Lowe v Pascoe

Supreme Court of NSW|2018-05-30

Solicitors: HWL Ebsworth Lawyers (Plaintiffs) Hall & Wilcox (First Defendant) Holman Webb (Second Defendant) GSG Legal (Third Defendant) CLS Legal (Fifth, Sixth and Seventh Defendants) File Number(s): 2005/262284

Judgment

On 20 March 2018, for reasons published on that day (the March Reasons) [1] , I indicated that I proposed to dismiss a motion filed on 27 October 2017 (the October Motion) and ordered that, apart from ordering that Ms Stella Sze Tu be replaced with Mr Sunly Sze Tu as representative of the Estate of the Late FC Chow (the FC Chow Estate), a motion filed 7 December 2017 (the Withdrawal Motion) be dismissed. On 19 April 2018, I ordered that the October Motion be dismissed. In these reasons, I shall use terms as defined in the March Reasons.
In the March Reasons, I indicated that, unless the parties wished to be heard further, I proposed to order that the FC Chow Estate pay the costs of both the October Motion and the Withdrawal Motion (together the Applications). By notice of motion dated 4 April 2018 (the Costs Motion), the Administrator now seeks orders that Sunly and Stella be jointly and severally liable personally to pay the Administrator's costs of the Applications. The parties have agreed that the Costs Motion should be decided on the papers without any oral argument and I have now received written submissions on behalf of the Administrator and Sunly and Stella in relation to the orders sought in the Costs Motion.

Background

FC Chow died intestate on 11 January 1994. As a consequence, Kut Sze Tu became entitled to payment of the sum $100,000 from the FC Chow Estate, the household chattels of FC Chow and half of the remainder of the FC Chow Estate. Each of FC Chow's children, Gordon, Sunly and Stella, became entitled the other half of the remainder of the FC Chow Estate in equal shares.
At the time of the filing of the October Motion and at the time of filing the Withdrawal Motion, Stella was the representative of the FC Chow Estate. Each of the Applications was filed by her in that capacity. On 8 December 2017, the Administrator's solicitors requested the solicitors for the FC Chow Estate to provide:

an account of the assets, liabilities and income of the FC Chow Estate;
information as to the persons consulted prior to bringing the Applications;
a statement of the considerations taken into account prior to bringing the Applications; and
details of the funding available for the Applications, including in respect of any adverse costs orders that may be made against the FC Chow Estate.

By letter of 1 February 2018, the FC Chow Estate's solicitors responded confirming that the main assets of the FC Chow Estate consisted of interests as tenant-in-common in various parcels of real property. They said that, after letters of administration in respect of the FC Chow Estate had been granted to Sunly on 18 December 1996, Sunly had obtained written legal advice in relation to the administration of the FC Chow Estate and that the assets of the FC Chow Estate had been distributed in accordance with that advice. The FC Chow Estate's solicitors said that the interest of Kut Sze Tu in the FC Chow Estate had been distributed to him before his death on 20 October 1997.
In response to the request for information concerning consultation about the Applications, the FC Chow Estate's solicitors confirmed that they acted for Sunly, Gordon and Stella and that the considerations taken into account prior to making the Applications consisted of the role of the administrator of the FC Chow Estate and the duty to call in the assets of the FC Chow Estate. They said that it had only become clear at a mediation in August 2017 that the Lowes were seeking to obtain the whole of Kut Sze Tu Estate and were denying the entitlement of any other partner to partnership property. The solicitors said that Sunly was currently funding the FC Chow Proceedings and that, if the FC Chow Proceedings are successful, he will be entitled to be indemnified by the FC Chow Estate. Finally, the letter said that any distribution in respect of the FC Chow Estate would be "pursuant to the laws of intestacy".
On 8 February 2018, the Administrator's solicitors wrote to the FC Chow Estate's solicitors pointing out that the Administrator is the major beneficiary of the FC Chow Estate. They said that the FC Chow Proceedings had been instituted and carried on without the Administrator's consent or authorisation and without consulting him. The letter said that the Administrator reserved "all his rights in this regard".
On 21 February 2018, the Administrator's solicitors wrote to the FC Chow Estate's solicitors again. They said that the letter of 8 February 2018 seemed to imply that the representatives of the FC Chow Estate had taken into account the views of other beneficiaries in determining to pursue the claims being made and that the Administrator was concerned that the position advanced on behalf of the FC Chow Estate was misconceived. They also asserted that there was little prospect of the Withdrawal Motion succeeding and that prospects of success of the FC Chow Proceedings were similarly limited. The Administrators said that the Administrator did not wish to see further costs incurred on behalf of the FC Chow Estate and that, if the representatives of the FC Chow Estate chose to pursue the litigation, despite the Administrator's position, the Administrator would consider seeking personal costs orders against the representatives of the FC Chow Estate in the event that such litigation was unsuccessful. The solicitors asserted that the Kut Sze Tu Estate should not be made to wear the costs of defending its position against litigation in circumstances where the FC Chow Estate was not able, of its own accord, to meet any adverse costs orders.
Following publication of the March Reasons, the Administrator's solicitors wrote again to the solicitors for the FC Chow Estate seeking confirmation as to whether the FC Chow Estate accepts that it ought to pay the Administrator's costs of the Applications and whether Sunly would meet those costs. On 3 April 2018, the FC Chow Estate's solicitors responded that any adverse costs order should be made only as against the FC Chow Estate as "the moving party on the Motions". The FC Chow Estate's solicitors disputed that the costs of the litigation should be borne by Sunly, saying that, in so far as Sunly was currently funding the proceedings, he was doing so on behalf of the FC Chow Estate.
By letter of 4 April 2018 to the FC Chow Estate's solicitors, the Administrator's solicitors pointed out that the FC Chow Estate had been wholly unsuccessful in both of the Applications and that there was no reason why the usual costs order should not be made. The letter reiterated concern that Stella and Sunly had caused the Applications to be brought without regard to the concerns of the Administrator, who remained a beneficiary of the FC Chow Estate, and apparently in the absence of any mechanism to meet adverse costs orders out of the assets of the FC Chow Estate. The letter asserted that the Administrator would seek personal costs orders against each of Stella and Sunly because it was not a just outcome to require the beneficiaries of the Kut Sze Tu Estate to bear the consequences of their conduct.
The FC Chow Estate's solicitors responded on the same day, saying that the costs of the Applications should be costs in the cause of the FC Chow Proceedings, given that the relief claimed in the FC Chow Proceedings was identical to the relief that would have been sought on behalf of the FC Chow Estate in the Partnership Proceedings. They proposed an order that Sunly and Stella pay the Lowes' costs and the Administrator's costs of the Withdrawal Motion on the ordinary basis provided that nothing in that order would preclude Stella, as the representative of the FC Chow Estate, from being fully indemnified by the FC Chow Estate. The letter said that the proviso was in consideration of the inclusion of both Sunly and Stella despite the Applications having being filed only by Stella; they said that the proviso was to make clear that Sunly would not be precluded from being indemnified by the FC Chow Estate in respect of such costs.
The FC Chow Estate's solicitors wrote again to the Administrator's solicitors on 17 April 2018 confirming that the Lowes, on the one hand, and Sunly, Stella and Gordon, on the other, had reached a consent position resolving the costs in respect of the Applications and that attempts had been made to obtain the Administrator's consent so that orders could be made by consent. The Administrator's solicitors replied on 18 April 2018 confirming that the Administrator had put Stella and Sunly on notice that he objected to either of them utilising any assets of the FC Chow Estate to indemnify them in relation to the costs associated with either of the Applications. The letter confirmed that the Administrator took that position because the Applications were brought without any consultation with him as the largest beneficiary of the FC Chow Estate and were run despite his opposition. The letter confirmed that the Administrator remained of the view that the FC Chow Estate should not provide any indemnity for any costs associated with the Applications because, if that were to occur, the Administrator would, in effect, be paying the costs of applications that he successfully opposed and in respect of which he was not consulted. The letter said that the proposed proviso was superfluous because nothing in the proposed orders could have the effect of preventing Sunly from seeking indemnity from trust assets, provided the circumstances were otherwise appropriate.
The FC Chow Estate's solicitors replied on the same day, saying that the proposed orders did not fetter or restrict any application that the Administrator may wish to make in respect of indemnification or create any additional rights or entitlement to indemnification. The letter asserted that it was a necessary addition given that Sunly was individually named in the order and was currently funding the proceedings and that the proviso sought to acknowledge that the naming of Sunly would not in or of itself preclude him from any right of indemnification. The letter suggested an amendment to the proposed order. By email of 19 April 2018, the Administrator's solicitors indicated that no objection would be raised to the proposed amended order as between the Lowes and the FC Chow Estate.

Relevant principles

A trustee or legal personal representative who chooses to institute proceedings, thereby subjecting other parties to costs, will not be entitled to plead that there should be no responsibility for costs beyond the extent of the assets in the estate. That is to say, there is no reason why an executor or legal personal representative should be entitled to an immunity that is not available to other litigants, and a trustee or legal personal representative who institutes or defends proceedings on behalf of an estate litigates at his, her or its personal risk. [2]
While such a trustee or legal personal representative is ordinarily entitled to be indemnified for expenses incurred before distributing the estate, [3] such indemnity is afforded only where the expenses have been properly and reasonably incurred. In particular, a trustee or legal personal representative who, without the sanction of the Court, commences an action that is unsuccessful or defends an action unsuccessfully, does so at his, her or its own personal risk as regards costs, even if the trustee or legal personal representative acts on counsel's opinion. A trustee or legal personal representative who acts without judicial advice will not be entitled to be reimbursed such costs out of the trust estate and charge such costs against the cestui que trust unless the Court concludes that the action or defence would have been authorised had the trustee or legal personal representative previously applied for advice. [4] Only then will the Court, in the exercise of its discretion, allow the costs incurred by the executor or legal personal representative to be paid out of the estate.

The present case

The persons having an interest in the FC Chow Estate, namely, Sunly, Gordon, Stella and the Kut Sze Tu Estate, would stand to benefit from the success of the Applications. In bringing the Applications, Stella was purportedly acting in their interests. However, the Administrator seeks no relief against those parties, apart from Sunly and Stella. From one point of view, it may be thought that the Administrator is in a position of conflict. Thus, on the one hand, the Kut Sze Tu Estate, as a beneficiary in the FC Chow Estate, would benefit from the success of the FC Chow Proceedings. On the other hand, success in the FC Chow Proceedings would be at the expense of the Kut Sze Tu Estate, which would have an interest in minimising the claims against it.
It appears to be common ground that all of the assets of the FC Chow Estate that have been realised have been distributed. Of course, if the FC Chow Proceedings are successful, there could be further assets available for distribution. If the FC Chow Estate were to be successful in the FC Chow Proceedings, it would be likely that there would be an order for costs in its favour. However, that order would not necessarily constitute a complete indemnity in respect of the costs incurred in conducting the litigation. If the result of the FC Chow Proceedings is that the FC Chow Estate receives funds from the Kut Sze Tu Estate representing the amount payable in respect of the partnership interest of the FC Chow Estate, it may well be appropriate that those funds bear the costs incurred in the litigation undertaken to get in such further funds. [5] In any event, all of that, of course, is a matter for speculation at this stage.
In the FC Chow Proceedings, the Administrator relies on a limitation defence as being a complete answer and, by notice of motion dated 4 April 2018 (the Separate Question Motion), seeks an order that the question raised by the limitation defence be determined separately and prior to all other questions in the FC Chow Proceedings. In the Separate Question Motion, the Administrator will be the moving party and the representative of the FC Chow Estate will be the responding party. Similar questions may be raised as to the costs of that matter as are presently raised in respect of the Applications. However, that is a question for another day.
The Administrator complains that, in her capacity as representative of the FC Chow Estate, Stella brought both of the Applications without regard to the views of the Administrator, knowing that the assets of the FC Chow Estate had been distributed and that FC Chow therefore did not have assets from which to meet an order for costs. At all relevant times, Stella was the representative of the FC Chow Estate for the purposes of the Partnership Proceedings. She was appointed as representative in place of Sunly because of an apprehended conflict, which is referred to in the March Reasons. Stella remained as the representative of the FC Chow Estate for the purposes of the Partnership Proceedings until 20 March 2018, when the Applications were decided against her.
In the light of the principles briefly summarised above, in circumstances where Stella was responsible for the filing of both of the Applications, albeit in her capacity as the representative of the FC Chow Estate, for the purposes of the Partnership Proceedings, Stella should be ordered to pay the Administrator's costs personally. If there are no assets available, the question of whether Stella is entitled to indemnity out of the FC Chow Estate is at present somewhat moot. I have no evidence as to the financial position of Stella and have no way of knowing whether she will be in a position to meet an order for costs in favour of the Administrator. Whether or not Stella would be entitled to pursue assets that may have been distributed prematurely is not a matter presently before me. That question, of course, may fall for consideration by Sunly as the reinstated representative of the FC Chow Estate.
In any event, the question of whether or not Stella is entitled to be indemnified out of the FC Chow Estate in respect of any order made against her personally in relation to the Applications is not presently before me. That is to say, in considering the orders for costs of the two Applications, which were brought in the Partnership Proceedings, it is not appropriate to inquire into and investigate the propriety of the conduct of Stella, in the administration of the FC Chow Estate, in bringing the Applications. Accordingly, I do not propose to make an order that Stella be indemnified out of the FC Chow Estate.
While Sunly was instated as representative of the FC Chow Estate as from 20 March 2018, he was not a moving party in either of the Applications. The fact that he funded the FC Chow Estate in prosecuting the Applications is of no consequence. There is no basis for concluding that Sunly personally should be required to pay the costs of the Applications simply because he funded the FC Chow Estate. I propose to order that Stella personally pay the Administrator's costs of both of the Applications, save in so far as the Withdrawal Motion sought the replacement of Stella with Sunly as administrator of the FC Chow Estate. There should be no order as to those costs. Sunly and Stella were not separately represented in relation to the Costs Motion. The Administrator has been substantially, but not completely, successful. In the circumstances, Stella personally should pay two thirds of the Administrator's costs of the Costs Motion.

Endnotes

[2018] NSWCA 333.
See Re Beddoe [1893] 1 Ch 547 at 557; Re Wilson Lovett and Sons Ltd [1977] 1 All ER 274 at 285.
See Collett & Anor v Knox & Anor [2010] QSC 132 at [174]; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367; J A Pty Ltd v Jonco Holdings Pty Ltd (2000) 33 ACSR 691 at [50]; Nick Kritharis Holdings Pty Ltd (In Liq) v Gatsios Holdings Pty Ltd [2001] NSWSC 343 at [9] to [11].
Re Beddoe [1893] 1 Ch 547 at 557.
See Re Universal Distributing Company Limited (1933) 48 CLR 171 at 174.

Amendments 03 July 2018 - "administrator" amended to read "representative" in order 2 on coversheet, and at [11], [19] and [20]. "filed on" amended to read "dated" at [18]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 July 2018

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