cross-summons, in each case assessed on an indemnity basis: Douglas v James (No 2) [2015] NSWSC 969. He also ordered that the three defendants and cross-claimant not have recourse to the assets of the CPT for the purpose of indemnifying themselves for costs payable to the other parties or to recoup costs payable by them as moving parties.

[6]

Whether leave to appeal is required

In the course of argument, a question was raised as to whether Mr James requires leave to appeal from the substantive orders of the primary judge. Section 101(2)(r) of the Supreme Court Act 1970 (NSW) provides that an appeal does not lie, except by leave, from a final judgment or order in proceedings other than an appeal that involves a matter at issue or a right amounting to or of the value of $100,000 or more. The parties had not addressed whether the appeal satisfied that description. When the matter was raised, the respondents did not submit that if leave was required, it should not be granted. In my view, Mr James does require leave to appeal. The matter in question concerns the scope of his power as Appointor of the CPT. The right to exercise that authority is not one that is capable of being valued. However that fact does not mean that s 101(2)(r) does not continue to apply: Clyne v NSW Bar Association [1960] HCA 40; 104 CLR 186 at 205. In circumstances where the proper construction of the will is of substantial and continuing significance to the parties, it is appropriate that leave to appeal be granted.
There also may be a question as to whether in accordance with s 101(2)(c) the appellants require leave to appeal against the costs orders, in the event that Mr James' appeal is dismissed. That provision has been applied in this Court on the basis that if an appeal is brought as of right, and the appellant wishes to argue that the trial judge's decision concerning costs was in any event wrong, the appellate court can deal with that issue without leave being required, notwithstanding that the substantive appeal is rejected, on the basis that the appeal is not "as to costs only": see Arena Management Pty Ltd (Receiver and Manager Appointed) v Campbell Street Theatre [2011] NSWCA 128; 80 NSWLR 652 at [129]. However, as the discussion in Arena Management also shows, the correctness of that approach is not free from doubt. For that reason I also propose that the first and second appellants have leave to appeal from the costs orders.

[7]

The relevant terms of the will

It is convenient at this point to summarise the relevant terms of the will. In circumstances where Mrs Zeta Douglas survived the testator by 30 days, the will provided that the greater part of the assets of his estate, being shares and cash on deposit having a value in excess of $2.4 million, should be held on trust for her lifetime. That trust was the Capital Protected Trust or CPT. It named Mrs Douglas as Principal Beneficiary (cl 10.1) and provided that the income of the fund be paid to her or, with her consent, to certain other nominated persons, or be accumulated (cl 10.3). Upon Mrs Douglas' death, the CPT fund was to be divided in equal shares and held on trust for the four daughters, Marea Gilbert, Trudy James, Lyn Ison and Angela Webber, each described in the will as a Primary Beneficiary (cl 10.9). Each of those four trusts was described as a Beneficiary Controlled Testamentary Trust (BCTT) (cl 20). The will also provided for the event that any of those daughters did not survive their mother by 30 days so as to become a Primary Beneficiary (cl 10.10).
Clauses 2.5 and 2.6, which were headed "Appointment of Trustees", provided: 2.5 Subject to clause 20.7 ("Appointment and Removal of Trustees") in Part C, where a Primary Beneficiary (as opposed to a Principal Beneficiary) has been nominated and determined in respect of a trust, the Primary Beneficiary or the person nominated by the Primary Beneficiary shall be the Trustee of the trust. 2.6 Subject to clause 20.7 ("Appointment and Removal of Trustees") in Part C, my wife Zeta Kathleen Douglas of [a residential address] ("Zeta Kathleen Douglas"), my daughter Marea Gilbert of [a residential address] ("Marea Gilbert") and my friend Janina Kik of [a residential address] ("Janina Kik") shall be the Trustees of the Capital Protected Trust created at clause 10 of this Will.
For each category of trust there was provision for an Appointor. In respect of the CPT, cl 10.4 provided: My son-in-law David James shall be the Appointor of the Capital Protected Trust created by this clause and: (a) shall have the power to nominate any person or persons or company to act together or in his place as Appointor, and may place such conditions or restrictions on such nomination (and may make such nomination revocable or irrevocable) by any notice in writing to the Trustee, or by Will; (b) in the case of more than one Appointor, if the nomination is otherwise silent, they shall act jointly; (c) a successive Appointor, if the nomination is otherwise silent, shall also have the power to nominate a successor or alternate Appointor as if they were the initial Appointor, (d) the Appointor or any person nominated or appointed to become the Appointor either presently or at some subsequent time, may by notice in writing given to the Trustees of the Capital Protected Trust, resign or renounce such office and such resignation or renunciation shall take effect irrevocably upon such notice being given.
Apart from the functions described in cl 10.4, the only function that the will expressly gave the Appointor of the CPT was that described in cl 10.7(a): [The Trustees] may distribute, apply or allocate all or any part of any capital gain to or for the benefit of Zeta Kathleen Douglas, or with her consent and the consent of the Appointor in respect of the Capital Protected Trust to any other discretionary beneficiary identified in this clause;
Clause 20.6 provided as follows in relation to the Appointor of BCTT: The Appointor of the Beneficiary Controlled Testamentary Trust shall be determined follows: (a) the Primary Beneficiary, shall be the initial Appointor or Appointors, and shall have the power to nominate any person or persons or company to act together or in place of the initial Appointor, and may place such conditions or restrictions on such nomination (and may make such nomination revocable or irrevocable) by any notice in writing to the Trustee, or by Will; (b) in the case of more than one Appointor, if the nomination is otherwise silent, they shall act jointly; (c) a successive Appointor, if the nomination is otherwise silent, shall also have the power to nominate a successor or alternate Appointor as if they were the initial Appointor; (d) the Appointor or any person nominated or appointed to become the Appointor either presently or at some subsequent time, may by notice in writing given to the Trustee of the Beneficiary Controlled Testamentary Trust, resign or renounce such office and such resignation or renunciation shall take effect irrevocably upon such notice being given.
As the primary judge records (at [12]), there was no express conferral of any power on the Appointor to appoint or remove trustees of the CPT. There was however, as cl 2.5 anticipated, an express conferral of power by cl 20.7 on the Appointor of each BCTT to appoint and remove trustees in respect of those trusts. That clause relevantly provided: The Trustee of the Beneficiary Controlled Testamentary Trust shall be appointed or removed as follows: (a) subject to paragraph (d) of this subclause, the Primary Beneficiary, or a person (including a company) nominated by the Primary Beneficiary, shall be the initial Trustee or Trustees; (b) the Appointor (other than an Ineligible Person) may exercise the power to appoint such other person as he, she or they choose to be an additional or replacement Trustee and may subsequently remove the person as a, or the, Trustee; …
Clause 27.3 in Part D contained a number of definitions, including the following: … (a) "Appointor" in respect of a Beneficiary Controlled Testamentary Trust, shall be determined in accordance with clause 20.6 ("Appointment and Resignation of Appointor"); (b) "Appointor" in respect of the Capital Protected Trust, shall be determined in accordance with clause 10.4; (c) "Beneficiary Controlled Testamentary Trust" has the meaning set out in clause 20 ("Terms of Beneficiary Controlled Testamentary Trusts") … (e) "Capital Protected Trust" means the trust created at clause 10 of this Will. … (p) "Power of Appointment" means the power to appoint, remove or replace the trustee of a trust; … (aa) "Trustee" means the trustee of any trust under this Will and includes in respect of a Beneficiary Controlled Testamentary Trust, the person or entity determined in accordance with subclause 20.7 ("Appointment and Removal of Trustee"); and …
Finally, cl 27.2 provided that where the same term was defined in another part of the will, that definition should apply to the clause in which it appears to the extent of any inconsistency between it and a definition in Part D.

[8]

Whether the primary judge erred in his findings as to the intention of the testator (grounds 5, 6 and 8(b))

At common law, evidence of what a testator intended in relation to the operation of a testamentary document was not admissible: Sherratt v Mountford (1873) LR 8 Ch App 928; Layer v Burns Philp Trustee Co Ltd (1986) 6 NSWLR 60 at 64. However, evidence of facts and circumstances known to the testator at the time the will was created could be taken into account in interpreting its language: King v Perpetual Trustee Co (Ltd) [1955] HCA 70; 94 CLR 70 at 78. That position was modified by s 32 of the Succession Act, and its predecessors in other jurisdictions: see Administration of Justice Act 1982 (UK), s 21; Wills Act 1968 (ACT), s 12B; Morgan v Moore [2000] VSC 94 at [19]-[32].
Section 32 provides: (1) In proceedings to construe a will, evidence (including evidence of the testator's intention) is admissible to assist in the interpretation of the language used in the will if the language makes the will or any part of the will: (a) meaningless, or (b) ambiguous on the face of the will, or (c) ambiguous in the light of the surrounding circumstances. (2) Despite subsection (1), evidence of the testator's intention is not admissible to establish any of the circumstances mentioned in subsection (1)(c). …
Mr James tendered testimonial and documentary evidence in support of a finding that the testator intended by executing the will to nominate him as Appointor of the CPT and intended that as Appointor he would have power to remove trustees, including the original trustees, and to appoint trustees. That testimonial evidence included evidence from Mr Roberts, the solicitor who drafted the will. The documentary evidence included an earlier will made on 18 December 2010, email and other communications, and notes of conversations, in each case coming into existence between that date and 4 May 2011 when the final will was executed.
The primary judge was not satisfied on the basis of the testimonial evidence that the testator ever expressed directly to any of the relevant witnesses (including Mr Roberts) a desire that Mr James should have the power to appoint and remove trustees of the CPT: [73]. Having also considered the documentary material, the primary judge concluded at [119]: … I do not find, either in his execution of the will or in the circumstances leading up to that execution, any basis for concluding that [the testator] knew specifically that Mr James was to be the sole Appointor to the CPT, or that he knew that Mr James was to have the power of appointment and removal of trustees of the CPT. Thus, I do not find, in the events of 4 May 2011, any basis for inferring that, by executing the will, [the testator] did in any real or conscious sense give instructions for Mr James to be so appointed and to have that power.
Earlier the primary judge had made the following findings, which took account of the documentary evidence as well as the evidence as to what happened on 4 May 2011: [114] I have no doubt that Mr Roberts did discuss with [the testator], at least in outline, what he thought were the significant provisions of the draft will. However, bearing in mind the lengthy and complex nature of that document, I am not satisfied that Mr Roberts gave any explanation, or made any comment, which would have conveyed to [the testator] that Mr James was to be the Appointor of the CPT. Nor am I satisfied that Mr Roberts gave any explanation, or made any comment, which would have conveyed to [the testator] that Mr James was to have the power of appointing and removing trustees of the CPT: let alone, that Mr James only was to have that power. [115] Specifically, whilst I accept that Mr Roberts summarised the particular features of the CPT and the BCTTs which were intended to give effect to [the testator's] clear intention that Zeta should have in effect a life interest, and that the capital should be preserved for the benefit of their four daughters, I am not satisfied that the explanation descended into the detail of identifying the Appointor for the CPT, or describing the powers of that Appointor.
It is no longer necessary to address the detail of these grounds of appeal because in oral argument in this Court it was accepted that the extrinsic evidence did not establish that the testator subjectively intended that Mr James have the power to appoint and remove the trustees of the CPT. To the extent that the primary judge made other findings on the basis of that evidence, Mr James submits that those findings are not relevant to the determination of grounds 3 and 4, which concern the proper construction of the will.
Thus, it is no longer contended that his Honour's evaluation of the extrinsic evidence, as to the testator's intention with respect to Mr James' powers as Appointor, involved any error. Nor is it contended that the primary judge's findings based on that extrinsic evidence are relevant to the construction of the will. In these circumstances, grounds 5(b), 6(a), (b), (d) and 8(b) are not made out and grounds 5(a) and 6(c), (e) and (f) are no longer contended to be of relevance to the disposition of the appeal in Mr James' favour.

[9]

Whether the primary judge erred in the construction of the will (grounds 3 and 4)

The relevant principles are not in dispute and as described by Isaacs J in Fell v Fell [1922] HCA 55; 31 CLR 268 at 274 (citations omitted) include: … (3) "If the will shows that the testator must necessarily have intended an interest to be given which there are no words in the will expressly to devise, the Court is to supply the defect by implication, and thus to mould the language of the testator, so as to carry into effect, as far as possible, the intention which it is of opinion that the testator has on the whole will, sufficiently declared". (4) An inference cannot be made "that did not necessarily result from all the will taken together". A necessary inference is one the probability of which is so strong that a contrary intention cannot reasonably be supposed. (5) "We cannot give effect to any intention which is not expressed or plainly implied in the language of" the "will". "You have no right to fancy or to imply, unless there be something within the four corners of the will which is not only consistent with the implication you make, but which could hardly stand, if at all, in the will, without that implication being made. That is what is called necessary implication, and legitimate implication, in contradistinction to gratuitous, groundless, fanciful implication". (6) "If the contents of a will show that a word has been undesignedly omitted or undesignedly inserted, and demonstrate what addition by construction or what rejection by construction will fulfil the intention with which the document was written, the addition or rejection will by construction be made". (7) "When the will is in itself incapable of bearing any meaning unless some words are supplied, so that the only choice is between an intestacy and supplying some words; but even there, as in every case, the Court can only supply words if it sees on the face of the will itself clearly and precisely what are omitted words, which may then be supplied upon what is called a necessary implication from the terms of the will, and in order to prevent an intestacy".

[10]

The reasoning of the primary judge

Mr James made two arguments in support of his construction of the will as conferring the power to remove and appoint trustees, the former including the power to remove the original trustees. The first is summarised by the primary judge at [122]-[130]. In the context of a testamentary trust, "appointor" describes someone who has a power to remove and appoint the trustee or trustees. Clause 2.6 expressly contemplates that the trustees of the CPT are subject to such a power of removal and replacement. On a fair reading of the will as a whole, it should be concluded that Mr James as Appointor had the Power of Appointment defined in cl 27.3(p). The second argument accepted that the will did not expressly confer such a power. That argument is summarised at [150]-[152]. The intention of the testator that Mr James should have such a power was apparent from the terms of the will, as was the fact that there was a mistake in the language of cl 2.6. In the circumstances the Court can and should construe the will as if it contained additional words which give effect to that intention. Reference was made to the following statement of Buckley J in Re Doland's Will Trusts Westminster Bank Ltd v Phillips [1970] 1 Ch 267 at 274: If one finds a corrupt passage in a will where it is clear that something has gone wrong with the language, the court is entitled to remould the language or to read in additional words if, but only if, the true intention of the testator is clear.
The respondents replied that even if the language of the will suggested an intention to confer a power to appoint trustees, that language "offered no guidance as to whether that should be some general power to appoint and remove trustees (by reference to the definition of "Power of Appointment"), or what on the face of things was a more limited power, by analogy with cl 20.7": [128].
That submission directed attention to the terms of cl 20.7(b) which was said not to confer any power on the appointor of a BCTT to remove the original trustee or trustees and appoint some other person or persons in their stead. It was submitted that two things followed. First, it could not be concluded on a fair reading of the will that the testator's intention was to confer the power of appointment described in cl 27.3(p). Secondly, because the intention of the testator in that crucial respect was not clear, it was not possible to determine what additional words should be supplied as part of the process of construction.
The primary judge so construed cl 20.7(b). He reasoned as follows: [133] The reference, in cl 2.6, to cl 20.7 could be taken to indicate that the removal and replacement of trustees was to be undertaken in the way outlined by that subclause. More accurately, that cross-reference could be taken to indicate an analogous power of removal and appointment, with whatever limits there might be within cl 20.7(b). The analogy is not entirely clear, given that cl 2.6 deals with the CPT, cl 20.7 with the BCTTs, and the structures of those forms of trust are quite different. [134] That process of reasoning directs attention to the proper construction of cl 20.7(b). To my mind, at least as a matter of plain language, the words "the power to appoint" take their meaning from what follows. The "power to appoint" that it gives is a power to appoint in the manner, and to the extent described in the following words of the subclause, and no more. [135] Alternatively, if the subclause were to be read as calling up the defined express "Power of Appointment", it seems to me that the same result would follow. On that hypothesis, the testator … intended to call up the defined expression "Power of Appointment", but to limit the general content of that power (as it appears from the definition in cl 27.3(p)) by the specific limitations that follow in cl 20.7(b). [136] On either approach, therefore, the key question is whether the reference, in cl 20.7(b), to a "replacement Trustee" should be taken to carry with it the power to remove a trustee for the purpose of replacing her or him. [137] To my mind, the use of the concepts of removal and replacement (or their cognate forms) shows that the concept of removal was not intended to be inherent in the context of replacement. Put more precisely for present purposes, I think that the use of those separate concepts speaks against construing the power of replacement as necessarily including an anterior power of removal. [138] To my mind, that is made clear by the definition of the term "Power of Appointment". That is stated specifically to mean "the power to appoint, or remove or replace the trustee of a trust". [139] In ordinary language, it may be said that: (1) appointment of someone to an office means putting the person into that office; putting the person in a position lawfully to exercise the functions and powers of that office; (2) removal of someone from office means exactly what it says: depriving someone of office, or vacating the person's holding of that office; and (3) replacement means the filling an office which has become vacant in one way or another; including vacancy by removal, vacancy by death, vacancy by resignation, vacancy by incapacity, and perhaps vacancy for other causes. [140] If it were thought that the power of replacement included the anterior power of removal, it would not have been necessary to define Power of Appointment in the way that was done. The words "or replace" would be otiose. Nor would it have been necessary to include the two powers (replacement and removal) in cl 20.7(b). [141] As I have indicated, there are many reasons why a trustee may cease to hold or cease to exercise the powers of, that office. Removal is but one. The power of replacement is apt to include the filling of an office that is vacated, or the powers of which are no longer exercised, by a particular individual. [142] Thus, I conclude that cl 20.7(b) should be construed so that the Appointor has power: (1) to appoint additional trustees; (2) to appoint replacements for trustees who have ceased to hold or exercise their office for any reason; and (3) to remove trustees appointed under the two foregoing powers.
He concluded that "it is not possible, objectively, to impute to [the testator], reading the will as a whole, the intention that the Appointor should have one rather than the other of the variant powers of appointment for which the will provides. I do not think that the Court should speculate as to which, of those two alternatives, [the testator] might have chosen.": [147].
For that reason he rejected Mr James' first argument that the will should be construed as conferring the power described in cl 27.3(p). He also rejected his alternative argument that this was a case in which words could be supplied, because the testator's intention was not clear.

[11]

The argument on appeal

In this Court, Mr James' focussed on the second of the arguments rejected by the primary judge. Clause 2.6 with its reference to cl 20.7 and the appointment and removal of the trustee or trustees of a BCTT, contains an obvious error. It nevertheless contemplates that the trustees of the CTP may change from time to time, including by removal and appointment.
Some words must be implied to make sense of the will, and in particular cl 2.6. The definition of "Power of Appointment" includes powers "to appoint, remove or replace" trustees: cl 27.3(p). The most plausible interpretation of cl 2.6 is that it was intended to be subject to the general power of appointment. That construction gives the definition in cl 27.3(p) some work to do, and avoids the awkwardness of applying cl 20.7, a provision referring to the BCTTs, to the CPT.
For these reasons, it is submitted that the mistake in the language should be resolved by construing cl 2.6 as if it commenced, "Subject to the Power of Appointment".
The alternative argument made by Mr James accepts that cl 2.6 in its terms was intended to apply cl 20.7(b) to the CPT, making whatever changes are necessary to the language to achieve that outcome. Mr James then argues that the primary judge wrongly construed cl 20.7(b), which it is said confers the power to remove an original trustee because that power is included in the power to appoint a "replacement" trustee.
The respondents support the reasoning of the primary judge. They submit that it cannot be ascertained from the will, nor as was conceded, from the extrinsic evidence, whether the testator intended for cl 2.6 to refer to the defined power of appointment or the power described in cl 20.7(b). Thus, even if it appears that the testator intended Mr James to play some role in relation to the appointment of trustees to the CPT, it is not clear what form that role was to take or as to the content of his power. The Court cannot supply words to give meaning to the clause because it is not clear what words should be implied.

[12]

Consideration

It is convenient first to address the challenge to the primary judge's construction of cl 20.7(b). If that provision does not confer a power to remove the original trustees, as his Honour held, Mr James' alternative argument fails. Whether that holding would also be fatal to his primary argument depends on the correctness of the primary judge's conclusion that, in the face of cl 2.6 and its application of cl 20.7, it was not possible to find that the testator necessarily intended that the Appointor have the power of removal described by the defined expression "Power of Appointment": [144], [147]; and cf Fell v Fell at 274.
In its express terms, cl 20.7(b) confers a "power to appoint" and a power to "remove". The power to remove is dealt with separately and is in its terms limited to the subsequent or later removal of any person who has been appointed in the exercise of the "power to appoint". It does not extend to the removal of the person or persons appointed by the testator as trustee.
Mr James argues that the conferral of the power to appoint someone to be an "additional or replacement" trustee confers a power to remove the person for whom the appointee is the replacement.
It is not however a necessary incident or aspect of the exercise of such a power to appoint that any person first be removed. The position of a trustee of the CPT may become vacant upon death, removal by the Court, resignation or, depending on whether cl 20.7(d) applies, upon the trustee becoming an Ineligible Person. On the happening of any of those events, the power to appoint someone as a "replacement" trustee would be enlivened. For ancient examples of powers to appoint "replacement" trustees, which limit the circumstances in which such a power to appoint may be exercised, see Winter v Rudge (1847) 15 Sim 596; 60 ER 751; Noble v Meymott (1851) 14 Beav 471; 51 ER 367; and Re Hadley; Ex parte Hadley (1851) 5 De G & SM 67; 64 ER 1021.
Nor is the language in which the power to remove is described consistent with the conferral of a power to remove that is to be exercised before and for the purpose of exercising the power to appoint. On the contrary, the language describes a power to remove which is to be exercised "subsequently", and only in respect of a person who has earlier been appointed pursuant to the power to appoint.
In these respects the language of cl 20.7(b) is to be contrasted with language that confers a power to appoint a new trustee "in substitution for … any existing trustee" (Trustee Act 1925 (NSW), s 70(1)); or a power to "appoint another person or other persons to be a trustee … in place of the trustee" (Conveyancing Act 1881 (UK), s 31); or a power to appoint a new trustee in place of someone who is abroad (Re Earl of Stamford. Payne v Stamford [1896] 1 Ch 288 at 297). In each of these instances, the power is to appoint someone "in place of", or "in substitution for" an existing trustee. Ordinarily such language may be understood as conferring a power to remove, to be exercised before and for the purpose of exercising the power to replace or appoint.
The primary judge considered that the separate reference to concepts of removal and replacement in cl 20.7(b) "speaks against construing the power of replacement as necessarily including an anterior power of removal". That reference to "the power of replacement" is to be understood as being to the power to appoint a person to be a "replacement". That is not in terms a power to replace. His Honour suggests that where a power is conferred "to appoint, remove or replace the trustee of a trust" (as is the power defined in cl 27.3(p)), the power to replace should not be construed as including a power to remove, because if it was intended to include a power to remove, the inclusion of the power to replace would have been unnecessary: [140]. One difficulty for this reasoning is that it might equally be deployed against the construction of the power to replace as being only a power to appoint because the inclusion of a power to replace would equally have been unnecessary.
Ultimately any question as to the scope of the power must be answered by reference to the language and its context. Depending on the language, the conferral of a power to replace may also necessarily include a power to remove. Here, as I have sought to explain above, the terms in which the separate powers to appoint and remove are conferred by cl 20.7(b) are not consistent with the existence of any such power to remove. Nor is it necessary to infer such a power. It follows that I agree with His Honour's conclusion that the provision does not confer a power to remove the original trustees.
Mr James argues that there are other indications that cl 20.7(b) was not intended to be read as significantly circumscribing the powers of appointment and removal described in cl 27.3(p). Clause 20.11, which limits the exercise of the powers of a trustee of the BCTT, is expressed to apply where "the Power of Appointment in respect of the Beneficiary Controlled Testamentary Trust is held by more than one person". If the narrower construction is adopted, it is said that qualification could never apply and that cl 20.11 would be rendered otiose. The respondents' answer to this argument is that the reference to the Power of Appointment in cl 20.11 is to whatever powers answering that description have in fact been conferred in relation to the BCTTs.
It is also said that if the testator had wished by cl 20.7(b) to confine or restrict the general power to remove trustees other than those originally appointed, that could have been done more simply by saying so in those terms. The difficulty for this submission is that the testator was plainly not the draughtsman of the will, which bears all the hallmarks of a document constructed from a precedent containing general and specific provisions which were to be adopted, completed and amended, depending on the circumstances of the particular testator or testatrix and his or her wishes. In such a case, when construing the will it is not obvious that if there was a simpler or clearer means of recording the testator's wishes, the draughtsperson necessarily would have adopted it.
It remains to consider Mr James' primary argument as to the construction of cl 2.6. I agree with the primary judge's conclusion that it is not possible from a reading of the will to be satisfied that the testator intended that Mr James as Appointor of the CPT have the powers of appointment in cl 27.3(p) rather than those conferred by cl 20.7(b) construed as applying to the CPT.
The reference in cl 2.6 to cl 20.7 is a strong indication that it was intended the Appointor have the more limited power there described. In the face of that indication it is not possible to say that the testator's intention was clearly otherwise; in circumstances where, as the primary judge held, the difference between the powers was significant and in their more limited form could be seen to provide some protection to Mrs Douglas during her lifetime.

[15]

The reasoning of the primary judge

The starting point was Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1 which provides that: … if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.
The primary judge did not consider that departure from the general rule was justified by reference to the so-called "probate exception": [2015] NSWSC 969 (Costs Judgment), [19]-[26]. In a contentious probate suit where the application for a grant has been opposed by reason of matters arising from the conduct of the testator, the costs of the unsuccessful opponents of the will are ordinarily ordered to be paid out of the estate. The relevant principle was stated by Sir Gorrell Barnes in Spiers v English [1907] P 122 at 123: One of [the relevant] principles is that if a person who makes a will or persons who are interested in the residue have been really the cause of the litigation a case is made out for costs to come out of the estate. See also Re Hodges; Shorter v Hodges (1988) 14 NSWLR 698 at 709, where that and earlier authorities for the same principle are cited.
As the proceedings were not a contested suit for probate, or any challenge to the validity of the will, the primary judge correctly concluded that the exception "does not apply in its terms": Costs Judgment [20]. His Honour considered the facts of the present case stood in contrast to the type of case which usually attracts that exception (see the facts described in [57] below).
His Honour then addressed the principles to be applied where there was a dispute as to costs in proceedings involving the construction of a will or settlement in the context of the administration of an estate or fund. As Lord Hoffmann observed in McDonald v Horn [1995] 1 All ER 961 at 970-971, the classic statement of the principles upon which the Court should act is that of Kekewich J in Re Buckton; Buckton v Buckton [1907] 2 Ch 406 at 413-415. Lord Hoffmann concisely summarised that statement: While warning that it was 'well nigh impossible to lay down any general rules which can be depended on to meet the ever varying circumstances of particular cases' he said that trust litigation could be divided into three categories. First, proceedings brought by trustees to have the guidance of the court as to the construction of the trust instrument or some question arising in the course of administration. In such cases, the costs of all parties are usually treated as necessarily incurred for the benefit of the estate and ordered to be paid out of the fund. Secondly, there are cases in which the application is made by someone other than the trustees, but raises the same kind of point as in the first class and would have justified an application by the trustees. This second class is treated in the same way as the first. Thirdly, there are cases in which a beneficiary is making a hostile claim against the trustees or another beneficiary. This is treated in the same way as ordinary common law litigation and costs usually follow the event.
The primary judge also referred to the more recent statement of Campbell JA in this Court in BE Australia WD Pty Ltd (subject to a Deed of Company Arrangement) v Sutton [2011] NSWCA 414; 82 NSWLR 336 at [213]: The form of the proceedings, as inter partes litigation, is not decisive of how the costs of that litigation should be dealt with. Courts exercising equity jurisdiction encounter a variety of situations where a fund is being administered subject to the control of the court, and a question arises about the proper manner in which that fund should be administered. Such a situation can arise concerning administration of deceased estates, concerning administration of trusts, … In those situations, whether the costs of the court deciding the question that has arisen should be treated as costs of administration of the fund is significantly influenced by whether the proceedings are in substance adversarial ones.
The primary judge then addressed whether the proceedings to which Mr James and Ms Kik became parties were in substance adversarial ones, and concluded that they were. In June 2013, Mr James purported to remove Ms Gilbert as a trustee without advising Mrs Douglas that he proposed to do so. Her solicitor, Mr Holmes, immediately advised in writing that his having any power to remove or appoint trustees in respect of the CPT was disputed. The correspondence exchanged between Mr Holmes and Mr Roberts, then acting for Mr James, confirmed that there was no such power expressly conferred by the terms of the will. In the face of that dispute, neither Mr James nor Ms Kik made any application to the Court for advice as to the proper construction of the relevant provisions. Instead, in January 2014, Mr James again purported to exercise the power to remove Mrs Douglas as a trustee, appointing Mrs James as her replacement.
In these circumstances, the primary judge concluded, again addressing UCPR, r 42.1, that there was no good reason to make any order other than that costs should follow the event, both in respect of the summons and the amended cross-summons. He said at Costs Judgment [37]: … As will be clear from what I have said, this is a case where Mr James, knowing that his right to do so was challenged, persisted in purporting to exercise what he said were the powers given to him as Appointor. He forced Zeta and Marea into a position where they had two choices. One was to accept what he had done, even though they did not agree that he had the power to do it (nor had they wanted it done). The other was to approach the Court, to vindicate their rights. That latter choice was the very course of action that Mr James in effect invited.
There were two issues which remained. They were whether any costs orders should be made against Ms Kik, and whether in respect of any costs she was ordered to pay, she should be indemnified out of the assets of the CPT. A further question arose as to whether the costs to be paid by Mr James and Ms Kik should be assessed on an indemnity basis. His Honour concluded that although Ms Kik filed a submitting appearance on 25 February 2015, which was 10 months after the proceedings had been commenced and less than a fortnight before the hearing, she actively promoted and supported Mr James' case and was in a real sense a defendant who took an adversarial position in opposition to the plaintiffs' case: Costs Judgment [39]. Ms Kik submitted that as a trustee she was entitled to an indemnity from the assets of the CPT. She relied on UCPR, r 42.25 which relevantly provided by sub-rule (2): The court may order that the person's costs not be so paid if: (a) the trustee or mortgagee has acted unreasonably, or (b) in the case of a trustee, the trustee has in substance acted for his or her own benefit rather than for the benefit of the fund.
The primary judge inferred, on the basis of his finding that Ms Kik had taken active steps to support Mr James, that she was acting from private and undisclosed motives rather than for the benefit of the fund: Costs Judgment [41], [43]. For that reason, the discretion to make an order under r 42.25(2) was engaged and exercised.
The primary judge accepted the plaintiffs' submission that the conduct of Mr James and Ms Kik was properly characterised as involving "some relevant delinquency": Costs Judgment [56]-[57]. The matters which he considered justified that characterisation of their conduct were that the claims to rectification under the general law and under s 27 of the Succession Act (but not within the 12 months provided for by s 27(2)) were commenced and maintained in circumstances where neither had any realistic prospect of success. In relation to the latter, that was because no evidence was sought to be adduced to show why the time bar should be extended: Costs Judgment [12], [53]. Whilst the answer to the construction question was not so obvious that they should have realised that it was bound to be resolved adversely to them, Mr James and Ms Kik did not, at the point in time when it was first made clear that there was a dispute as to that question, bring proceedings to have the question resolved. Instead Mr James purported to exercise the power for a second time and in response to the plaintiffs' claim, maintained claims for rectification and filed a substantial amount of evidence that was not relevant to any issue in the litigation. The primary judge concluded that the plaintiffs must have incurred substantial costs in relation to that evidence which they "should never have been required to do": Costs Judgment [61].
Finally the primary judge took into account that Mr James and Ms Kik took the course of action that they did and responded to the litigation in circumstances where on the evidence their doing so was neither required nor justified on the basis of any threat to the assets or administration of the CPT, or the interests of the beneficiaries: Costs Judgment [57]-[62].

[16]

Whether the trial judge erred in finding that there was "relevant delinquency" justifying an order for costs on an indemnity basis (Ground 10)

As was noted by this Court (Meagher and Barrett JJA, and Tobias AJA) in Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 at [6], a number of circumstances have been recognised as capable of warranting the making of an order for payment of costs on an indemnity basis. They include where the conduct of the party against whom the order is sought involves some "delinquency" or is "plainly unreasonable" or is otherwise such as to involve "some special or unusual feature" justifying the court's departure from the position that party and party costs be assessed on the ordinary basis: Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 at [44]; Harrison v Schipp [2001] NSWCA 13 at [139]; Sydney City Council v Geftlick [2006] NSWCA 280 at [90].
As Sheppard J observed in Colgate Palmolive Co v Cussons Pty Ltd [1993] 46 FCR 225 at 233, most judges "have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule". That said, Sheppard J went on to note some of the circumstances which have been thought sufficient to warrant the exercise of the discretion: … I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud …; the fact that the proceedings were commenced or continued for some ulterior motive ... or in wilful disregard of known facts or clearly established law …; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions; … and imprudent refusal of an offer to compromise ...
The remaining appellants (Mr James and Ms Kik) contend that the primary judge erred in concluding that there was "delinquency" on their part in the conduct of the proceedings. Three matters are relied on. First, it is said that there was no suggestion the proceedings were defended or continued by Mr James for some ulterior motive or purpose. That is so, and the primary judge did not rely on that matter. The principal matters which the primary judge regarded as justifying the departure from the ordinary position were the bringing and maintenance of the claims for rectification which his Honour considered to be "hopeless" (and that assessment of the prospects of success in relation to those claims was not challenged on appeal); and the preparation and filing of substantial affidavits which were almost entirely irrelevant. The fact of such conduct caused the plaintiffs to incur substantial costs.
Secondly, and relatedly in respect of that last matter, it is said that the fact that evidence was not read and arguments were not pressed had the result of shortening the hearing of the proceedings and reducing the costs involved. No doubt that was so, but by the time that occurred and those concessions were made, the plaintiffs had incurred substantial costs referable to the claims which were unsustainable and in response to evidence which was not relevant to any issue in the proceeding as it was finally conducted. The primary judge is not shown to have erred in making that assessment.
Thirdly, it is said in relation to one of the matters referred to by the primary judge (that before the proceeding was commenced, the plaintiffs proposed a practical resolution which was substantially identical to its outcome but not accepted by the defendants), that it was not unreasonable for the appellants to have rejected that offer. To the extent that the primary judge found otherwise, the appellants take issue with his evaluation of that aspect of their conduct. They do not submit that the matter was not a relevant one to be taken into account or that the primary judge's evaluation of that matter was not reasonably available.
None of these matters reveals error in the primary judge's evaluation of the defendants' conduct as involving "relevant delinquency". Ground 10 is not made out.

[17]

Whether the primary judge erred in not ordering that the costs of the parties be paid from the CPT (Grounds 9 and 11)

The appellants submit that the "probate exception" ought to have been applied in relation to the recovery of their costs because in substance the "testator was the cause of the litigation". It is said that the primary judge acknowledged that the drafting of the will was defective, so as to give rise to a dispute about its construction. The testator was indirectly responsible for the defective drafting and to that extent should be regarded as having been the cause of the litigation.
This submission does not sufficiently address the basis upon which the primary judge declined to apply that principle by analogy, having found, correctly in my view, that the exception did not apply in its terms. The litigation which might reasonably have followed from the will's drafting was quite different from the litigation which ultimately ensued. That litigation was defensive so far as the plaintiffs were concerned and directed to the exercise of a power which was plainly questionable, and which was accompanied by claims for rectification. It was also accompanied by a substantial body of evidence which, as was conceded, was substantially "irrelevant and should never have been committed to paper": Costs Judgment [12].
That reasoning of the primary judge discloses no error. As the decisions referred to earlier make clear, in a case such as the present one, the question for the Court requires that the substance of the proceeding and the way in which it was conducted be considered.
The appellants also contend that the primary judge erred in treating the case as one involving, as a matter of substance, adversarial proceedings. In support of that contention, four matters are referred to. First, it is said Mr James was not a beneficiary of the CPT. Secondly, it is said that he as the Appointor, as distinct from a trustee, could not bring an application for advice under s 63 of the Trustee Act 1925 (NSW). Thirdly, it is said that if Mr James had commenced a construction suit for declaratory relief that suit would have raised the same issues as were ultimately argued "and that the same costs would have been occasioned". This argument does not take account of the circumstances which led to the respondents having to commence proceedings to establish that neither had been validly removed as a trustee. From the outset, the proceedings were adversarial. They were not limited to the question of construction either in the relief sought, which extended to rectification, or in the evidence which was relied upon.
Finally, it is submitted that the primary judge erred in treating the case as one involving adversarial proceedings because there was no evidence of breach of trust or maladministration by the trustees. It is pointed out that evidence explaining the circumstances in which Mr James and Ms Kik proceeded was not read at the trial on the basis that it was not considered relevant to the issue of construction. The primary judge's conclusion as to the proceedings being adversarial was not founded on the absence of any need to protect the assets of the CPT or to address some form of maladministration. Rather, that conclusion was based on the way the appellants proceeded once it should have been, and at least once it was, apparent that the content and scope of the Appointor's power was in issue. The primary judge found that there was "not one shred of evidence to justify Mr James in interfering in the way that he did": Costs Judgment [23]. That finding is not challenged. In the circumstances his Honour did not err in proceeding on the basis that Mr James chose to proceed in what was essentially an adversarial fashion without any good reason for doing so: Costs Judgment [34].

At a glance

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Judgment (20 paragraphs)

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Legislation Cited (6)

Cases Cited (14)

Cited By (18)