In light of that reasoning, the manner of apportioning costs of administration between realty and personalty laid down in Patching v Barnett has become of no further relevance in New South Wales. This is because either a deceased's will will make express provision for the manner in which testamentary expenses are to be borne, or section 46C of the Wills, Probate and Administration Act (a section added in 1930) will decide how the testamentary expenses are to be borne. I have earlier set out in this judgment those provisions of section 46C of the Wills, Probate and Administration Act which relate to solvent estates, but as well, section 46C makes provision for the way in which testamentary expenses are to be paid in an insolvent estate.
56 In Moran v House (1924) 35 CLR 60 the High Court considered an originating summons taken out by the administrator with the will annexed of a deceased's estate. The will included a provision that, "one year after a home rule government is granted to Ireland", certain realty should be sold and the proceeds held on a particular charitable trust. The substantial question for decision concerned whether the Government of Ireland Act 1920 (UK) was one whereby, "a home rule government is granted to Ireland". The trial judge had ordered that the costs of the summons be paid out of the testator's personalty, as to which there had been an intestacy. Isaacs ACJ and Gavan Duffy J, at 67, said:
"The second question relates to the direction as to costs. These were dealt with, not as a matter of discretion, but as a matter of rule. This is not a general administration, and the litigation was and is really confined to the real estate. Even in general administration the costs so far as increased by the administration of the real estate must be borne by that real estate (see cases cited in Annual Practice 1924, page 1247). The costs here were occasioned wholly by the testator's disposition of the real estate. That is the sole disposition that has caused the difficulty, and, in our opinion, it is just that the real estate should bear the cost of clearing itself. The order as to costs should be varied so as to read: 'that the costs of the parties other than the administrator of and incidental to this application be paid out of the real estate of the testator'."
57 Starke J dissented from this decision concerning costs, on the ground that the costs were 'testamentary expenses' and payable out of the general personal estate of the deceased; they were not within the rule in Patching v Barnett because answering individual questions relating to the administration of the real estate did not suffice to come within that rule. The decision of the majority does not involve any reinstatement of the rule in Patching v Barnett. Rather, the decision of the majority is the simple application of a judicial discretion concerning the manner in which the costs of litigation should be borne.
Robertson v Graham
58 In Robertson v Graham (1917) 17 SR (NSW) 676 Harvey J dealt with an originating summons to construe the provisions of a will which made gifts to two of the testator's children. The will made other gifts besides these. The will contained a direction for payment of testamentary expenses out of residue. Harvey J said, of the costs of the summons:
"The direction to pay testamentary expenses does not cover these costs. In my opinion the costs of ascertaining upon what trusts trustees hold property, devised or bequeathed to them in trust, are prima facie not testamentary expenses. They are expenses of administering the trust. In cases where matters of administration are brought before the court and occasion is taken to obtain in such a suit a declaration of the trusts upon which trustees hold the trust property, it may be proper if no extra expense is incurred, to pay the whole costs out of the estate in the ordinary course of administration. But where the question of construction is merely raised because the trustees having received the funds desire to know how their trust should be administered, in such a case I think the proper rule should be that the trust fund bears the costs. The duty of the executor as regards the trust fund ends when the executors have paid the debts and duties and have apportioned the duties, if necessary, and have handed the fund over to the trustees. Where the executors are also trustees the same rule must apply. If the construction of the will is not necessary for the purpose of true administration of the estate the estate as a whole should not bear the costs."
59 In Muller v Marriott (1921) 22 SR (NSW) 100 Street CJ in Eq considered an originating summons, where the question for determination concerned the construction of particular gifts in the will, and where the will contained a direction for payment of testamentary expenses out of residue. Maughan KC and Jordan are recorded (at 101) as submitting, "The decision of Harvey J in Robertson v Graham (17 SR 676) is not in accordance with authority." Street CJ in Eq delivered a judgment which said nothing about that submission, but implicitly accepted it. The judgment was (at 101-102):
"I am dealing with a case of a mixed fund, and the difficulty, which has arisen in construing the will, is entirely attributable to the ambiguity of the language used by the testator. R 15 of the Supreme Court of 18 November 1915 has no applicability to a case of this kind where the proceedings are rendered necessary by the obscurity of the language of the will. In those circumstances the costs of all parties should be paid out of the residuary estate."
60 In Perpetual Trustee Co Ltd v Paling (1924) 25 SR (NSW) 56 Maughan AJ followed Muller v Marriott, and declined to follow Robertson v Graham.
61 In In Re Stone; Read v Dubua (1936) 36 SR (NSW) 508 the court considered an estate whose testatrix had directed all her real and personal estate to be given to her trustees, on trust to sell, pay funeral and testamentary expenses and duties, out of the residue to pay certain general legacies, and to divide the residue into three equal parts, for three named persons. Two of those named persons pre-deceased the testatrix, and a next-of-kin enquiry could find no next-of-kin of the testatrix. The question for the court was whether, insofar as the lapsed shares included real estate, they passed to the Crown as bona vacantia, or whether the executors were able to keep them for their own benefit. Having decided that the executors were obliged to hand the proceeds of the real estate to the Crown, a question arose of whether the costs of the proceedings should be paid out of the residue generally, or out of the two lapsed shares of residue. Jordan CJ said, at 524-525:
"By virtue of s. 46c (2) of the Wills, Probate and Administration Act , 1898, as amended, the real and personal estate subject to ( inter alia ) the provisions, if any, contained in the will, are applicable towards the discharge of the funeral, testamentary and administration expenses, debts and liabilities payable thereout in the order mentioned in Part II of the third schedule. By the will the testator directs the sale of his real and personal estate and the payment of ( inter alia ) his "testamentary expenses" out of the proceeds of sale. Out of what remains certain legacies are to be paid, and it is the ultimate residue which is given in shares, two of which have lapsed. The question of what is included in testamentary expenses was examined by Harvey J in Allen v Attorney-General (15 SR 41, at 43-4). They include the expenses of getting in the testator's assets, and of ascertaining who the persons are to whom it is the executor's duty to hand over the various portions of the testator's property. Any costs incurred for the purpose of identifying these persons, whether it be occasioned by obscurities in the will or by difficulties arising dehors the will, are testamentary expenses: Re Baumgarten (82 LT 711); In re Hall-Da re ([1916] 1 Ch 272); and (apart from anything in the will or by statutory rule provided) are payable before the residue is ascertained: Re Giles (55 LT 51). It might have been thought that when the executors' duty as to a particular thing or share was to hand it over to trustees for beneficiaries or to hold it themselves as trustees for beneficiaries, the disponee was sufficiently identified as the trustee, and that difficulties in identifying the cestuis que trust would not have constituted testamentary expenses. However, the contrary seems to have become well settled: In re Reeve's Trusts (4 Ch D 841 at 844); In re Groo m ([1897] 2 Ch 407 at 411); In re Vincent ([1909] 1 Ch 810). Perhaps it was considered that the trustee was entitled to know who his cestuis que trust were, and that it was for the executor to assist him in identifying the objects of the trusts set up by the will as a term of his being expected to assume them. Further, "testamentary expenses" are not restricted to such expenses as an executor or administrator incurs in relation to the dispositions of the will. They include expenses incurred in connection with property as to which the testator dies intestate: In re Clemow ([1900] 2 Ch 182). It is now provided by Costs Rule 15 that the costs of inquiries to ascertain the person entitled to any legacy, money, or share or otherwise incurred in relation thereto, shall be paid out of such legacy money or share, unless the court or a Judge otherwise directs. Where there is a direction by the testator as to how such costs are to be borne, the Court will give effect to it: Re Baumgarten (82 LT 711); In re Vincent ([1909] 1 Ch 810 at 813-4). Where there is no such direction by the testator, the Court has a discretion, which it will exercise somewhat freely in the direction of applying the law that would be applicable in the absence of Rule 15 to costs occasioned by obscurities in the will: In re Hall-Dare ([1916] 1 Ch 272); Perpetual Trustee Co v Paling (25 SR 56). In the present case, had the will contained no express direction for payment of testamentary expenses I should have seen no special reason for not letting Costs Rule No 15 take its course, the result of which would have been that the costs would have been borne by the lapsed shares, even if this would not necessarily have followed from s. 46C of the Wills, Probate and Administration Act, 1898 , as amended; cf R C Archbishop v Lawlor (51 CLR 1 at 27, 40). Since there is an express direction, effect should be given to it: In re Levien (36 SR 210). In the result, since the costs must be paid before the shares are ascertained they cannot be restricted to the lapsed shares."
62 Both Long-Innes CJ in Eq, and Davidson J agreed with the reasons of Jordan CJ concerning costs (at 533). While Robertson v Graham was not expressly over-ruled, this reasoning is inconsistent with it.
63 In these circumstances, the reasoning of Harvey J in Robertson v Graham can no longer be regarded as an acceptable basis on which to require the assets which are the subject of litigation concerning entitlements in a deceased estate, to bear the costs of that litigation.
Legislative Provisions Enabling a Court to Decide how Costs of Litigation Concerning Entitlements in Deceased Estates are Borne
64 Costs rules were made, under the Equity Act 1901, on 18 November 1915. Rule 15 of those Rules says:
"The costs of inquiries to ascertain the persons entitled to any legacy, money, or share or otherwise incurred in relation thereto, shall be paid out of such legacy, money or share, unless the court or a judge otherwise directs."
65 Perpetual Trustee Company (Limited) v Thomas (1942) 59 WN (NSW) 100 concerned a woman who died intestate, leaving a husband. A next-of-kin inquiry was held to ascertain who were the persons entitled to her estate, apart from the husband. Nicholas CJ in Eq held that, pursuant to Costs Rule 15, the husband's entitlement should bear no part of the costs of the inquiry. Nicholas CJ in Eq said, at 101:
"Counsel for the next-of-kin relied on a decision of Lord Cottenham in Shuttleworth v Howarth (Cr Ph 228 at 232) for the proposition, as stated in Daniell's Chancery Practice , 7th edition, 103-4:
'… if the residuary estate has ultimately to be divided amongst different classes of persons, the practice is for the costs of all the claimants to be paid out of the general estate, before any apportionment is made, even though the effect of such a mode of payment is to diminish the fund of one class of claimants to an extent materially greater than the amount of costs due to that particular class.'
But the foundation of that practice is that such costs are costs of administration and that there is no residue until the costs of administration are paid: In Re Reeve's Trusts (4 Ch D 841). The same rule has been applied to the costs of ascertaining the persons entitled to a pecuniary legacy. In In Re Gibons' Will (36 Ch D 486) executors paid a pecuniary legacy into court, and it was held that although the legacy had been thus far severed from the general estate, the general estate must bear the costs of ascertaining the persons entitled to it. It was in consequence of this, and similar applications of the principles stated above, that Rule 14B of Order 65, the English rule which corresponds to Costs Rule 15, was brought into force. In Graham v Lord Clinton (81 LT 717) Stirling J said:
'It may be that the existence of that rule brings before the mind of the judge, who has to deal with the costs, that he ought not to be too ready - as was, perhaps, the case before that order was passed - to direct that the costs of enquires as to particular shares should come out of the corpus of the estate.'
Since R 14B of O 65 came into force courts have found occasion to "otherwise direct" so as to give effect to a testator's intention when the will contains a direction that testamentary expenses be paid out of residue or out of a named fund: See In Re Stone (36 SR 508 at 525). But this practice is not invariable. In Re Phillips [1938] 4 All ER 483 where a testator had given one third of his estate to persons who were readily ascertainable and the remaining two thirds to a class as to which an enquiry was necessary and had directed that testamentary expenses and debts be paid out of residue, it was held by the Court of Appeal that the costs of ascertaining the persons entitled to the two thirds should come out of that portion of his estate to the exclusion of the remaining one third."
66 In In Re Groom [1897] 2 Ch 407 North J said that if Rule 14B of the English Order 65 applied, he would give a direction that costs be paid out of the residue, because the difficulty which occasioned the litigation had been caused by the language used by the testator. In In Re Hall-Dare; Le Marchant v Lee Warner [1916] 1 Ch 272 at 277 Younger J said:
"And as to Order LXV R 14B, that rule has, in my opinion, no application to a case where, as here, the difficulty necessitating the application is directly attributable to the imperfect phraseology of the testatrix herself. For that proposition I refer to In Re Groom [1897] 2 Ch 411. Order LXV R 14B has, it is true, altered the incidents of costs where they are incurred in ascertaining the actual members of a class accurately described by the testator, but it leaves unaffected the old practice where the difficulty to be solved is created by the testator himself."
67 While Costs Rule 15 has now been repealed, a more expansive provision than Costs Rule 15 was made by section 93(3) Trustee Act 1925:
"In any proceedings with respect to the management or administration of any property subject to a trust or forming part of the estate of a testator or intestate, or with respect to the interpretation of the trust instrument, the court may, if it thinks fit, order any costs to be paid out of such part of the property as in the opinion of the court is the real subject matter of the proceedings."
68 This subsection is in terms wide enough to cover the ground formerly covered by Costs Rule 15 (though with different effect if the court does not make a positive decision about where the costs should fall), and also to enable the court to order the costs of construing a particular clause of a will out of the property which is the subject of that clause.
69 Section 76 Supreme Court Act 1970 says:
"(1) Subject to this Act and the rules and subject to any other Act -
(a) costs shall be in the discretion of the Court;
(b) the Court shall have full power to determine by whom and to what extent costs are to be paid; and
(c) the Court may order costs to be assessed on the basis set out in Division 6 of Part 11 of the Legal Profession Act 1987 or on an indemnity basis.
(2) In subsection (1) the expression "costs" includes -
(a) costs of or incidental to proceedings in the Court, including the administration of estates and trusts; …"
70 This confers a very wide discretion. It enables the Court to decide who should bear the costs of litigation before it quite independently of whether those costs do, or do not, amount to testamentary expenses.
How the Discretion Concerning Costs in Administration Actions is Exercised
71 There is guidance as to how the judicial discretion concerning costs in administration actions should be exercised. In In Re Buckton; Buckton v Buckton [1907] 2 Ch 406 Kekewich J considered an originating summons, taken out by a beneficiary under a will against the trustee of the will and those claiming the residuary estate of the testator. The summons sought a declaration about the interest which the plaintiff had under the will. Kekewich J made some general observations about the manner of disposing of cost questions on administration summonses. He said, at 414-415:
"In a large proportion of the summonses adjourned into court for argument the applicants are trustees of a will or settlement who ask the Court to construe the instrument of trust for their guidance, and in order to ascertain the interests of the beneficiaries, or else ask to have some question determined which has arisen in the administration of the trusts. In cases of this character I regard the costs of all parties as necessarily incurred for the benefit of the estate, and direct them to be taxed as between solicitor and client and paid out of the estate. It is, of course, possible that trustees may come to the Court without due cause. A question of construction or of administration may be too clear for argument, or it may be the duty of trustees to inform a claimant that they must administer their trust on the footing that his claim is unfounded, and leave him to take whatever course he thinks fit. But, although I have thought it necessary sometimes to caution timid trustees against making applications which might with propriety be avoided, I act on the principle that trustees are entitled to the fullest possible protection which the Court can give them, and that I must give them credit for not applying to the Court except under advice which, though it may appear to me unsound, must not be readily treated as unwise. I cannot remember any case in which I have refused to deal with the costs of an application by trustees in the manner above mentioned.
There is a second class of cases differing in form, but not in substance, from the first. In these cases it is admitted on all hands, or it is apparent from the proceedings, that although the application is made, not by trustees (who are respondents), but by some of the beneficiaries, yet it is made by reason of some difficulty of construction, or administration, which would have justified an application by the trustees, and it is not made by them only because, for some reason or other, a different course has been deemed more convenient. To cases of this class I extend to operation of the same rule as is observed in cases of the first class. The application is necessary for the administration of the trust, and the costs of all parties are necessarily incurred for the benefit of the estate regarded as a whole.
There is yet a third class of cases differing in form and substance from the first, and in substance, though not in form, from the second. In this class the application is made by a beneficiary who makes a claim adverse to tother beneficiaries, and really takes advantage of the convenience procedure by originating summons to get a question determined which, but for this procedure, would be the subject of an action commenced by writ, and would strictly fall within the description of litigation. It is often difficult to discriminate between cases of the second and third classes, but when once convinced that I am determining rights between adverse litigants I apply the rule which ought, I think, to be rigidly enforced in adverse litigation, and order the unsuccessful party to pay the costs. Whether he ought to be ordered to pay the costs of the trustees, who are, of course, respondents, or not, is sometimes open to question, but with this possible exception the unsuccessful party bears the costs of all whom he has brought before the Court."
72 His Honour held, at 416, that the application before him,
"… is in form adverse litigation, but in substance it is amicable procedure for determining speedily and inexpensively a question the solution of which must sooner or later be found for the benefit of all concerned, including the trustees."