Olsen v James

Supreme Court of NSW|2020-06-01|Before: Parker J

Daniel Michael Sullivan (Fifth Cross-Defendant) Representation: Advocates M Langenheim (Counsel) (Plaintiff/ First Cross-Defendant) P O'Loughlin (Counsel) (Defendant/Cross-Claimant) RW Tregenza (Counsel; written submissions only) (Second Cross-Defendant) BJ Dornan (Solicitor) (Fourth Cross-Defendant)

Solicitors William Purdon (Plaintiff/First Cross-Defendant) WMD Law (Defendant/First Cross-Claimant) Biddulph & Salenger (Second Cross-Defendant) L Rundle & Co Solicitors(Fourth Cross-Defendant) File Number(s): 2015/12561 Publication restriction: Nil

Summary and analysis of evidence

Evidence was given by affidavit from Mr Olsen, Mr James, and their solicitors. There was no cross-examination and there is no need to resolve the limited factual disputes on the affidavits.

Chronology of events before institution of proceedings

The deceased was a dealer in motorcycles (and had previously been a dealer in BMW motor cars as well). The deceased's building in Kembla Street had two storeys. The ground floor contained a showroom and a rear workshop. The deceased lived upstairs. The property was acquired by the deceased in 2004 and replaced a similar property where the deceased had previously operated his motorcycle dealership business.
Mr James met the deceased through his father, who had also been a motorcycle dealer and was a friend of the deceased. According to Mr James, the deceased first asked him to be his executor in the 1980s. Mr James was then living in Wollongong. He understood Jeffrey Madden Jones, the deceased's solicitor, would also be an executor.
Mr James moved away from Wollongong in 2000 and only saw the deceased irregularly after that. He had no contact with the deceased over the last two to three years of the deceased's life.
Mr Olsen was a motorcycle mechanic. He went into business with, or alongside, the deceased, in about 1999 (at the deceased's previous business premises). Mr Olsen conducted a motorcycle repair business out of the workshop and the deceased conducted his dealership out of the showroom. According to Mr Olsen, he paid the deceased a regular weekly rent. It was then agreed, in about 2007, that he would look after the deceased as a contra arrangement for use of the garage.
In December 2009 the deceased was hospitalised with a fall. He never returned to Kembla Street and instead was transferred to a nursing home. The deceased's business ceased but Mr Olsen continued to carry on his business at the deceased's property. He and Mr Sullivan both had keys and continued to visit the property. They also held a power of attorney from the deceased. Mr Olsen seems to have had control of the deceased's bank accounts. According to Mr Olsen, the deceased told him that he (the deceased) wished Mr Olsen to continue to operate the business at the property.
By the time the deceased died, Mr James had had no contact with him for several years. Mr James was unaware of the April 2010 will. He was living at Glenn Innes on the NSW Northern Tablelands where he worked full time as a teaching principal at a rural school.
The deceased died on 10 September 2012. His funeral was held a week later, on 17 September. The funeral was attended by Mr James and also by Mr Olsen. Before the funeral, and again at the funeral, they discussed what was to happen with the Kembla Street property and its contents.
Mr Olsen had a family commitment which meant that he would be away for three weeks or so. In his affidavit, he stated that he was told by Mr James that, while he would have to move out eventually, there was no hurry and he could "continue as normal" when he returned. According to Mr James, all that happened was that Mr Olsen told him that he would be away for a period of time and did not want him (Mr James) to "begin anything" until he returned.
I have already referred to Mr Jones, the deceased's solicitor. Formerly he had operated as a sole practitioner in Wollongong. In 2007 his practice was acquired by WMD, which is based at Miranda in southern Sydney. The practice continued as a branch office of WMD. Mr Jones did not become a partner of WMD and appears to have retired.
The deceased's April 2010 will named both Mr Jones and Mr James as executors. Mr Jones was unwilling to act. He disclaimed probate. Instead, he referred the estate to another solicitor, Robert Hugh Warren. Mr Warren had been senior partner of WMD for many years until he had retired on 30 June 2009. Following his retirement, Mr Warren had begun practice as a sole practitioner. As such he had acted as a "consultant" to WMD on estate matters.
Mr Warren contacted Mr James on 19 September, two days after the funeral, and Mr James agreed to retain him to act on behalf of the estate. It was clear to Mr James that he would be unable to deal with the estate himself, because he lived more than seven hundred kilometres away and his work did not allow him to travel to Wollongong or to spend substantial time on the administration. Mr Warren obtained Mr James' instructions to get Mr David Meikle, a local real estate agent who had previously managed the property for the deceased, to continue to do so for the estate.
In acting as the solicitor for the estate, Mr Warren initially used the letterhead of Mr Jones' practice. The letterhead described the practice as a "division of Warren McKeon Dickson Pty Ltd". Later the letterhead was replaced by a letterhead with the business name "WMD Law". For convenience, I will refer to the firm throughout as "WMD".
Mr James had visited the Kembla Street property on the day he came to Wollongong for the deceased's funeral. He did not have keys so was unable to go inside the building. But from what he could see the property was in a disorderly and run-down state.
Mr James had been told by Mr Jones that the deceased had previously owned a number of vintage motorcycles which might have been valuable, and which should be secured. Mr Warren reported to Mr James in their conversation on 19 September that he had been told by Mr Sullivan that the motorcycles were no longer at Kembla Street.
On 20 September, the day after being formally retained by Mr James, Mr Warren arranged for Mr Meikle to change the locks on the building. Mr Warren sent a clerk to look for records of the deceased which would assist with the administration of the estate, and the clerk removed two boxes of documents.
When Mr Olsen returned to Wollongong a few weeks later, he was unable to get access to the Kembla Street premises because of the changed locks. He approached Mr Warren about a motorcycle and other property at the premises which he said belonged to him. Mr Warren arranged for Mr Meikle to open the property for Mr Olsen on 9 October and he removed the motorcycle.
Mr Olsen said he was treated with suspicion by Mr Warren, although not by Mr Meikle. According to Mr Olsen, Mr Warren would only let him remove his motorcycle, even though he had other property, including tools and papers, at the premises. He said that no suspicion was warranted, and the vintage motorcycles had been sold by the deceased, or with the deceased's authority, before his death. Mr Olsen said he was unable to find the registration papers for his motorcycle which Mr Warren had asked for as proof of ownership. The suggestion was that Mr Olsen's papers had been among the two boxes of papers removed by Mr Warren's clerk.
Mr Olsen retained William Purdon, a solicitor at Engadine in southern Sydney, to act for him. On 16 October, Mr Purdon wrote to Mr Warren, asserting that Mr Olsen had a right of occupation of the property and complaining about his exclusion.
A day or so afterwards Mr Olsen forced entry to the property by cutting the padlocks. This does not seem to have been as dramatic as it sounds. Mr Meikle reported to Mr Warren on the afternoon of 18 October: Interesting day, Previous the email from my telephone on site, Jens has gained access to the rear shed and busily working away in there re-building a bike for a race on the weekend. Nothing appears to have been removed that I could see and he just seemed pre-occupied with finishing the bike. Notwithstanding the fact that he appears to have used bolt cutters to force access to the premises … he must be nearly 70 years old and truly one of nature's gentlemen - albeit hopelessly disorganised and forgetful. Both Tamara and I satisfied ourselves that she would be able to commence an inventory of the front premises without inflaming the situation so l left her there with one of the front door keys. She was comfortable with this and has spoken to Greg(?) from your office regarding the same.
On 19 October, in answer to Mr Warren's requests for particulars of Mr Olsen's alleged oral tenancy, Mr Purdon wrote: Our client was a "Tenant at Will". Such a tenancy can be terminated with one months' notice by the Public Trustee. In our opinion such a termination would not be beneficial to the estate.
Mr Purdon's letter of 16 October proved to be the beginning of long and difficult correspondence between himself and Mr Warren. Mr James eventually obtained formal possession of the property in May 2013, following the issue of a notice to quit.
In the meantime, probate had been granted in January 2013. Notice of Intended Distribution was published in February. The inventory of property sworn for the purposes of the probate valued the deceased's estate at $715,000 and included only one asset, namely the Kembla Street property. There is no further mention of the deceased's vintage motorcycles in the evidence, and it appears to have been accepted that they were disposed of before his death.
In early July 2013, contracts were exchanged for the sale of the Kembla Street property for $600,000. The sale was completed in August 2013. The net amount received was $577,000.
So far as the evidence goes, there is a gap in the correspondence between Mr Warren and Mr Purdon after April 2013. By November 2013, Mr Warren was recommending to Mr James that Mr James make an interim distribution of funds from the estate to the beneficiaries. The total amount of the proposed distribution was $440,000. Instructions were confirmed from Mr James on 6 November.
Mr Olsen's share of the proposed distribution was $110,000. On 4 November Mr Warren wrote to Mr Olsen (directly): Attached is a beneficiary's indemnity and receipt. The distribution cheque will be forwarded to you conditional upon the execution and return to us of the beneficiaries' receipt, without amendment, within 14 days. In the event that the condition is not accepted the cheque not be forwarded at this time.
The form of indemnity and receipt which was attached stated: In consideration of the receipt of the distribution of $110,000.00 I indemnify and release the Executor and WMD Law from all claims however arising in relation to this matter and acknowledge that this receipt will be pleaded in bar to any claim which I may make.
Mr Purdon responded on 19 November, stating that he acted for Mr Olsen. His letter continued: A full disclosure of the administration has not been made to our client and he requests you to do so. Our client also requests he receive his gifts as soon as possible. He will issue a receipt when he receives his gifts.
Mr Warren replied on 22 November. He enclosed an interim distribution statement for the estate and sought payment of a "fair market occupation fee" for Mr Olsen's occupation of the premises after the deceased's death, which totalled $2,300 but was subject to the agent's confirmation. He also indicated that if Mr Olsen agreed to pay the occupation fee the estate might not pursue the recovery of the costs associated with gaining possession. The letter continued: We are instructed by the executor not to distribute the bequest to your client until the executor is satisfied that your client does not intend to make any claims against the estate. For that reason we are instructed to require signature of the form of attached indemnity before payment of the interim distribution proceeds. If your client has no wish to sign an indemnity at this time, the interim distribution to your client will not proceed. In this event when the final distribution figures for the estate are prepared after payment of all liabilities, full particulars will be sent to you together with a further form of indemnity and release for execution by your client before the bequest is paid to your client.
Meanwhile, the payments to the charities ($110,000 to Wollongong Hospital and $55,000 each to GDA and RFDS) were made without incident. I was informed by Mr O'Loughlin from the Bar Table that he did not think that the charities were asked to give releases. In fact it seems from the correspondence in evidence that all of the beneficiaries, including the charities, were asked to give releases in the same terms, and Wollongong Hospital, at least, did so. However the letters to the charities seeking releases also enclosed cheques, so that the charities were not required to give releases before receiving their distributions.
There is little evidence about the position of the other beneficiary, Mr Sullivan. It seems to have been suggested at one point that he would "read over the shoulder" of Mr Olsen. He never retained his own solicitor. Nevertheless Mr Warren seems to have treated him as being in the same position as Mr Olsen. I was informed from the Bar Table that Mr Sullivan had been prepared to grant the release sought for Mr James but not for WMD. In the end he does not appear to have given any release at all, presumably because his refusal to release WMD was unacceptable to Mr Warren.
After WMD's letter of 22 November, the correspondence between Mr Warren and Mr Purdon continued through 2014. Mr Warren continued to press for Mr Olsen to indicate his position. Mr Purdon's responses were laconic and usually took several weeks to arrive. This appears to have exasperated Mr Warren, whose tone became increasingly critical.
Mr Warren's position in the correspondence was that it was necessary to know whether any claims were being made against the estate so that the residue could be determined. Mr Warren accused Mr Purdon of delaying the winding up of the estate. But at all times he maintained that Mr Olsen was required to execute the release as a condition of receiving any money. He also threatened to deduct from Mr Olsen's share rent for the use of the property and the costs of complying with Mr Purdon's requests for the production of documents.
Mr Purdon was not co-operative. He repeatedly told Mr Warren that it was not his (Mr Purdon's) task to advise him. Nor would he agree to Mr Olsen providing a release. His position was that it was Mr James' obligation to administer the estate and to distribute Mr Olsen's inheritance without any preconditions. Mr Purdon also took the position that WMD's fees would need to be assessed or approved by the Court.

Claims made by Mr Olsen in the proceedings

Mr Purdon filed a Statement of Claim commencing proceedings on Mr Olsen's behalf on 14 January 2015. The Statement of Claim made a personal claim on behalf of Mr Olsen against Mr James, namely a claim for damages to trespass to his business records. But it mostly involved complaints concerning the administration of the deceased's estate.
In this regard, the Statement of Claim sought declarations of breach and equitable compensation. It also sought orders that the defendant file and verify accounts for the estate and refund any amounts not allowed by the Court plus interest. Finally, it sought orders that Mr James wind up the estate and pay the costs of doing so personally.
In its pleading section, the Statement of Claim provided more details of the claims concerning the alleged maladministration of the estate. There were six of these: (1) failing to disclose all of the assets of the estate in the affidavit for probate; (2) failing to wind up the estate, and making interim distributions to some of the beneficiaries (namely the charities) only; (3) selling the Kembla Street property at an undervalue, and failing to provide details of the costs of the sale to Mr Olsen; (4) employing Mr Warren to do work Mr James should have done himself; (5) incurring generally excessive legal costs and refusing to have the costs assessed; and (6) failing to prepare, file and verify accounts for the estate.
The Defence filed for Mr James, in response to the claim for trespass to Mr Olsen's records, admitted that Mr James had taken possession of "what were believed to be the deceased's papers" but stated that any documents of Mr Olsen had been returned in January 2013. The Defence admitted that approximately $3,400 had been realised for the estate from the sale of items at the Kembla Street property and the proceeds of two bank accounts of the deceased, and that these assets had not been included in the inventory of property, but stated that Mr Olsen had been informed about them informally. Otherwise the Defence denied the maladministration allegations in the Statement of Claim.

Request for repayment from charities in 2015

The evidence before me shows that on 25 September 2015, RFDS repaid the sum of $55,000 which had been paid to it in November 2013. It was common ground that this was a result of a request made to all of the charities, and that the other charities refused, but none of the correspondence is in evidence except for a letter from WMD to RFDS date 11 August 2015.
There was no evidence before me of the circumstances in which these requests for repayment were made. But by August 2015, WMD's fees for work on the administration and the defence of the proceedings would have been more than $130,000. WMD's fees were being paid as they were billed. The proceedings had not yet been fixed for hearing. Taking into account the distributions to the charities, there must have been less than $250,000 left. Neither Mr Olsen nor Mr Sullivan had received his $110,000. If (as Mr Warren no doubt assumed) all of WMD's past and future costs were going to come out of the estate, the residue was going to be less than the $440,000 on which the interim distributions had been based.
Another factor which would have increased the shortfall still further was the legacy in favour of Mr James of three per cent of the "net estate". As we will see, in 2016 that legacy was to be calculated by WMD as being worth $21,450, being three per cent of the net value of the estate as estimated for the purpose of probate (see [3] above). This view may not be correct: the reference to the value of the "net estate" may be to the value of the estate as realised. But if WMD were proceeding on the basis that the "net value" of the estate was fixed by the estimate submitted for probate, then the amount could, and presumably should, have been paid out as soon as funds became available to do so, in priority to any payments to the residuary beneficiaries.
It is clear, however, that this was not done. In an affidavit sworn in October 2015 for the purposes of the proceedings, Mr James stated that he had not accepted any bequest, or made any claim for commission, as executor. Mr James had every right to receive the bequest, and why at that stage he was not claiming it is a mystery which is not addressed in the evidence before me.
Even putting the question of Mr James' three per cent legacy aside, if Mr Warren's assumption about WMD's costs were correct, the refusal by Wollongong Hospital and GDA to repay their distributions created a serious problem for the other residuary beneficiaries. But Mr Warren does not appear to have taken any action about it. It was not until October 2019 that Mr James' cross-claim (which had originally been against Mr Olsen alone) was amended so as to seek repayment from Wollongong Hospital and GDA of the November 2013 interim distributions. In the meantime, WMD's fees for defending the proceedings continued to mount and the payments made for those fees continued to deplete the funds of the estate.

Moderation of WMD's fees

In April 2016, consent orders were made for a bundle of WMD's bills to be referred to a Registrar to determine whether they represented proper charges to the estate or should be moderated. By this stage Mr Warren had been replaced as Mr James' solicitor by Gregory Dickson, a partner with WMD.
On 14 August 2016 Senior Deputy Registrar Brown delivered her decision on the referral and moderation of the invoices. The decision was given by way of memorandum addressed to Mr Purdon and Mr Dickson. The referral covered 25 separate bills, covering work done up to May 2015.
At the hearing, Mr O'Loughlin presented Mr James' case on the basis that WMD's fees for administering the estate were $85,613. SDR Brown disallowed $43,958 and ordered that that amount be repaid. It followed, so Mr O'Loughlin contended, that $41,552 in fees for administration had been allowed. At the hearing I assumed this was correct. But having analysed SDR Brown's memorandum, I now think otherwise.
The total amount of the fees the subject of the referral was actually $129,468. In her memorandum SDR Brown stated that for the purposes of the referral, she had put aside costs associated with the dispute between Mr James and Mr Olsen. She did so on the ground that when the Court ultimately determined the proceedings it might decide to allow or disallow those costs. The costs so put aside (which included both costs of the proceedings and pre-litigation costs) totalled $71,844. Of the remaining costs, SDR Brown allowed $13,667 and disallowed $43,958.
The result is that the total amount of the administration costs considered by SDR Brown was $57,625, of which she allowed only $13,667. There is of course a possibility in these proceedings of some or all of the remaining costs of the dispute (both before and after the commencement of proceedings) being allowed as proper costs of the administration of the estate.
From her memorandum, it appears that the main ground on which SDR Brown disallowed costs recorded in Mr Warren's bill was that she considered that many of the tasks were of administrative nature, which Mr James was obliged to undertake himself. In this regard, she specifically noted that he was entitled to a three per cent share of the estate in lieu of commission. SDR Brown also applied the scale cost for the grant of probate and disallowed any other costs of obtaining probate. There was no appeal from, or attempt to review, SDR Brown's decision, and it was not questioned before me.
On 12 September, an affidavit was filed from Mr Dickson. Mr Dickson recorded that the $43,958 which SDR Brown had ordered to be refunded had been credited to the estate. This had been done by Mr James renouncing his three per cent legacy of $21,450 and WMD refunding the balance of $22,508.
This affidavit compounds the mystery about Mr James' legacy. In particular, the affidavit did not seek to reconcile the renunciation of the legacy with what Mr James had said in his October 2015 affidavit. At all events the effect seems to have been that Mr James' legacy was pressed into service so as to reduce the amount which WMD would otherwise have had to repay to the estate.

Payment of distribution to Mr Olsen, and request for repayment, in 2016

On 15 September, three days after Mr Dickson's affidavit was filed, WMD sent a letter to Mr Purdon with a cheque for $141,460.72 for Mr Olsen. The letter itself is not in evidence but is referred to in WMD's letter of 6 October, referred to below. WMD calculated the net value of the estate as $509,203. This yielded a one-quarter share of $127,301 for Mr Olsen. The payment figure also included interest from 11 November 2013 to 30 June 2016 at specified rates, which I assume were the applicable statutory rates for pre-judgment interest at the time.
Then on 6 October, only three weeks later, WMD sent another letter to Mr Purdon. In that letter Mr Dickson told Mr Purdon that the calculations in the earlier letter were incorrect. The letter contained a revised figure of $88,070 for Mr Olsen's entitlement. This figure was calculated on a revised net value of the estate of $316,854, yielding a one-quarter share for Mr Olsen of $79,213, plus interest. Mr Olsen was asked to refund the sum of $53,391.
There was little evidence before me of the circumstances in which the September calculation, and then the revised calculation, were carried out. An affidavit was later made by Mr James in November 2016 recording what had happened. But the affidavit was uninformative. It merely recorded how the distribution had been initially calculated and stated: However, upon distribution it was found that this figure did not take into account third party payments, disbursements and further bills rendered and that payment was made upon the basis of the mistaken belief that the sum of $141,460.72 represented the plaintiff's true entitlement to his share of the estate. The affidavit then set out details of the "correct" calculation, in the same terms as Mr Dickson's letter to Mr Purdon of 6 October.
Clearly Mr James would not have been personally involved in performing the calculations. The identity of the person at WMD who performed the first calculation, how the alleged mistakes were discovered, and why the revised calculations were carried out, was not disclosed in the evidence. Nor did the evidence explain why no equivalent payment was made to Mr Sullivan. Mr Olsen declined to make any repayment.

Payment of distribution to Mr Sullivan and later events

On 27 April 2017 WMD sent Mr Sullivan a cheque from the estate for $20,000. The covering letter, which is in evidence, states baldly that the payment was by way of "interim distribution" without any further explanation. I infer that by this stage the distributions to Wollongong Hospital, GDA and Mr Olsen, and the fee payments to WMD, had so far depleted the funds of the estate that no more could be paid.
A later affidavit of Mr Dickson records that further requests were made to Wollongong Hospital and GDA in May 2018 and February 2019 for repayment but the charities declined to pay.

The claims in these proceedings

As we have seen, the prayers for relief in Mr Olsen's Statement of Claim included orders that Mr James, as executor: pay equitable compensation to the trust so as to restore the estate; submit and verify accounts for the estate; and complete the administration. All of these orders are orders for the administration of the estate which the Court has power to make in administration proceedings under the Uniform Civil Procedure Rules 2005 (NSW), Part 54.
Some of the complaints made by Mr Olsen might have supported direct common law claims for damages by way of devastavit against Mr James. But the Statement of Claim relevantly sought orders for compensation of the estate, not damages for Mr Olsen personally. The Court is thus able to make orders to protect the interests of other beneficiaries apart from Mr Olsen who have not formally sought any administration orders themselves.
The prayers for relief in the Statement of Claim also included a claim for damages for trespass to Mr Olsen's property (namely his documents). This was a personal claim by Mr Olsen against Mr James, not a claim for relief in the nature of administration orders. Nevertheless there was a factual overlap between the trespass claim and Mr Olsen's claims for administration orders which justified the two types of claim being joined in the one set of proceedings.
The Statement of Claim in Mr James' cross-claim sought declarations that the monies paid out to Wollongong Hospital, GDA and Mr Olsen were "held in trust" by them for the estate, and orders for repayment. Properly understood, this was not relief in the nature of administration orders either. The pleaded claims were based on mistake of fact. They were common law claims for restitution of monies "had and received", to use the language of the old writ.
The principal issue debated at the hearing was whether Mr James was entitled to indemnity out of the estate assets for the costs he has incurred, both to his own solicitors, WMD, and to Mr Olsen under the orders made in February 2018. This too raises a question of administration. I suggested to the parties that, although no formal application had been filed on Mr James' behalf, in substance what was happening was that he was making a cross-application for administration orders of his own which would confirm his indemnity. The parties agreed with this analysis.
Mr Olsen's trespass claim is readily dealt with. It was not pursued before me. In effect, the claim was abandoned as part of the "settlement" in February 2018. I will order that the claim be formally dismissed.
I propose to deal with the remaining claims in the following order. First, I will consider Mr James' claim for administration orders conferring indemnity on him for his costs. Second, I will deal with Mr James' claim against Wollongong Hospital, GDA and Mr Olsen for repayment of the distributions made to them. Finally, I will consider what further administration orders should be made to facilitate the winding up of the estate.

Claim for indemnity for Mr James' costs

There are three components to Mr James' claim for indemnity: (1) WMD's fees for work on the dispute up to the commencement of the proceedings in January 2015; (2) WMD's fees for work on defending Mr Olsen's claim in the proceedings, and bringing Mr James' cross-claim for repayment of the advances made to the beneficiaries; and (3) the costs of the proceedings awarded in favour of Mr Olsen under the order made by the Court in February 2018. I will deal in that order with the components of the claim, each as a matter of principle. I will then address questions of quantum.
It should be noted that none of the bills from WMD which make up the first and second components have been formally assessed. WMD's cost agreement or agreements do not appear to be in evidence. At least so far as the work done on the proceedings is concerned, WMD's bills may be interim bills, as the proceedings have not come to an end. Thus, the time for assessment as between Mr James and WMD may not yet have expired, or even arrived.
No doubt Mr James has been proceeding on the assumption that all of WMD's bills will be paid out of the assets of the estate, and this was the practice adopted by WMD while the money lasted. Nonetheless, it is important to recognise that there can be no entitlement to payment out of the estate unless Mr James is liable to pay WMD. For reasons which will become clear in due course, whether Mr James is in fact liable to WMD for the full amounts claimed in the bills might be a matter of dispute if he had to pay them out of his own pocket. I will consider the claim for indemnity on the assumption that WMD is entitled to payment of the amounts claimed, and return to the issue of liability later in this judgment.

Mr James' own costs of the dispute, incurred before litigation

The starting point is that in Chancery practice a trustee was entitled to reimbursement from the trust estate of all expenses properly and reasonably incurred in the course of administering the trust. As Lindley LJ put it in Re Beddoe [1893] 1 Ch 547 (at 558): [A] trustee is entitled as of right to full indemnity out of his trust estate against all his costs, charges, and expenses properly incurred: such an indemnity is the price paid by cestuis que trust for the gratuitous and onerous services of trustees; and in all cases· of doubt, costs incurred by a trustee ought to be borne by the trust estate and not by him personally. The words "properly incurred" in the ordinary form of order are equivalent to "not improperly incurred."
As this statement indicates, the entitlement to indemnity did not depend upon the court exercising any discretion in favour of the trustee. It was regarded as being in effect a matter of strict contractual entitlement.
In Re Beddoe, the trust had been established by will and included a life estate over some property. The life tenant wished to make an application for an order for sale under statute, and asked the trustee to deliver up the title deeds to allow her to do so. She brought a detinue action in the Queen's Bench Division for this purpose. Acting on advice from his solicitor (who had taken advice from counsel), the trustee declined to deliver up the title deeds, on the ground that the life tenant's entitlement was unclear, and the action was defended on this basis.
The life tenant succeeded in the detinue action and was awarded costs against the trustee. Administration proceedings were then brought in the Chancery Division to determine whether the trustee was entitled to recover the costs awarded against him in the detinue action out of the trust estate.
Lindley LJ explained that entitlement to recover the costs depended upon the same principles as applied to any other expenses incurred by the trustee (at 555): [T]he costs of the [detinue action] were in the discretion of the learned Commissioner who tried that case; they were discretionary with him, and in the exercise of his discretion he gave the successful party the costs, which of course he would do unless there was some reason for the contrary - still they were in his discretion. But when you ask a Judge in the Chancery Division to allow those costs to the Defendant who has been unsuccessful, those costs immediately assume the character of charges and expenses; they are not costs of the proceeding before the Chancery Judge who was asked to allow them. They are no more costs in that sense, no more costs in his discretion, than any other charges and expenses would be - such, for example, as charges and expenses incurred by trustees in taking advice, or in sales, or any abortive proceeding - all of which may be perfectly proper.
But in applying the principle that the costs must have been properly incurred, his Lordship stated (at 557): [A] trustee who, without the sanction of the Court, commences an action or defends an action unsuccessfully, does so at his own risk as regards the costs, even if he acts on counsel's opinion and when the trustee seeks to obtain such costs out of his trust estate, he ought not to be allowed to charge them against his cestui que trust unless under very exceptional circumstances. If, indeed, the Judge comes to the conclusion that he would have authorized the action or defence had he been applied to, he might, in the exercise of his discretion, allow the costs incurred by the trustee out of the estate; but I cannot imagine any other circumstances under which the costs of an unauthorized and unsuccessful action brought or defended by a trustee could be properly thrown on the estate.
Immediately after the passage concerning the trustee's entitlement to indemnity for his expenses quoted at [87] above, his Lordship stated (at 558): But, considering the ease and comparatively small expense with which trustees can obtain the opinion of a Judge of the Chancery Division on the question whether an action should be brought or defended at the expense of the trust estate, I am of opinion that if a trustee brings or defends an action unsuccessfully and without leave, it is for him to show that the costs so incurred were properly incurred. The fact that the trustee acted on counsel's opinion is in all cases a circumstance which ought to weigh with the Court in favour of the trustee; but counsel's opinion is no indemnity to him even on a question of costs.
Bowen LJ said (at 562): A trustee can only be indemnified out of the pockets of his cestuis que trust against costs, charges, and expenses properly incurred for the benefit of the trust - a proposition in which the word "properly" means reasonably as well as honestly incurred.
His Lordship continued: A trustee can only be indemnified out of the pockets of his cestuis que trust against costs, charges, and expenses properly incurred for the benefit of the trust - a proposition in which the word "properly" means reasonably as well as honestly incurred. While I agree that trustees ought not to be visited with personal loss on account of mere errors in judgment which fall short of negligence or unreasonableness, it is on the other hand essential to recollect that mere bona fides is not the test, and that it is no answer in the mouth of a trustee who has embarked in idle litigation to say that he honestly believed what his solicitor told him, if his solicitor has been wrong-headed and perverse. Costs, charges, and expenses which in fact have been unreasonably incurred, do not assume in the eye of the law the character of reasonableness simply because the solicitor is the person who was in fault.
In the result, the Court of Appeal concluded that counsel had been wrong in advising that there was some doubt about the life tenant's entitlement to the deeds, and the trustee's solicitor had been wrong in failing to seek judicial advice. The Court allowed the trustee only the amount of costs he would have incurred had he made such an application, which amount the Court summarily fixed to avoid any further litigation.
The general law entitlement of a trustee to indemnity out of the trust estate is reflected in s 59 of the Trustee Act 1925 (NSW) which provides: 59 Implied indemnity … (4) A trustee may reimburse himself or herself, or pay or discharge out of the trust property all expenses incurred in or about execution of the trustee's trusts or powers. For the purposes of the Act, "trust property" is defined to include a deceased estate and "trustee" is defined to include an executor: see s 5.
Sub-section 59(4) does not expressly mention the expenses of the trustee as having to be properly or reasonably incurred. But the previous Chancery approach to indemnity has been carried through to s 59(4). In Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 the High Court quoted the passage from Lindley LJ's judgment in Re Beddoe quoted at [92] above, describing it (at [48]) as: .. the significant, and in later years influential, aspect of In re Beddoe.
Speaking of the judicial advice provision in the Trustee Act, s 63, the High Court stated (at [71], emphasis original): … provision is made for a trustee to obtain judicial advice about the prosecution or defence of litigation in recognition of both the fact that the office of trustee is ordinarily a gratuitous office and the fact that a trustee is entitled to an indemnity for all costs and expenses properly incurred in performance of the trustee's duties. Obtaining judicial advice resolves doubt about whether it is proper for a trustee to incur the costs and expenses of prosecuting or defending litigation.
The Court went on to state (at [74]): A necessary consequence of the provisions of s 63 of the Act is that a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings.
I was referred in submissions to the decision of the Court of Appeal in Gatsios Holdings v Kritharas Holdings [2002] NSWCA 29. Spigelman CJ (at [9]) noted that the words "properly and reasonably incurred" do not appear in s 59(4), but said that the enactment had to be understood in the light of the previous law, which it did not purport to change. Meagher JA, on the other hand, (at [47]) questioned whether "propriety" and "reasonableness" were valid tests, and stated that he found it difficult to formulate any limit on the statutory indemnity apart from the conduct in question not being a breach of trust, criminal or fraudulent. The third member of the Court, Mason P, did not find it necessary to decide between these views: see at [42].
The principal issue in Gatsios was whether the trustee was entitled to indemnity for a court-imposed liability for breach of consumer protection legislation. There was no separate argument about the costs of the proceedings. In any event, since Gatsios was decided the High Court has made it clear in Macedonian Orthodox Church that the principles in Re Beddoe continue to inform the scope of the statutory indemnity for legal costs. The Court of Appeal has also applied those principles in a statutory context in Mead v Watson as Liquidator for Hypec Electronics [2005] NSWCA 133 at [134]; see also His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand & Anor v The Macedonian Orthodox Community Church St Petka Inc (No 2) [2007] NSWCA 287, Warton v Yeo [2015] NSWCA 115 and Free Serbian Orthodox Church Diocese for Australia and New Zealand Property Trust v Bishop Irinej Dobrijevic (No 3) [2017] NSWCA 109.
Despite the view expressed by Meagher JA in Gatsios, the clear weight of authority in this State is thus to the effect that, at least where legal costs are concerned, a trustee's indemnity extends only to expenses that are properly and reasonably incurred, as those terms were used in the previous law. The onus is on the trustee, although he or she usually only has to satisfy the undemanding test of showing that the expenses in question were not improperly or unreasonably incurred.
The first step in the dispute between Mr James and Mr Olsen was Mr Purdon's letter of 16 October 2012, which was a response to the agent, on WMD's instructions, changing the locks so as to secure the property. The assertion by Mr Purdon that Mr Olsen held some sort of tenancy over the property developed from there. It was reflected not only in Mr Purdon's correspondence but in Mr Olsen's action in forcing entry to the property.
Once the deceased had died, the authority of Mr Olsen and Mr Sullivan as his attorneys came to an end. In my view, it was plainly reasonable for Mr Warren, on behalf of Mr James, to instruct the agent to secure the property. Indeed any other action would have been open to the criticism that it exposed the estate to risk of loss. Even if, as Mr Olsen claims, he was told by Mr James at the funeral that nothing would happen for several weeks, by the time the agent took action that time had expired and there is no evidence of Mr Olsen contacting Mr James in the meantime.
Of course the agent needed to give Mr Olsen a reasonable opportunity to remove his property, but on the evidence before me, he did so on 9 October.
The claim made by Mr Purdon on Mr Olsen's behalf that he had some sort of tenancy was, at the very least, contestable. Mr Purdon's own correspondence acknowledged that any tenancy was terminable at will; indeed Mr Purdon's argument was not so much that Mr Olsen had an indefinite right to remain but that it was in the interests of the estate that he should do so. However the interests of the estate were a matter for Mr James to determine based on his own advice and it was clearly open to him to decide to proceed to sell the property and obtain vacant possession for that purpose. In my view the costs of the dispute up to the issuing of the Notice to Quit and the sale of the property in mid-2013 were properly and reasonably incurred.
Even after the sale of the property, it was quite understandable that Mr Warren, on Mr James' behalf, wanted to draw out from Mr Purdon whether Mr Olsen was going to make a claim against the estate. The fact that Mr Olsen did later make a claim for trespass shows that the concern was well-founded, and Mr Purdon's refusal to be drawn on this in the correspondence up to the initiation of proceedings was unhelpful, to say the least.
But the solution to this problem lay in procedures under the Probate and Administration Act 1898 (NSW). Section 92 provides that, if a notice of intended distribution has been published and 30 days have passed since the publication of the notice (and at least six months have passed since the deceased's death), an executor may distribute the estate free of claims of which he or she does not have "notice". Section 93 relevantly provides: 93 Claims barred against executor or administrator in certain cases (1) When the executor or administrator of the estate of a testator or an intestate has published the notices referred to in section 92(1) and a claim in respect of the assets of that estate is submitted to the executor or administrator, the executor or administrator may, if the executor or administrator disputes the claim, serve on the person by whom or on whose behalf the claim was submitted a notice calling on the person to take proceedings to enforce the person's claim within a period of 3 months from the date of service of the notice and to prosecute the person's claim. (2) If, after a notice has been served on a person in accordance with subsection (1) and the period of 3 months referred to in the notice has expired, that person does not satisfy the Court that the person is prosecuting the person's claim, the Court may, on an application in that behalf made by the executor or administrator: (a) make an order barring the claim of that person as against the executor or administrator, subject to such conditions (if any) as it thinks just and equitable, or (b) make such other order in respect of the application as it thinks just and equitable, having regard to the circumstances of the case.
The publication of the Notice of Distribution in February 2013 meant that thereafter it would have been open to Mr Warren to serve a notice under s 93(1) on Mr Purdon requiring Mr Olsen to abandon any claim or to commence proceedings within three months. Had Mr Purdon continued to prevaricate, the proper course would have been to commence proceedings under s 93(2). That would either have flushed Mr Olsen out or resulted in the extinguishment of his claim.
But instead of following this course, from November 2013 Mr Warren chose to withhold Mr Olsen's distribution from the estate as a lever to try to force him to give a release. In my view this was improper.
Mr James' obligation as executor was to distribute the assets of the estate as rapidly as circumstances permitted. Mr Warren can hardly have thought that a claim by Mr Olsen, even if successful, would reduce the net estate below $440,000. If he had thought that, he could not properly have proceeded with the interim distributions to the charities as he did.
In any event, Mr Warren was trying to require Mr Olsen to release Mr James, and WMD, from any claim he might have against them with respect to the administration of the estate. Even if Mr Warren had been justified in requiring a release as a condition for releasing Mr Olsen's distribution, there was no justification whatever for the width of the release which he sought. When I asked Mr O'Loughlin, for Mr James, about this in oral argument, Mr O'Loughlin did not attempt to defend Mr Warren's approach.
By November 2013 it was clear that Mr Purdon, on behalf of Mr Olsen, was questioning the level of fees being charged by WMD. The evidence does not indicate what the ground of challenge was, but that is not the point. Through Mr Purdon, Mr Olsen was entitled to question WMD's costs. However distasteful, or even misguided, Mr Warren may have thought this was, Mr Olsen could not be forced to surrender his rights as a beneficiary in exchange for being paid what he was owed by way of inheritance from the estate. Still less could Mr James insist on a release in favour of his solicitor as a condition of complying with his obligations as executor.
The result was that, by paying the charities their share of the $440,000 in November 2013, but refusing to pay Mr Olsen his share, Mr Warren put Mr James in breach of his obligation as executor to treat the beneficiaries equally.
In retrospect, Mr Warren's criticism of Mr Purdon and Mr Olsen in the correspondence from November 2013 onwards wears a most unfortunate appearance. The position taken up by Mr Warren on Mr James' behalf was calculated to prevent any challenge being made about WMD's fees. This was improper in itself, but in fact the subsequent moderation carried out by SDR Brown vindicated Mr Purdon's point about WMD not being entitled to charge the estate for work which Mr James was capable of doing himself.
Mr Warren's correspondence was full of protestations about the need to get on with administering the estate. But on behalf of Mr James, Mr Warren continued to refuse to release Mr Olsen's distribution unless a release was given. The impasse continued. The solution to the problem about whether Mr Olsen was making a claim on the estate remained in Mr Warren's hands, but he did not use it.
The s 93 procedure would have been the most direct way of bringing the question about the potential claim by Mr Olsen to a head. It would have benefited the estate for another reason. Had it become necessary to commence proceedings under s 93(2), Mr Olsen could have been required to pay the costs of those proceedings. Instead of the estate absorbing the cost of conducting an inconclusive debate with Mr Purdon as part of the general costs of administration, the cost of the issue could have been put on Mr Olsen where it belonged.
The existence of the s 93 procedure should have been known to Mr Warren. Not even an application for judicial advice should have been necessary: see Application of Lewis; Estate of the late Shirley Jean Coleman [2020] NSWSC 192. But had judicial advice been sought, and proper disclosure made to the Court, I can only assume that the advice would have been to use the s 93 procedure. I cannot accept that the Court would have sanctioned the continuing breach of trust involved in withholding Mr Olsen's distribution.
In these circumstances, the expenditure of estate funds from November 2013 onwards in belabouring Mr Purdon was, in my view, improper and unreasonable. WMD's fees for working on the dispute should be allowed as a charge to the estate up to that date, but disallowed thereafter.
Mr Purdon did not act for Mr Sullivan. Accordingly, Mr Warren's withholding of Mr Sullivan's interim distribution is not directly relevant to the reasonableness of the costs charged by Mr Warren for dealing with Mr Purdon. But I note at this point that Mr Sullivan does not appear to have foreshadowed any claim against the estate. Even if Mr Warren had been justified in his treatment of Mr Olsen (which he was not), he was on no view justified in requiring Mr Sullivan to sign a release as a condition of releasing the distribution to which he was entitled.

Mr James' own costs of the proceedings

In dealing with Mr James' own costs of the proceedings, I am dealing with the costs of proceedings in this Court. This requires the consideration of other statutory provisions beyond s 59(4) of the Trustee Act. The Trustee Act relevantly provides in s 93: Costs … (2) The Court may order the costs charges and expenses of and incident to any application or any order under this Act to be paid or to be raised by sale or mortgage out of the property in respect whereof the same is made or out of the income thereof, or to be borne and paid in such manner and by such persons as to the Court may seem just. (3) 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.
UCPR, r 42.25 provides: 42.25 Costs of trustee or mortgagee (cf SCR Part 52A, rule 42) (1) Subject to subrule (2), a person who is or has been a party to any proceedings in the capacity of trustee or mortgagee is entitled to be paid his or her costs in the proceedings, in so far as they are not paid by any other person, out of the fund held by the trustee or out of the mortgaged property, as the case may be. (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 interplay between these provisions and the trustee's general right of indemnity, as reflected in s 59(4) of the Trustee Act, is complicated. The relevant law was described by Basten JA in Warton v Yeo at [3] as "by no means straightforward".
As already noted, the present proceedings, apart from Mr Olsen's trespass claim, are administration proceedings under UCPR Part 54. They apparently answer the description of proceedings "with respect to the management or administration" of the estate property for the purposes of s 93(3). They may also answer the description of "an application … under" the Trustee Act for the purposes of s 93(2).
The powers under s 93 are conferred on this Court, which also exercises jurisdiction in administration proceedings in which any dispute about a trustee's entitlement to indemnity from trust assets would usually be litigated. Those powers allow for the costs of a party other than the trustee to be paid out of the relevant property. The power under s 93(2) would also appear to permit the Court to make an order giving a trustee an entitlement to costs out of an item of property where its beneficial ownership is claimed by someone else, even if the claim succeeds: that is, an order of the type made in Re Dallaway [1982] 1 WLR 756 and Metropolitan Local Aboriginal Land Council v Metropolitan Aboriginal Association Incorporated [2003] NSWSC 104 (although in both cases the court relied on its general discretionary power to award costs). It may be the main purpose of having the powers in s 93 is to enable the making of orders which go beyond the conventional case of indemnity between the trustee and the trust. At all events, the powers in s 93 are discretionary and it is not likely that the discretion would ever be exercised inconsistently with the established principles concerning the scope of the trustee's indemnity.
But that is not necessarily so for UCPR r 42.25. The rule applies to proceedings in the District Court and the Local Court as well as in this Court: see UCPR, r 1.5 and sch 1. Presumably the power to "otherwise order" for the purposes of the rule must be exercised by the court which hears the proceedings in question. Nor is the entitlement created by the rule confined to property which is the subject of the proceedings. The entitlement, in the case of a trustee, extends to all of the assets of the trust: Free Serbian Orthodox Church at [39].
Where it applies, r 42.25 creates a prima facie entitlement to costs, subject to the court ordering otherwise. This to an extent cuts across the principles concerning a trustee's indemnity for costs as they now inform s 59(4) of the Trustee Act. In Bovaird v Frost [2009] NSWSC 917 at [32], Brereton J (as his Honour then was) said that the failure to obtain judicial advice did not displace the prima facie entitlement established by r 42.25.
In Macedonian Orthodox Church (2007) NSWCA at [30] Ipp JA raised a question as to whether r 42.25, as delegated legislation, is consistent with the grant of power in s 93. That question was noted, but not resolved, in subsequent Court of Appeal decisions: Warton v Yeo at [8]-[13]; Free Serbian at [37]-[38].
There may be wider questions still. One might ask whether r 42.25 is consistent with s 59(4) itself, given the way in which that enactment is understood. One might also ask why there should be a different indemnity rule for legal costs incurred outside litigation and legal costs incurred in proceedings to which r 42.25 applies. Especially is this so where the trust beneficiaries whose interests are affected by the indemnity may not even be party to the r 42.25 proceedings. Indeed, one might ask how the rule can operate at all if the trust in question is being administered under the law of another jurisdiction.
Nevertheless r 42.25 is there in the Rules. No party submitted that it was inoperative or otherwise did not apply. I will proceed on the basis that it does.
In the present case no judicial advice was sought about whether, and on what grounds, to defend the proceedings commenced by Mr Purdon on behalf of Mr Olsen. Nor does advice seem to have been sought from counsel. There was no evidence before me of what advice, if any, Mr Warren gave Mr James about defending the action. All the indications are that Mr Warren saw the initiation of proceedings as a continuation of what he considered (over-confidently, as it turns out) an obstructive and misconceived approach on the part of Mr Purdon.
It is true that Mr Olsen's Statement of Claim made claims against Mr James for damages for trespass and for allegedly selling the Kembla Street property at an undervalue. Neither of these claims was ultimately pursued and there was no evidence before me that they were ever justified. Had they stood alone, Mr James might well have been justified in defending the proceedings at the cost of the estate.
But these claims did not stand alone. The Statement of Claim directly raised the propriety of the fees which had been charged by Mr Warren. It expressly took the point, which later succeeded before SDR Brown, that much of the administration work was capable of being done by a layperson and could not be delegated to a solicitor at the estate's expense. It also complained, properly in my view, about the failure to pay to Mr Olsen the amount due to him from the estate, and about the failure to complete the administration of the estate generally (which brought in the failure to pay Mr Sullivan).
I think that it is quite clear that, had judicial advice been sought when Mr Olsen commenced his proceedings against Mr James, the Court would not have advised Mr James to defend the proceedings in the manner in which they have been defended by WMD. To the contrary, I expect that the Court would have advised that Mr James' refusal to pay a distribution to Mr Olsen (and Mr Sullivan) unless he signed the release sought by Mr Warren was indefensible. I expect that the Court would also have advised, for the reasons later given by SDR Brown, that Mr Purdon was right in his challenge to the fees being charged by WMD for work which could be done by a layperson.
No doubt the Court would have advised that Mr James was justified in defending the claims alleging trespass and sale at an undervalue. But I think it unlikely that, had Mr James capitulated on the other issues, those claims would have been pursued on their own. If they had been, the shape of the case would have been quite different and the cost would have been far less.
WMD's costs of defending the proceedings may well have included individual items of cost referable to the claims alleging trespass and sale at an undervalue. But on the evidence before me, those claims should have failed and Mr Olsen should have been required to bear the costs of them. By agreeing in the February 2018 "settlement" to pay Mr Olsen's costs of the proceedings, Mr James deprived himself (and consequently the estate) of the opportunity to recover the costs of these claims. That step too was taken without the benefit of judicial advice.
Of course the "settlement" as negotiated involved the costs awarded against Mr James being paid out of the estate. But had the question been squarely considered, it could not have been thought proper for Mr James to accept the burden of costs which Mr Olsen should have borne, on the basis that such costs would then be passed on to the estate. Once it became clear that the Court would not rubber-stamp the payment of the parties' costs out of the estate, it would have been open to Mr James to contend that, as between himself and Mr Olsen, the "settlement" was not binding. But this was not done and I do not accept that the estate must now pay for Mr James' costs of defending the claims in question.
The remaining question is whether I should at least allow Mr James an amount of costs out of the estate reflecting what he would have incurred had he made an application for judicial advice, as was done in Re Beddoe. But I think this case is different. For reasons I have already given, Mr James was in the wrong from November 2013 onwards. The issue about whether Mr Olsen was going to make a claim against the estate could, and should, have been dealt with using procedures under the Probate and Administration Act. Had that happened, I think Mr Olsen's proceedings would not have been brought and there would have been no need for judicial advice about them.
For these reasons I conclude that all of the costs of the defence were unreasonably incurred for the purposes of UCPR 42.25. The claim for indemnity for those costs from the estate fails.
Mr James' costs of the cross-claim require separate consideration. The cross-claim is being brought to get monies back into the estate, and in that sense it is being brought in the estate's interests. But the basis of the cross-claim is the allegedly mistaken making of distributions to the charities in November 2013 and to Mr Olsen in September 2016. Any such mistakes are ones for which Mr James is himself responsible. Furthermore, the real reason why the cross-claim has been instituted is because the estate has been depleted by WMD's costs of the dispute with Mr Olsen, and I have already found that the vast bulk of those costs were not properly and reasonably incurred and are not a proper charge to the estate.
I thus conclude that Mr James' costs of the cross-claim were also unreasonably incurred for the purposes of UCPR 42.25. Whether the cross-claim succeeds and costs can be recovered from the cross-defendants on an inter partes basis I will address in due course. For now it is sufficient to say that whatever is the result of the cross-claim it must be litigated at Mr James' risk.

Costs of the proceedings awarded against Mr James

Whether UCPR r 42.25 applies to inter partes costs awarded against a trustee as well as the trustee's own costs was not specifically argued. But even if the rule does apply, for the same reasons I have already given, I consider that the costs liability incurred by Mr James in favour of Mr Olsen under the February 2018 "settlement" was unreasonably incurred. Mr James' claim for indemnity out of the estate against that liability also fails.

Quantum issues

Mr O'Loughlin's primary position was that all of Mr James' own costs, and all of the costs awarded against him in favour of Mr Olsen, were properly charged to the estate. But Mr O'Loughlin freely acknowledged the possibility that the Court might not be convinced that all of the costs should properly be allowed. If the issue of principle was resolved in favour of Mr James, it might still be necessary to look at individual items of cost.
In the course of preparation of the matter for hearing, Mr Purdon indicated that objections were taken to most, if not all, of the individual items of costs. In order to accommodate this, I directed that detailed schedules be prepared setting out the individual items of costs and the objections to each. This took a considerable amount of time and is the main reason why it took so long for the matter to come on for final determination.
In the course of preparing the matter for trial, Mr Purdon commissioned and served what purported to be an expert report on quantum. The report was prepared by Ms Hayley Purdon, who is a data analyst employed by the Commonwealth Public Service. She has a degree in science (psychology) and a certificate in data analysis. She also happens to be Mr Purdon's granddaughter. The report expressed the opinion that the bills contained inconsistences and patterns of charging which "should have been identified" by anyone reviewing the costs.
There were obvious difficulties with the admissibility of Ms Purdon's report, which included what opinion she was actually advancing, and whether she was relevantly an expert at all. At the hearing, Mr Langenheim, for Mr Olsen, did not seek to tender the report. In his written submissions he asked for the Court to refer WMD's bills for assessment.
When I asked Mr Langenheim about the quantum issue in oral argument, he referred me to Mr Purdon's objections in the schedules. But when I asked him for his own submissions in support of those objections, he was unable to formulate any. As I understood him, Mr Langenheim accepted that I could not reasonably be expected to go through all of the individual items in the schedules and rule on each objection unaided by submissions from counsel.
In his final submissions, Mr O'Loughlin emphasised that Mr James had, at considerable expense, complied with the Court's directions to analyse the costs down into individual items in the schedules. As I understood his submission, Mr O'Loughlin invited me to ignore Mr Purdon's objections, unsupported as they were by any submission.
But Mr O'Loughlin did still accept that the Court might ultimately conclude that, for one reason or other, not all of the costs were recoverable. Against that possibility, he proposed the idea of the Court fixing any costs recoverable from the estate as a lump sum or "capped" amount. The Court's powers under Civil Procedure Act 2005 (NSW), s 98(4), was said to be sufficient for this purpose. This proposal was enthusiastically taken up by Mr Langenheim for Mr Olsen.
In my view, however, the idea raises its own difficulties. My initial reaction to the submission was that s 98 deals with costs awarded inter partes, not the classification of costs as proper expenses of a trust estate. I sought submissions from the parties as to whether s 98(4) is available to fix a "capped" indemnity in a case such as this. All parties who made submissions on the point agreed that it is. But the supplementary submissions have not assuaged my doubts.
The parties relied on the practice of capping costs in the family provision jurisdiction. That practice is clearly established: see Nudd v Mannix [2009] NSWCA 327 at [26]-[27] and Baychek v Baychek [2010] NSWSC 987 at [17]. But in each of those cases, what was capped was the plaintiff's entitlement to costs inter partes. Clearly s 98(4) is available in proceedings between the plaintiff as claimant and the executor as defendant. But it is another thing to say that s 98(4) extends to fixing an amount which can be charged by the executor to the estate.
The judgment in Nudd v Mannix points up the problem. The Court observed that making an order which capped the plaintiff's costs would potentially leave the plaintiff liable to meet her additional solicitor/client costs out of her own pocket. To meet this problem an undertaking was obtained that no additional costs would be charged: at [33]. It is notable that the Court did not assert a power directly, by order, to limit the solicitor/client costs recoverable. And if s 98(4) cannot be used to cap a party's own solicitor/client costs, then it is hard to see how it could be used to cap the costs a trustee client can recover from the trust fund.
I was also referred to the decisions in Harvey v Barton (No 4) [2015] NSWSC 809 and O'Hearn Lawyers v Barker [2020] NSWSC 131. In Harvey, an order fixing a capped amount by way of recovery from a trust fund was made by Slattery J under s 98(4), but there appears to have been no contest about the Court's power to make such an order under that enactment. In O'Hearn, Beech-Jones J ultimately relied upon the Court's separate powers under the Rules with respect to monies in Court.
But even if s 98(4) is not available, the summary power to quantify costs exercised by the English Court of Appeal in Re Beddoe might be used to achieve a similar result in some cases. Given the conclusions which I have reached, it is not necessary to consider this question further.
I have found that Mr James' own costs of the dispute with Mr Olsen, up to November 2013, were, in principle, proper and reasonable. The question arises whether I should now order some sort of assessment. I am disinclined to do so. While the costs have never been assessed and the evidence does not establish that they were in fact chargeable to Mr James in accordance with WMD's costs agreement, the practical reality is that they were accepted by Mr James and paid out of the estate. Any party interested in challenging individual items of cost has had ample opportunity to do so. Accordingly, I propose to allow the full amount of WMD's fees from October 2012 to November 2013. Based on the figures in SDR Brown's moderation, the amount involved appears to be about $16,000, but the precise figure will need to be ascertained.
Mr O'Loughlin's complaint about the costs incurred in preparing the schedules of costs, which ultimately were wasted, has considerable force. But the quantum issue only arose by way of fall-back answer to the claim made by Mr James. I do not think it would be right to see the task of preparing the schedules as having been part of the administration of the estate. The costs of that task were incurred in order to meet a defence advanced to Mr James' claim for indemnity, a claim which (apart from some, but only some, of the pre-litigation fees) I have rejected.
Mr O'Loughlin's complaint may come into play as part of determining the costs orders to be made, as between the parties, with respect to the costs of the proceedings since February 2018. But it does not affect my conclusion that none of Mr James' own costs of these proceedings are recoverable from the estate.

Cross-claim

Mr James' claim for recovery of the interim distributions still held by the residuary beneficiaries was put in two ways. The first was on the basis that the payment of the distributions involved a mistake. This was a common law restitutionary claim. The other basis for the claim was in equity, under the principle in Re Diplock [1948] 1 Ch 465.
It is convenient to take the equitable basis of the claim first. The principle allows for recovery of monies which have been paid to a person as a beneficiary of an estate when that person turns out not to have had an entitlement to those monies. It does not depend upon demonstrating some sort of mistaken belief accompanying the distribution; it is enough that the recipient has received more than he or she was actually entitled to.
But in Re Diplock the plaintiffs were the next of kin who should have received the monies in question, not the executors who wrongly paid those funds out. In confirming the principle on appeal, the House of Lords expressly stated that the next of kin had no entitlement until they first exhausted their rights against the executors: Ministry of Health v Simpson [1951] AC 251 at 267-268.
This means that the claim is not available in the present case for two reasons. First, on my findings the allowable expenses of the estate will be such that the residue will exceed $440,000 by a significant margin. If the estate is replenished by Mr James in accordance with those findings, the residuary beneficiaries who have not received interim distributions will do so, and no question of recovering overpayments will arise. Secondly, if the estate is not replenished and Wollongong Hospital and GDA turn out to have been overpaid, any claim for repayment would be by the underpaid beneficiaries. Mr James as executor would not even be a necessary party: Ministry of Health v Simpson at 270.
I turn now to the restitution claim. All of the recipients resisted the claim on the ground that there was no relevant or operative mistake. But Mr Langenheim also submitted on behalf of Mr Olsen that he had a defence of change of position (presumably associated with having spent the money). This defence was not pleaded nor was any evidence put forward before me to support it. Instead, Mr Langenheim submitted that Mr Olsen should have an opportunity to put on evidence to justify the defence in due course.
All of the recipients appeared to accept that, subject to any defences, if the claim was made out then the monies would have to be repaid. But GDA's written submissions argued that interest on its repayment should only start running after it had had an opportunity to repay first. This provoked a response from Mr O'Loughlin to the effect that interest should be awarded from May 2018, when demand for repayment was made.
It is convenient to deal first with the claims against the two charities. Both of these payments were made in November 2013. In each case it was alleged that the payment was made on the "mistaken belief" that an interim distribution of $440,000 would leave the estate with sufficient funds to pay the remaining expenses of administration.
Even without direct evidence, it is clear enough that the November 2013 payments were indeed made on this basis. But that does not necessarily mean that there is an entitlement to restitution on the ground of mistake.
In order to sustain a restitutionary action, the mistake need no longer be a mistake of fact. It may be a mistake of law instead: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at [376]. But whether of fact or law, it must still be a mistake as to an existing state of affairs. A mistaken assumption or belief about what will happen in future is not a mistake for the purposes of the action: Strang Patrick Stevedoring Pty Ltd v Owners of the MV Sletter (formerly the Hibiscus Trader) (1992) 38 FCR 501 at 524; see also Mason, Carter and Tolhurst, Mason & Carter's Restitution Law in Australia (3rd ed, 2016, LexisNexis Butterworths) at [431].
The simple fact is that at the time the November 2013 distributions were made to the charities the estate had ample funds to make a distribution of $440,000. There was no mistake at the time. All that happened was that the payment of fees to WMD later depleted the estate to the point that it lacked funds to pay the remaining distributions in full.
The difficulty for Mr James' case is illustrated by his position on interest. The payment was made in November 2013 but Mr James claims interest only from May 2018. A cause of action for recovery of money had and received arises, in the case of a mistaken payment, when the payment is made: Torrens Aloha Pty Ltd v Citibank NA (1996) 65 FCR 39 at [596]. There is no room in the mistake doctrine to allow the payer to "wait and see" and then recover later if the "mistake" is falsified by subsequent events. Either a payment is a mistake when it is made, in which event it is recoverable immediately, or it is not a mistake at all and no action is available. The latter is the case here.
The evidentiary position concerning the 2016 payment to Mr Olsen is clearer. There is direct evidence both in the form of Mr James' affidavit and the letter of 5 October 2016 seeking repayment that a mistake had been made.
WMD's calculations were also clearly wrong. They took no account of the need to pay Mr Sullivan and RFDS their shares of the $440,000 interim distribution. Furthermore the payment was calculated on the basis that the net value of the estate was $509,203. On that basis, Wollongong Hospital and Mr Sullivan were entitled to an extra $17,301 and GDA and RFDS were entitled to an extra $8,651. This also appears to have been overlooked.
It is very difficult to understand how these mistakes could have been made in the first place and then "discovered" so rapidly. It was suggested in argument that it could be because of WMD's haste to ensure, following the moderation, that a payment was made to Mr Olsen. But there is no evidence of this.
Mr Langenheim submitted on behalf of Mr Olsen that there was no mistake; all Mr James (through WMD) had done was to "take the risk" of overpayment. But the difficulty with this is that Mr Langenheim did not challenge Mr James' affidavit evidence. The submission also leaves out of account the fact that the calculations are plainly incorrect.
In these circumstances, I think, despite the exiguous evidence, that it has been established that the payment involved a mistake as to the then existing circumstances. But Mr Olsen was in fact entitled to payment of $110,000 (plus interest on that sum from November 2013 down to the date of payment). All Mr James can recover is the difference of $17,301, together with an adjustment for interest calculated on the larger amount.

Further administration orders

The claim against the two charities which withheld the payment of the interim payments made to them has failed. Mr Olsen will also be entitled to retain his interim payment of $110,000 together with interest on it. In accordance with Mr James' duty to act fairly and impartially between the beneficiaries, he must now make equalising interim payments to RFDS and to Mr Sullivan.
Mr Sullivan's payment should be calculated as $110,000 plus interest from November 2013, giving credit for the $20,000 received in April 2017. RFDS should receive back its $55,000, together with interest from September 2015 when it repaid that amount at WMD's request. While Mr James will be entitled to charge the estate for the principal amounts, the interest (including the interest allowed to Mr Olsen) results from Mr James' breach of trust and will have to be paid by him personally.
I have allowed WMD's fees for the period up to November 2013 as a charge to the estate. The rest of the fees paid to WMD must be repaid. Although most of the costs would have been taken directly by WMD from the assets of the trust, in law it is Mr James as the executor who is responsible for the incurring of the costs and the primary obligation to repay falls on him. The amount will need to be ascertained. Interest will need to be paid from the date on which the fees in question were paid.
There remains Mr Olsen's complaint about the failure to prepare and submit accounts. The Court has power to make such an order, but I am disinclined to do so unless there is something specific to be gained from it. The figures for the amounts realised for the assets of the estate and for the non-legal administrative costs were presented in the evidence. All interested parties have had an opportunity to challenge those figures. None of them has done so. In the circumstances, I do not propose to require any formal accounting process.
This leaves one other issue. As we have seen, the value of Mr James' three per cent legacy was calculated by WMD based on the estimated value of the Kembla Street property recorded in the probate, being $715,000. As it happened, the net amount realised by that property was considerably less. It is not clear to me whether the amount of the legacy was correctly calculated by reference to the estimate rather than by the actual amount received. If it was to be calculated in accordance with the estimate, arguably it should have been somewhat higher because of the additional assets realised which should have been the subject of an updating affidavit of assets. Nor is it clear whether administration costs should be taken into account. I will give the parties an opportunity to present submissions on this question.
The result of these proceedings has been a disaster for Mr James. On the evidence, he took on his duties as an executor as a family friend of the deceased and appears to have acted throughout in perfect good faith. He now finds himself being ordered to pay out of his own pocket for hundreds of thousands of dollars awarded against him as a result of the "settlement" of Mr Olsen's claim and hundreds of thousands of dollars more taken by his solicitors out of the estate, to say nothing of interest and further cost liabilities. To add insult to injury, his own legacy has been applied to cover costs of WMD which were disallowed as impermissible.
Mr James' good faith is no answer to the claims for which he is legally responsible as executor. But his liabilities all appear to result from steps taken on his behalf by WMD which can now be seen to have been erroneous or ill-advised. Indeed, the whole course of the administration as revealed by the evidence causes one to wonder whether any proper consideration was ever given on WMD's part to Mr James' interests. There is an obvious potential for claims by Mr James against WMD for damages or compensation to cover his liabilities.
I have considered whether I should require WMD to show cause as to why compensatory orders should not be made against it pursuant to the Court's summary powers under the Civil Procedure Act, s 99. Those powers would allow the Court to order WMD to indemnify Mr James against his liability for the other parties' costs of these proceedings (including the costs awarded to Mr Olsen under the February 2018 "settlement"), if satisfied that it was WMD's fault that those costs were incurred. Mr James could also be relieved of liability to WMD for his own costs of the proceedings. But s 99 would not extend to relieving Mr James of his liability for WMD's fees for work done between November 2013 and the commencement of proceedings, or to compensating Mr James for his obligation to pay interest to the estate and to beneficiaries.
I think there is no alternative but to allow WMD an opportunity to consider its position, and, if that does not result in an indemnity to Mr James, to allow Mr James an opportunity to obtain independent advice and decide whether to bring his own cross-claim against WMD in these proceedings. The monetary judgments against Mr James, once their quantum is ascertained, may need to be stayed to allow that to happen.

Conclusions and orders

I have concluded that: 1. Mr Olsen's claim for damages for trespass, which has not been pursued, should be formally dismissed; 2. Mr James' claim for indemnity out of the assets of the estate for the costs incurred by him in his dispute with Mr Olsen succeeds for the period up to November 2013, but otherwise fails, and, to the extent that those costs have been paid out of the estate to WMD, the amounts paid must be paid back to the estate, together with interest; 3. Mr James' claims for repayment of the distributions made to Wollongong Hospital and GDA fail; 4. Mr James' claim for repayment of the distribution paid to Mr Olsen succeeds in the amount of $17,301 (together with an interest adjustment), plus interest from the date of receipt; 5. Mr James must pay make-good distributions to Mr Sullivan of $90,000 and RFDS of $55,000, plus interest; 6. I will invite further submissions on the quantum of the legacy to which Mr James is entitled under the will; 7. I will give Mr James an opportunity to consider whether to make a claim against WMD for indemnity against the liabilities in this judgment by way of damages or compensation.
It will be necessary to determine the precise amount of WMD's fees which have been paid from the estate and must be repaid. Interest will also have to be calculated on this amount and the other sums which I have found in this judgment to be payable. I will adjourn the proceedings for a short time to allow the figures to be calculated and a minute of order drawn up to reflect my decision. The minute of order should also deal with the costs of the proceedings, to the extent not already dealt with in the February 2018 "settlement". If there is any dispute, I will hear further argument.
The orders of the Court are:
Adjourn the proceedings for 14 days or such other period as may be arranged with my Associate.
Direct that the defendant/cross-claimant confer with the other parties and, not more than two days before the adjourned hearing date, bring in a minute of order giving effect to this judgment and dealing with costs.

Amendments 19 October 2020 - amend [176] by deleting "at Court rates" 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: 19 October 2020

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