Judgment - EX TEMPORE
Revised from transcript; issued 20 October 2020
This matter has returned to Court following the judgment I delivered on 5 August 2020: Olsen v James [2020] NSWSC 1015. I must now make final orders in the proceedings reflecting the conclusions which I reached in my judgment.
There are five elements to the orders which I need to make. These elements have been the subject of discussion between the parties, and a hearing before me which took place on 7 October.
The first element of the orders is not contentious. As I recorded in my judgment, Mr Olsen's statement of claim included a claim for trespass which was not pursued and should be dismissed. I will make an order to that effect in due course.
The second element is a declaration to reflect the conclusion that I reached on the scope of Mr James' entitlement to indemnity out of the assets of the estate for legal costs and liabilities.
The detail which needed to be worked out concerns Mr James' claimed entitlement to indemnity for legal costs incurred in the administration of the estate, including the dispute between himself and Mr Olsen, both before and after the commencement of the proceedings and the prosecution of the cross‑claim. As I noted SDR Brown allowed the sum of $13,667 by way of moderation of the general costs of administration (excluding the dispute) which were claimed. To that should be added the sum of $2,640 which the parties agreed was a disbursement properly allowed against the estate. Thirdly, I concluded that Mr James was entitled to indemnity for costs charged to him by WMD associated with the dispute with Mr Olsen up to November 2013 (see my judgment at [177]). The parties have agreed that figure as $17,174.
The declaration will record that otherwise, Mr James is not entitled to indemnity for any of his costs. It will also record that he is not entitled to indemnity against the consent costs order made by the Court on 16 February 2018 in favour of Mr Olsen, (see my judgment at [143]) or the costs which I will award against him in this judgment (see my judgment at [140]). Nor is Mr James entitled to an indemnity against the interest amounts which I will award against him on the makeup payments which I have found he is obliged to make in favour of RFDS and Mr Sullivan (see my judgment at [175]).
The third element of the orders is to specify the amounts which I have found should be paid, and the interest on those amounts. There are four payment obligations. The first that Mr James must repay to the estate the moneys paid on account of legal costs to WMD for which Mr James is not entitled to indemnity (see my judgment at [177]). The second is that Mr James must pay Mr Sullivan $90,000 representing the unpaid portion of the interim distribution Mr Sullivan should have received in November 2013 (see my judgment at [176]). The third is that Mr James must pay RFDS $55,000 representing the interim distribution which RFDS received in November 2013 but repaid at Mr James' request in 2015 (see my judgment at [176]). The fourth is that Mr Olsen is liable to repay to the estate part of the distribution payment he received from Mr James in 2016 (see my judgment at [174]).
An issue arose between the parties as to how the interest on these payments should be calculated. Counsel for Mr James submitted that the interest rate to be used should be that which applies where the Court orders the payment of interest on a legacy under the Probate Administration Act 1898 (NSW), s 84(A). This was not accepted by the other parties, who contended that the appropriate rate was the statutory rate applicable to pre-judgment interest under the Civil Procedure Act 2005 (NSW), s 100.
So far as the interest rate which should be applied to the reimbursement of the estate by Mr James is concerned, I think the answer is clear. The amount which I propose to award reflects what I have concluded was a breach on Mr James' part in paying amounts for which he had no right of indemnity of the estate. It is an ordinary case of breach by an executor of his duties. I did not understand counsel for Mr James seriously to dispute that the statutory rate is the applicable one in such circumstances.
There is more of an argument so far as the payments to RFDS and Mr Sullivan are concerned. Superficially, these appear to be payments of legacies. But on analysis, I do not think that appearance is correct.
The amounts which I am ordering Mr James to pay are amounts which I have concluded he was obliged to pay by way of preliminary distribution, having regard to the state of the estate's finances and the fact that payments were made to some of the beneficiaries at that point. The reason why I am ordering the payments is that I have concluded that, in failing to pay Mr Sullivan and in producing repayment from the RFDS, Mr James failed in his obligations as an executor to treat the beneficiaries equally.
Thus the interest I am awarding is not interest on payment of a legacy at all. It is interest by way of compensation on a preliminary payment which I consider Mr James was obliged, as executor, to make. Accordingly, I think that the statutory rate is applicable.
This conclusion is reinforced by the consideration that so far as Mr Olsen is concerned, the payment goes the other way. The claim made by Mr James against Mr Olsen which I upheld was a payment for money had and received. It could hardly be suggested that anything other than the statutory interest rate was applicable to such a claim. If Mr Olsen is obliged to pay interest on the repayment at statutory rates, it seems only right that Mr James should pay interest on short-payments at the equivalent rate.
This conclusion as to the applicable rate allows the figures for the amounts to be paid to be calculated. The parties agree that the amounts including interest are: for the reimbursement of the estate, $296,417; for Mr James' payment to Mr Sullivan, $129,635; for Mr James' payment to RFDS, $70,069; and for Mr Olsen's repayment to the estate, $1,475.
The fourth element of the orders concerns the costs of the proceedings inter partes. There were two issues debated before me.
The first issue was what costs order to make as between Mr James and Mr Olsen, both on the principal proceedings and on the cross claim (since 16 February 2018). Counsel for Mr James contended that there should be no order as to the costs on the principal proceedings. Mr Olsen should pay Mr James' costs of the cross claim against him.
Counsel referred to unnecessary costs incurred on the principal proceedings as a result of Mr Olsen's solicitor, Mr Purdon, obtaining the supposedly expert report from his granddaughter, Ms Hayley Purdon and from making objections to the recovery of costs which were not ultimately pressed (see my judgment at [146] and [149]). Counsel submitted on the cross-claim that although the amount recovered was small, Mr James had succeeded. Counsel pointed out that Mr Olsen resisted making any repayment whatever and does not appear to have made any offer to resolve Mr James' claim which eventually succeeded so far as it concerned the overpayment which was made.
I did not accept counsel's submission so far as it concerns the cost of the principal proceedings. In those proceedings, Mr James was seeking indemnity. Had he succeeded in his claim, there would have been virtually nothing for Mr Olsen. Mr Olsen was entitled to be heard in opposition to the claim for indemnity and that opposition substantially succeeded. Although I have found that Mr James was entitled to indemnity for the costs of the dispute with Mr Olsen up to November 2013, that amount was well under 10 per cent of the amount for which indemnity was claimed.
I agree that the costs associated with the preparation of Ms Purdon's report and the objections (and the schedules which had to be prepared because of the objections) were wasted and should be excluded from any costs order. But otherwise, Mr James should pay Mr Olsen's costs of the principal proceedings from February 2018 onwards. I note in passing that Mr Purdon undertook not to charge his client, Mr Olsen, for the costs of the excluded matters and I will formally note that undertaking in the orders which I make.
So far as the cross-claim is concerned, I think the circumstances are similar. The amount for which recovery was sought was $141,000 together with interest. The amount recovered is less than $1,500. It may well be that Mr Olsen's share in the surplus in the estate, after all repayments are made and the makeup payments are made in favour of RFDS and Mr Sullivan, will exceed that amount, so that on balance nothing is due.
I therefore do not propose to make a separate order concerning the cross-claim. My order in favour of Mr Olsen will cover both the costs of the principal proceedings and the costs of the cross-claim.
The second question concerned the costs of RFDS of the cross-claim. Counsel for Mr James pointed out that in the end, no repayment was sought from RFDS. But as I have already pointed out, the indemnity claim would have had a significant impact on the estate. Although, in the end, no recovery was pressed from RFDS. RFDS still had an interest on being heard on the indemnity question.
Arguably, RFDS (and the other charities and Mr Sullivan) should have been joined as a defendant to the principal proceedings, so as to be heard on the indemnity question. But I do not think it is necessary to reconstitute the proceedings after the event. In my view, the proper course is to treat the indemnity issue as arising on the cross-claim and order RFDS' costs to be paid by Mr James as the unsuccessful party.
The fifth element to the orders concerns the continuation of the administration. As I noted in my judgment at [179], there was a potential issue about the calculation of a legacy of three per cent provided for in the will. WMD had calculated this legacy by reference to the estimated gross value of the estate.
I was informed by counsel for Mr James that he does wish to claim the legacy, to which, of course, he is fully entitled. Counsel submitted that the legacy was properly to be calculated as a percentage of the net residue. As this is less favourable to Mr James than WMD's approach, I do not need to consider whether that approach was correct.
This means that the amount of the legacy will not be determined until the final value of the residue can be calculated, and that can only happen once full repayment has been made by Mr James. As I have already indicated, full repayment will also result in a surplus which will need to be distributed between those entitled to it.
I interpolate that a stay of the payments under this judgment has been agreed by the parties until 20 November. That is because Mr James has commenced proceedings against WMD seeking damages or compensation by way of indemnity against the liabilities which I have found he has in this judgment. Those proceedings are of an early stage, and as I understand it, the stay has been agreed to give Mr James an opportunity to see how they are likely to develop, but apart from that stay there seems to be no reason for the continuation of the principal proceedings.
Although there will be further administration to be undertaken by Mr James, there is no need to keep the proceedings alive for the purpose of supervising his activities in that regard. Mr James will have the benefit of legal advice and there is no reason to think that now that I have determined what his liabilities are that he will not administer the remaining assets in the estate in accordance with his obligations.
Accordingly, I will make a declaration of his entitlement to the legacy on the basis identified by counsel. And I will note Mr James' continuing role as executor. The intent of this will be that once the question of any stay is resolved, the principal proceedings will be at an end and the only extant proceedings will be Mr James' new cross-claim against WMD.
(Parties addressed on the form of final orders)
The orders of the Court are:
Judgment for the defendant on the plaintiff's claim in trespass.
Declare that the defendant as executor of the estate of the Late Noel Desmond Shipp is not entitled to indemnity from the assets of the estate for:
(a) any legal costs incurred in the administration of the estate (including the dispute between the defendant and the plaintiff, both before and after the commencement of the proceedings, and the prosecution of the cross-claim) except for:
(i) administration costs of $13,667 in accordance with the moderation by Senior Deputy Registrar Brown;
(ii) $2,640 in disbursements agreed between the parties; and
(iii) sum of $17,174 being costs associated with the dispute up to November 2013.
(b) the costs payable to the plaintiff pursuant to the orders of the court on 16 February 2018;
(c) costs payable pursuant to orders 5 and 7 below; and
(d) the interest component of the payments ordered at 3(b) and 3(c) below.
Order that:
(a) the defendant reimburse the estate in the sum of $296,417;
(b) there be judgment in favour of the Fourth Cross-Defendant against the defendant in the sum of $55,000 together with interest of $15,069;
(c) order that there be judgment in favour of the Fifth Cross-Defendant against the defendant in the sum of $90,000 together with interest of $39,635; and
(d) Order that there be judgment in favour of the cross-claimant in his capacity as executor of the estate against the First Cross-Defendant in the sum of $1,475.
Order that the Plaintiff's claim and the first cross-claim be otherwise dismissed.
Order that the defendant pay the plaintiff's costs of the proceedings (including the plaintiff's costs as First Cross-Defendant to the Cross-Claim) from 16 February 2018 onwards except for:
(a) costs associated with the preparation of the report of Hayley Purdon; and
(b) costs associated with the individual objections to items of costs notified by the plaintiff's solicitors.
Note the undertaking of the plaintiff's solicitors not to charge the plaintiff for any of the costs excepted from Order 5.
Order that the cross-claimant pay the Fourth Cross-Defendant's costs of the cross-claim.
No order as to the costs of any other party.
Declare that:
(a) the defendant is entitled to pay out of the estate the principal sums referred to in Orders 3(b) and (c); and
(b) the defendant is entitled under the will of the Late Desmond Noel Shipp to receive a legacy of three per cent of the net residue of the estate.
Note that the defendant will continue to administer the estate of the Late Desmond Noel Shipp as executor and will deal with any surplus in the estate after making the payments referred to in Order 3(a), (b) and (c) in accordance with the terms of that will.
Order that enforcement:
(a) of payment under Orders 3(a) to (d); and
(b) of payment of the amount of costs under Orders 5 and 7 once quantified; and
(c) of payment under the costs certificate issued pursuant to the costs order made on 16 February 2018,
be stayed up to and including 4pm on 20 November 2020.
Order that the proceedings be relisted for further mention at 4pm on 18 November 2020.
I grant liberty to apply with respect to the stay or otherwise with respect to the enforcement of these orders on 2 days' notice.
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Decision last updated: 20 October 2020