Plaintiff v Defendant

2 Probate of the deceased's will dated 31 July 1996 ('the will') was granted to the defendant, who is the deceased's sister, on 24 September 2018. The plaintiff is the sole beneficiary of the deceased's estate.

3 By originating motion and summons filed 18 March 2019, the plaintiff sought orders for: (i) the removal of the defendant as executor and trustee and for herself to be appointed as the administrator with the will annexed and trustee of the estate, pursuant to s 34 of the Administration and Probate Act 1958 and s 48 of the Trustee Act 1958; (ii) consequential vesting orders; and (iii) an order that the defendant pay the costs of the proceeding, without indemnity from the estate.

4 On 12 April 2019, consent orders were made to the effect that the defendant be removed as executor and the plaintiff be appointed as administrator with the will annexed, with the question of costs to be determined on the papers.

5 In support of her application for removal of the defendant, the plaintiff exhibited correspondence between the solicitors for the plaintiff and defendant in the period from the deceased's death in January 2018 to December 2018, all of which preceded the commencement of the proceeding in March 2019.

6 In February 2018, the plaintiff claimed that as the defendant had 'evinced a close relationship to Ms Clarke and a negative attitude towards [the plaintiff]', she was 'unable to act impartially' and invited the defendant to consider renouncing probate.

7 The defendant did not renounce and, on 1 May 2018, advertised her intention to apply for a grant of probate.

8 On 28 May 2018 and 26 June 2018, the plaintiff asked for copies of the application for the grant of probate, and repeated her request that the defendant renounce so that the plaintiff could apply for a grant of letters of administration with the will annexed.

9 On 13 August 2018, the defendant filed the application for a grant of probate of the will. The inventory of assets filed with the application recorded a net value of the estate of $753,448.77, mainly comprising properties located in San Remo ('the San Remo property') and Greenvale ('the Greenvale property') valued at a total of $1.1 million, and debts owing to the Commonwealth Bank of $336,996.21.

10 On 13 September 2018, the plaintiff asked the defendant for another update on the probate application and informed her that she had to defer her tertiary studies for a year because the estate had not been administered. On 18 September 2018, the defendant responded, stating that the probate application was subject to a requisition that would be answered in a few days, and that the solicitor with carriage of the matter was unwell.

11 On 24 September 2018, probate of the deceased's will was granted to the defendant.

12 On 9 October 2018, the plaintiff's solicitor sent a lengthy letter to the defendant's solicitor directed towards the contents of the inventory filed in the application for probate. The plaintiff questioned the veracity of the value of the real properties that had been included in the inventory, the exact amount owing to the Commonwealth Bank, and the omission of certain assets from the inventory, such as business assets, motor vehicles and life insurance payouts. She requested a reply within six days of the date of the letter.

13 On 12 October 2018, the defendant's solicitor informed the plaintiff's solicitor that enquiries would be made of the Commonwealth Bank and the life insurance company so that the mortgage and life insurance claims could be finalised. The defendant also informed the plaintiff that Ms Clarke had foreshadowed making a claim for provision from the estate, and the defendant's solicitor had told Ms Clarke to engage legal representation to act on her behalf. The plaintiff responded on 18 October 2018 opining that it was unlikely that Ms Clarke would be successful in her claim.

14 On 19 October 2018, the plaintiff informed the defendant that the inventory did not include the deceased's interest in his stepmother's estate.

15 On 16 November 2018, having received no response from the defendant's solicitor, the plaintiff's solicitor indicated that the plaintiff intended to commence an application for removal of the defendant as executor and for an independent administrator to be appointed.

16 On 20 November 2018, the defendant's solicitor responded seeking further information regarding the deceased's stepmother's estate from the plaintiff.

17 On 22 November 2018, the plaintiff's solicitor provided this information and repeated the request that the estate be administered, so that the plaintiff could live in an estate property as she was in financial hardship.

18 On 4 December 2018, the defendant's solicitor informed the plaintiff's solicitor that the defendant was obtaining counsel's advice in relation to Ms Clarke's claim and the plaintiff's entitlement to obtain possession of the estate properties.

19 On 7 December 2018, the plaintiff's solicitor reiterated the plaintiff's position that Ms Clarke did not have a strong claim for provision from the estate, and that the defendant's hitherto unexplained delay in applying for probate had the effect of granting Ms Clarke more time to bring her provision claim. This was despite Ms Clarke having notified the defendant of her intention to bring a claim when the deceased died in January 2018.

20 On 16 March 2019, the plaintiff issued this removal proceeding.

21 On the first return of the proceeding on 29 March 2019, the proceeding was adjourned to 10 April 2019 to allow the defendant time to consider her position.

22 At the directions hearing on 10 April 2019, the plaintiff and defendant submitted orders by consent for the defendant to be discharged as executor and for the plaintiff to be appointed as administrator and trustee, reserving the issue of costs. Counsel for Ms Clarke appeared to inform the Court that a claim for provision had been issued but not served, pending the outcome of this proceeding. The orders also provided for the defendant to file an account of her administration of the estate by 8 May 2019, and to provide the plaintiff with all documents relating to the administration of the estate within seven days of the date of the order and adjourned the proceeding to 10 May 2019.

23 On 8 May 2019, the plaintiff's solicitor wrote to the defendant's solicitor requesting documents that had not been delivered to the plaintiff, including certificates of title, fire insurance documents, numerous vehicle registrations and superannuation documents, as well as keys to the two real properties. On the same date, the defendant's solicitors replied and disclosed that the defendant had not secured assets of the estate, that she was not in possession of the titles to the properties, the keys, the fire insurance details or details of the registrations of the various vehicles.

24 Also on 8 May 2019, the defendant filed her administration account, which revealed that the San Remo property and the Greenvale property were yet to be called in and that a disbursement of $6,352.74 had been paid by the estate described as 'partial payment of litigation costs and barrister's fees'.

25 In her affidavit sworn 17 May 2019, the defendant deposed that the certificates of title to the properties were with the Commonwealth Bank pursuant to a mortgage held by the bank, and the keys to the properties were, and had always been, in the possession of Ms Clarke.

26 On 10 May 2019, orders were made for the defendant to deliver up documents and file an affidavit in respect of the delivery of those documents by 17 May 2019 and directed the parties to file submissions dealing with the question of costs.

27 On 17 May 2019, the defendant filed an affidavit of documents where she deposed that her solicitors had located and provided to the plaintiff nine additional documents concerning life insurance and superannuation with AMP. The reason given by the defendant for not providing the documents earlier was that it was an 'oversight'.

28 By his affidavit sworn 27 August 2019, the plaintiff's solicitor deposed as follows:

(a) the defendant failed to claim or request that the deceased's life insurance of $834,724 and his superannuation be paid into the estate. The life insurance was paid to Ms Clarke;

(b) the inventory of assets did not record any of the deceased's motor vehicles or boats estimated at around $313,000 and registered in the name of the deceased. Ms Clarke's solicitor acknowledged that the deceased owned the vehicles and boats; and

(c) the administration account failed to include any rent paid for the estate properties since the deceased's death.

29 On 30 August 2019, the plaintiff filed her submissions on costs.

30 On 9 December 2019, the defendant's submissions on costs were filed, as well as an affidavit sworn by the defendant's solicitor on the same date. He deposed that:

(a) all the documents held by the defendant in relation to the administration of the estate had been provided to the plaintiff in April and May 2019;

(b) the motor vehicles alleged by the plaintiff to be omitted from the inventory were jointly owned by the deceased and Ms Clarke, and therefore were not assets of the estate;

(c) the defendant was aware that the San Remo property was tenanted, but did not know how much rental income was received in respect of the property;

(d) the Greenvale property was occupied by Ms Clarke's son, and had been for some time, with the knowledge of the deceased, but the defendant did not know if rent was being paid for this property; and

(e) the delay in the application for probate was due to the defendant's change in solicitors in March 2018, causing the defendant's solicitors to only obtain the will on 30 April 2018, and the information for the probate application on 21 May 2018, from the previous firm of solicitors.

31 On 14 February 2020, the plaintiff filed her submissions in reply.

32 The plaintiff seeks orders that the defendant: (i) bear her own costs, without reimbursement from the estate; (ii) personally pay the plaintiff's costs on an indemnity basis; and (iii) repay the amount of $6,7532.74 paid from the estate for the defendant's legal fees.

33 The plaintiff submitted that, had the defendant fulfilled her duties as an executor, the removal application would not have been necessary and the administration of the estate would not have been delayed. The defendant's failure to administer the estate properly and failure to answer the plaintiff's questions concerning the assets of the estate caused the removal proceeding.

34 The defendant also failed to make any claim on the deceased's life insurance or superannuation, failed to secure the deceased's motor vehicles, was 'not in possession' of the estate's two real properties, did not have the fire insurance details for the properties, and did not disclose the details of 18 months' rent for the estate's two real properties.

35 After the commencement of the proceeding, the defendant failed to comply with orders to deliver up documents, albeit the plaintiff records that the defendant delivered some documents to the plaintiff on 18 April 2019, and further documents were disclosed by the defendant on 17 May 2019, following the appearance in Court on 10 May 2019.

36 The defendant seeks orders that have the effect that she not incur any cost penalty or liability in respect of the costs, whether on an indemnity or standard basis.

37 In support of her position, she referred to the case of Re Minenko; Minenko v Raines, where Moore J stated:

In determining the question of costs where a proceeding is unresolved without a finding on the merits, the Court may consider whether a ... defendant acted reasonably in their response to the proceeding.[1]

38 The defendant submitted that her agreement to be discharged as the executor of the estate should be recognised as prudent and reasonable, and that this resulted in an inevitable saving of expense and inconvenience, and relieved the Court of 'the barren exercise of determining the peripheral issues' raised in the originating motion.

39 The plaintiff repeated his submissions that the delays, deficiencies and improper conduct were made out, with no adequate explanation provided by the defendant, and that in capitulating to the orders sought by the plaintiff, the defendant only received the benefit of avoiding further costs to herself. The plaintiff relied on the judgment of Burchett J in One.Tel Ltd v Commissioner of Taxation ('One.Tel'),[2] submitting that the present case involves a 'clear winner' in which one party, after litigating for some time, effectively surrenders to the other, and costs must follow the event.

40 Costs are at the discretion of the Court, unless otherwise provided by an Act or the Rules.[3] The prima facie position in respect of costs in litigation is for standard costs to be ordered by the Court, with the Court having the discretion to award costs other than on the standard basis. The usual order as to costs is that costs follow the event and a successful party is entitled to an award of costs in its favour.[4] The relevant 'event' is success in the action or on particular issues.[5] The unsuccessful party bears the liability for the costs of the unsuccessful litigation.[6] The central principle is to make an order that is fair and just between the parties in the circumstance of each case.[7]

41 The applicable principles in circumstances where a court is deprived of a hearing on the merits were considered by the Court of Appeal in Asta Developments (Aust) Pty Ltd v Amasya Enterprises Pty Ltd ('Asta Developments'):

In Australian Securities Commission v Aust-Home Investments Ltd, Hill J summarised the following principles concerning the exercise of a court's discretion to order costs where the parties to a proceeding no longer wish to continue:

(1) Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order.

(2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial. ...

(3) In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them.

(4) In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation.

(5) Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted.[8]

42 In Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin ('Lai Qin'), McHugh J endorsed this approach:

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. ... In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. ...

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. ...

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases. [9]

43 When referring to cases where 'one party was almost certain to have succeeded',

his Honour cited South Queensland Electricity Board v Australian Telecommunications Commission Qld,[10] where the applicant sought to challenge a decision by the respondent. Although there was no hearing on the merits, the costs incurred were referred to as 'very substantial' and principally incurred in relation to discovery.[11] The submissions of the parties as to costs, which relied largely upon the documents discovered, persuaded Pincus J that 'the applicant had, on the face of it, a fairly strong case - one more promising than that of the respondent'.[12] That finding, in addition to the fact that the trial did not go ahead because of a change of mind by the respondent, led his Honour to conclude that the respondent should pay 80 per cent of the applicant's costs.[13] Such cases, however, have been described as 'rare',[14] involving questions of law and clear, undisputed facts.[15]

44 The above principles were referred to in Re Bovill; Bovill v Bovill, which was cited in Re Minenko; Minenko v Raines, the case relied on by the defendant.[16]

45 In One.Tel, Burchett J considered the principles identified in Lai Qin and sought to further distinguish cases in which:

one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs.[17]

46 Where one party effectively surrendered such that there was 'a clear winner', costs should be awarded to the successful party.[18] In the circumstances of that case, the applicant sought to have certain notices set aside. Although the respondent initially defended the application, due to difficulties in locating the instrument of authorisation upon which the notices had been issued, it was eventually conceded that the notices should be set aside.[19] Both Australian Securities Commission v Aust-Home Investments Ltd and Lai Qin were distinguished on the basis that, in those cases, an extra-curial event had 'overtaken' proceedings.[20] On the facts of One.Tel, Burchett J awarded costs to the respondent. The approach of Burchett J has been approved by the Full Court of the Federal Court,[21] and has previously been cited in the Court of Appeal of New South Wales in support of the proposition that costs may be awarded where a judge is 'satisfied that one party has had a substantial victory and the other a substantial loss'.[22] More recently, however, in the context of discontinuance, the Court of Appeal of New South Wales has emphasised analysis of the reasonableness of the parties' conduct rather than relying upon the mere fact that a party may have achieved 'practical success'.[23]

47 An executor or trustee is entitled as of right to indemnity out of the trust for expenses properly incurred - that is, all costs except to the extent that they are of an unreasonable amount or have been unreasonably incurred.[24] Expenses and liabilities that are improperly incurred - such as acting beyond power, in bad faith or exercising power 'with an absence of care and diligence that a person of ordinary prudence should exercise' - are not caught by the right of indemnity and should be borne by the trustee personally.[25] The onus to prove that a trustee should not be indemnified rests with the party seeking to deny the right of indemnity, to demonstrate that costs have been improperly incurred.[26]

48 After the proceeding commenced, apart from a four-week adjournment for the defendant to consider her position, the defendant consented to her removal as executor of the estate and the appointment of the plaintiff as administrator with the will annexed. In addition, the usual orders were made for the defendant to file an administration account and for the delivery of estate documents to the plaintiff.

49 As a result of these orders, the substantive issues in the proceeding were finalised, leaving only the question of the costs of the proceeding to be determined.

50 This proceeding is not the type of case where, after litigating for some time, one party has effectively surrendered to the other. Nor is this a case where there is some supervening event or settlement that removes or modifies the subject of the dispute. Rather, this proceeding falls into the category of cases described by Hill J in Australian Securities Commission v Aust-Home Investments Ltd, where the Court should facilitate the conclusion of the proceeding by making a costs order in the exercise of its discretion. In those circumstances, it is appropriate for the Court to determine whether the plaintiff acted reasonably in commencing the proceeding. It is also appropriate to consider the conduct of the defendant prior to the commencement of the proceeding and whether the defendant's conduct may have precipitated the litigation.

51 The plaintiff commenced her frequent communications with the defendant regarding the administration of the deceased's estate in February 2018, a month after the deceased's death.

52 Although the defendant advertised her intention to apply for a grant on 1 May 2019, she did not file the application until 13 August 2019. The grant was made on 24 September 2018, following a requisition from the Probate Office. The defendant's conduct was far from prompt, although some allowance is made for her change in solicitor and the consequential transfer of documents and information between offices.

53 Before the grant was made, the plaintiff had informed the defendant that she was in a position of financial hardship and had deferred her tertiary studies. On 9 October 2018, the plaintiff repeated her request that the estate be administered as she was in financial distress and wanted to live in one of the estate properties. At this point, only two weeks had passed since the grant of probate.

54 On 12 October 2018, the defendant informed the plaintiff that Ms Clarke had foreshadowed a family provision claim against the estate. The fact that Ms Clarke had foreshadowed a potential claim in January 2018 did not detract from her entitlement to commence a claim within six months of the date that the grant of probate was made,[27] which would have meant that she had until 24 March 2019 to file her application. The plaintiff commenced this proceeding on 18 March 2019.

55 While it was reasonable for the defendant to proceed cautiously where it seemed that a claim for further provision was forthcoming, she failed to keep the plaintiff properly informed of her progress in calling in the assets of the estate. The foreshadowed claim should not have prevented the defendant from responding to the plaintiff's queries, providing information as to the life insurance and superannuation, and calling in the assets of the estate.

56 The defendant did nothing to call in the real estate or enquire as to any rental arrangements in relation to the two properties, including the property occupied by Ms Clarke's son. The defendant should have been further advanced with the transmissions of the ownership of the real properties from the name of the deceased to the estate, and organising rental payments from the tenants. Only in December 2018 did the defendant informed the plaintiff that she was obtaining advice in relation to Ms Clarke's foreshadowed claim and the plaintiff's entitlement to gain possession of the estate properties.

57 As a result of the above, the plaintiff held justifiable concerns about the administration of the estate by the defendant. By mid-November 2018, the plaintiff informed the defendant that she intended to commence an application to remove the defendant as executor. This step was taken in circumstances where the plaintiff's requests for information were not answered satisfactorily and where the estate was not being administered. The defendant's conduct prior to the commencement of the proceeding was a significant cause for concern.

58 In the circumstances, it was reasonable for the plaintiff to commence the proceeding for removal of the defendant as executor of the estate. Had the defendant provided the requested information, explained her delays and remedied her failure to call in the estate in a timely manner, the removal proceeding may not have been necessary.

59 After the commencement of the proceeding, the defendant complied with the orders to file an administration account and provide documents relating to the administration to the plaintiff. When the plaintiff's solicitor requested the documents and keys to the real properties that had not been delivered, he was informed that the defendant was not in possession of many of the documents and did not have the keys to the real properties as they were in the possession of Ms Clarke. Orders were then made by the Court for the defendant to deliver up the requested documents and for an affidavit to be filed by the defendant concerning her delivery of the documents. Following delivery of the further documents, the defendant simply explained that they had not initially been provided due to an 'oversight'.

60 The defendant's responses to the plaintiff's requests on substantive issues in the administration of the estate, both before the commencement of the proceeding and afterwards, were, on the whole, inadequate.

61 The defendant's consent to her removal at an early stage of the proceeding will result in a saving of expense and inconvenience, which is to be measured against the consequences of her conduct as executor. In acting in her role as executor of the estate, the defendant failed to act with the necessary care and diligence that a person of ordinary prudence in her position should have exercised in the administration of an estate. Overall, the defendant failed to carry out her executorial duties in a timely or efficient manner and she has no doubt precipitated the litigation. Accordingly, in respect of her own costs of the proceeding, the defendant is not entitled to an indemnity from the estate and should repay any monies already paid out of the estate, including any part of the $6,7532.74 appearing on the administration account. Any issue as to costs between the defendant and her advisors is an issue for the defendant.

62 Insofar as the defendant has incurred costs in obtaining a grant of probate, the defendant is entitled to her reasonable costs from the estate for obtaining the grant. However, the quantum of those costs should be assessed on the basis that the grant was obtained without delay or inaccuracies and assessed on the relevant scale.

63 The plaintiff, on the other hand, distrusted the defendant to carry out her role as executor from the beginning, as shown by her early invitation to the defendant to renounce her right to apply for probate a month after the deceased's death. While the plaintiff did have some cause for concern with the delays on the part of the defendant, it cannot be said that the plaintiff was left with no recourse but to take the step of issuing the proceeding. The early resolution of the substantive application demonstrates that the parties might have been able to resolve the issue without commencing the proceeding, once time had been allowed for Ms Clarke to consider her claim for provision. While the defendant's explanation for delay was provided at a late time, it was somewhat reasonable in the circumstances.

64 In the circumstances, the Court will order that the plaintiff bear her own costs.

(a) the plaintiff bear her own costs of and incidental to the proceeding;

(b) the defendant bear her own costs of and incidental to the proceeding personally, without recourse from the estate of the deceased, and reimburse the estate in respect of any payment of estate funds for same.

[1] [2019] VSC 644, [16], citing Re Bovill; Bovill v Bovill [2017] VSC 697, [38] (McMillan J).

[2] [2000] FCA 270; (2000) 101 FCR 548, 553-5 [6]-[7] ('One.Tel').

[3] Supreme Court Act 1986 (Vic) s 24(1).

[4] Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, 97 [67] (McHugh J).

[5] Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622, 624 (McHugh J) ('Lai Qin'); Seng Hpa v Walker [2017] VSC 320, [77] (McMillan J).

[6] Oshlack v Richmond River Council 4), 97 [67] (McHugh J).

[7] Earnshaw v Loy (No 2) [1959] VicRp 44; [1959] VR 252, 253 (Sholl J). See also GE Dal Pont, Law of Costs (LexisNexis Butterworths, 4th ed, 2018) 158-9 [6.15].

[8] [2016] VSCA 186, [25] (citations omitted) ('Asta Developments').

[9] Lai Qin (n 5) 624-5 (citations omitted).

[10] [1989] FCA 20. The corresponding Austlii citation for this case is [1989] FCA 15.

[14] Lai Qin [1997] HCA 6; (1997) 186 CLR 622, 625.

[15] Ibid. See also Jeruth Pty Ltd v Haybale Pty Ltd [2004] VSC 319, [4] (Redlich J); Ploder v Garcea [2013] NSWSC 201, [22] (Sackar J).

[16] See above [37].

[17] One.Tel (n 2) 553.

[21] Chapman v Luminis Pty Ltd [2003] FCAFC 162.

[22] Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302, [5] (Davies AJA, Mason P and Meagher HA agreeing).

[23] Ralph Lauren 57 Pty Ltd v Byron Shire Council [2014] NSWCA 107; (2014) 199 LGERA 424, 430-1 [23] (Preston CJ of LEC, Beazley P and Ward JA agreeing).

[24] GE Dal Pont, Equity and Trusts in Australia (Thomson Reuters, 7th ed, 2019) 682-3 [23.135], citing Turner v Hancock (1882) 20 Ch D 303, 305 (Jessel MR); Re Beddoe [1893] 1 Ch 547, 558 (Lindley LJ); Nolan v Collie [2003] VSCA 39; (2003) 7 VR 287, 303**-**10 [44]-[57] (Ormiston JA).

[25] Ibid, 685**-**6, citing Re O'Donoghue [1998] 1 NZLR 116, 122 (Hammond J); Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628; (2001) 188 ALR 566, 606 (Finkelstein J).

[27] Administration and Probate Act 1958 (Vic) s 99(1).