Plaintiff v Defendant

2 Prior to her death the deceased had been hospitalised from time to time as a result of her health, spending time in Peter MacCallum Cancer Centre and other hospitals. Otherwise she remained living at her home in Burwood until she went into palliative care. On 23 March 2020 the deceased was admitted to palliative care at McCulloch House, where she remained until her death two months later.

3 The defendant drew the will, as well as the deceased's two earlier wills. The defendant took instructions for the will in unusual circumstances. Two family members of the deceased initially contacted the defendant and instructed him that the deceased wished to make some urgent changes to her will as the deceased thought she was dying. The two family members were not beneficiaries under the deceased's penultimate will, however, they are legatees under the will for an amount totalling $150,000.

4 The defendant deposes to being an experienced solicitor in wills and estates, having commenced his own practice in 2003. He took instructions for the will from the deceased by telephone. The will included, inter alia, two remuneration clauses within the meaning of s 3 of the Administration and Probate Act 1958 (Vic) ('the Act'). These clauses, clauses 3 and 4 of the will, were to the effect that the defendant, as the executor of the will, would be able to charge executor's commission and remuneration fees.

5 The defendant took the will to the deceased at McCulloch House. The defendant said he advised the deceased of the contents of the will in private. This was despite the fact that he had organised witnesses for the signing of the will, one of whom was an employee of his firm and the other an acquaintance of the employee. The defendant said that he explained the concept of executor's commission to the deceased, but not the contents or meaning of clauses 3 and 4 of the will. It is common ground that written informed consent was not obtained from the deceased for the inclusion of these clauses prior to making the will or at any subsequent time.

6 On 16 July 2020 probate of the deceased's will was granted to the defendant. As well as the standard affidavit in support of the application, the defendant was required to file an affidavit deposing to his compliance with Rule 12 of the Legal Profession Uniform Law Australian Solicitors' Conduct Rules 2015.

7 The inventory of assets and liabilities filed with the application disclosed assets of $1,603,327 and a liability of $2,200, being the fee charged by the defendant for the will. The value of the assets in the inventory was incorrect as the defendant erroneously included the deceased's superannuation entitlements that were subject to a valid binding death benefit nomination. The correct gross value of the estate is $1,116,568.90, representing the deceased's home valued at $950,000, funds in bank accounts, a car and personal effects.

8 By originating motion filed 1 March 2021, and subsequently amended on 19 May 2021, the plaintiff sought orders for:

(a) the removal of the defendant as executor of the will and trustee of the estate of the deceased, and the plaintiff's appointment as administrator with the will annexed in the defendant's place;

(b) further or alternatively, a declaration that, by reason of s 65B of the Act, the defendant is not entitled to receive payment from the estate of the deceased under clauses 3 and 4 of the will, or clause 9 of the will to the extent that clause 9 relates to clauses 3 and 4; and

(c) further or alternatively, a declaration that, by reason of s 49A of the Wills Act 1997 (Vic), clauses 3 and 4 of the will are void.

9 In an agreed joint trial document filed 28 May 2021, the defendant conceded that clauses 3 and 4 of the will are void by operation of s 49A of the Wills Act and invalid by operation of s 65B of the Act. Subsequently, the parties agreed on consent declarations and orders.

10 On 14 April 2022, declarations were made that pursuant to s 49A of the Wills Act, clauses 3 and 4 of the will are void and, pursuant to s 65B of the Act, the defendant is not entitled to receive payment from the estate of the deceased under clauses 3 and 4 of the will, or clause 9 of the will to the extent that clause 9 relates to clauses 3 and 4. The proceeding was otherwise dismissed, save as to costs.

11 The plaintiff seeks that the defendant pay the plaintiff's costs of the proceeding on the standard basis, without indemnity from the estate, and the defendant pay his own costs of the proceeding, without indemnity from the estate.

12 The defendant seeks that the 'beneficiary pay the costs' and 'the executor should not pay the costs personally'.

13 The Court has broad discretionary powers in determining the costs of a proceeding, with such discretion to be exercised judicially and in accordance with recognised principles.[1] 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. Costs usually follow the event and a successful party is entitled to an award of costs in its favour.[2] The relevant 'event' is success on a discrete set of issues or in the action.[3] The liability for the costs of the litigation is borne by the unsuccessful party.[4] The central principle is to make an order that is fair and just between the parties in the circumstance of each case.[5]

14 Where a costs order is sought where there has not been a substantial contest on the merits of the proceeding, the Court may take into account a number of factors, including whether the plaintiff acted reasonably in commencing the proceeding, whether the defendant acted reasonably in their response to the proceeding and whether any relief has been granted in the proceeding, interlocutory or otherwise.[6]

15 Ordinarily, an executor or trustee is entitled as of right to indemnity out of the trust or estate for expenses properly incurred, that is, all costs except those that are of an unreasonable amount or have been unreasonably incurred. Expenses and liabilities improperly incurred, such as acting in bad faith, beyond power, 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 shall be borne by the trustee personally.[7]

16 The defendant deposed to having commenced his own practice in 2003 and being experienced in the area of wills and estates. He submits that the plaintiff's application was unnecessary because his letter dated 30 July 2020 ('the 30 July letter') to the plaintiff's solicitor dispelled any doubts as to whether and on what basis he would seek a commission or other form of remuneration from the estate of the deceased.

17 In the 30 July letter, the defendant admitted that he was not aware of the requirements of s 65B of the Act at the time the deceased signed the will, that he did not comply with those requirements at that time and that the deceased did not provide 'written informed consent' to the inclusion of the remuneration clauses in the will as required by s 65B of the Act.[8] He then sought to justify the absence of consent on the basis that it would have been 'callous' of him to burden the deceased with the necessary information about the will and the effect of the relevant clauses. While the defendant conceded that the effect of his non-compliance with s 65B was that he could not rely on clauses 3 and 4 of the will to seek remuneration from the estate, he did not say that he would not rely on the clauses to seek commission or remuneration from the estate. Instead, his response concerning his intentions regarding a claim for commission or other remuneration from the deceased's estate was vague.

18 His response left open the possibility that he would seek payment pursuant to clause 3 of the will. On page 2 of the 30 July letter, the defendant described the plaintiff's 'inquiry' as being 'whether [he] will elect to seek remuneration of 5% of the capital and income prescribed by clause 3 of the Will given the statutory conditions imposed by s 65B of the [Act]', but he failed to provide an answer to that inquiry.

19 The defendant then described his ability to make an election under s 65D of the Act as the basis on which he may seek payment from the estate of the deceased. He referred to the 'three exceptions' to the general rule that executors are not entitled to remuneration from deceased estates, as set out in s 65D(1)(a) of the Act, namely: a clause in the will, with the consent of the interested beneficiaries, or an order of the Court made under s 65 of the Act.

20 If it is to be accepted that the defendant had unequivocally ruled out the possibility of being paid from the estate pursuant to the remuneration clauses in the will in the 30 July letter, then the references to an 'election' under s 65D of the Act make no sense. For example, at the top of page 3 of the 30 July letter, the defendant stated:

Section 65D(1) requires me, as executor, to as soon as reasonably practicable, inform [the plaintiff] as the interested beneficiary, which of the 3 exceptions in s 65(1)(a) of the Act I intend to seek to be remunerated. As clause 3 of the Will provides for me to charge commission, by operation of s 65E of the Act I may elect to charge fees for being executor, which are separate from the fees charged to the estate by me as a legal practitioner for providing legal services to the estate.

21 In this paragraph, there is no suggestion that clause 3 of the will is void. Further, at the conclusion of the 30 July letter, the defendant stated:

As stated above, I will turn my mind to the election issue of which form of remuneration I seek once I receive your client's intention in relation to those issues.

22 At this point in time, the plaintiff had been clear that he did not consent to the defendant receiving any remuneration from the estate for his role as executor. This meant the defendant had only one option to seek remuneration from the estate, namely, an application for executor's commission, pursuant to s 65(1) of the Act.

23 The defendant's repeated references in the 30 July letter to his ability to make an election were confusing and concerning, as they cast doubt on his submission that he had conceded the invalidity of the remuneration clauses in the will by that time.

24 As a result of this confusion in the 30 July letter, the plaintiff made repeated attempts to clarify the defendant's position. In his many responses to the plaintiff, the defendant maintained the validity of the remuneration clauses in the will as follows:

(a) in the letter dated 30 June 2020, the defendant stated:

...the only way that I will alter any condition of your late mother's Will, will only be through Court Orders.

(b) soon after the 30 June letter, in an email sent at 5.03pm on 30 June 2020, the defendant stated:

I will proceed on that basis but I want to make it clear to you, if you want to save this estate any money then issue proceedings immediately on the issue on [sic] commission. I will not be unilaterally changing the deceased [sic] wishes. This will only occur by Court Order.

(c) by email sent at 10.23 am on 9 September 2020, the defendant stated:

To assist me in this matter kindly refer me to the paragraph in Rayas [sic] Will, were [sic] such alterations your client seeks can be made.

(d) by email sent at 4.21pm on 5 October 2020, the defendant stated:

If you desire to change the deceased [sic] wishes as per her Will, then I suggest you seek the appropriate Orders from the appropriate court to do so.

(e) by email sent at 1.48pm on 6 October 2020, the defendant stated:

Both I and the deceased foreshadowed your clients [sic] grievance about my role in this matter and discussed this at detail. The deceased gave me very clear instructions in how to deal with this situation. I will be following my instructions regardless of your self interest [sic] position in this matter.

(f) by letter dated 24 November 2020, the defendant stated:

The above is my first and final offer and should you reject this offer then please proceed with obtaining the relevant Orders that you see fit in your attempts to dishonour the deceased's wishes in this matter.

25 Further, after the plaintiff filed his originating motion on 1 March 2021, the defendant filed an affidavit on 29 April 2021 in which he deposed that he was not aware of the requirements of s 65B of the Act at the time and admitted that he did not comply with those requirements. In relation to clauses 3 and 4 of the will, he deposed that the Court could determine whether commission ought be paid to him as an executor and/or legal fees paid to his firm and that he neither opposed nor consented to the plaintiff's application in respect of compliance with s 65B of the Act.

26 It was not until after the plaintiff filed an amended originating motion on 19 May 2021 that the defendant conceded in writing that clauses 3 and 4 of the will are void. Up until that time, the defendant had adopted an aggressive and defensive position, as well as providing responses that were difficult to comprehend. As the defendant recorded in his correspondence, his position was to force the plaintiff to apply for the orders that have now been made by the Court.

Defendant's conduct prior to and after commencement of the proceeding

27 The defendant's communications prior to the commencement of the proceeding were confusing and unnecessarily combative. After the proceeding was commenced, his affidavit filed 29 April 2021 failed to grapple with the effect of his admitted failure to comply with the requirements of s 65B of the Act and he continued to raise various issues of his own as to whether commission ought be paid to him as an executor and whether payment of legal fees would be made to his firm. It was only when the parties were preparing for trial and finalising the joint trial document filed 28 May 2021 that the defendant conceded that the effect of his non-compliance with s 65B of the Act was that he could not rely on clauses 3 and 4 of the will to seek remuneration from the deceased's estate.

Whether plaintiff acted reasonably in commencing the proceeding

28 The defendant relied on the 30 July letter to submit that the plaintiff did not act reasonably in commencing the proceeding, as the letter ought to have dispelled the plaintiff's concern that the defendant would not pursue commission under clauses 3 and 4 of the will. As observed, the 30 July letter is obscure as to the defendant's intentions, with no clear statement made by him to the effect that he conceded that clauses 3 and 4 of the will are void or, critically, that he would not seek to retain any funds of the estate for the purposes of payment of remuneration pursuant to these clauses.

29 Having regard to the defendant's further correspondence to the plaintiff before the proceeding was commenced, the plaintiff had no option other than to commence the proceeding in order to finalise the issues regarding clauses 3 and 4 of the will and the defendant's intentions regarding any remuneration from the estate. Contrary to the defendant's submission that the proceeding was 'redundant', it was the only reasonable way forward given the defendant's conduct. The plaintiff obtained substantial relief in the proceeding by way of the consent orders made by the Court. It was unnecessary for the plaintiff to pursue the relief sought in the alternative given the defendant's concessions.

30 The plaintiff acted reasonably in commencing this proceeding in circumstances where the defendant failed to inform the plaintiff promptly that there was no written informed consent in existence, and then unnecessarily escalated the costs by failing to promptly and clearly concede that clauses 3 and 4 of the will were invalid and that no remuneration could be obtained pursuant to those clauses.

31 The defendant failed to act reasonably prior to and after the commencement of the proceeding, and his conduct demonstrates a want of prudence and diligence. He also failed to have due regard to his fiduciary duties as executor of the estate, failed to act in the estate's best interests and acted with an absence of care and diligence that a person of ordinary prudence ought to have exercised.

32 Accordingly, the defendant is to pay the plaintiff's costs of the proceeding on the standard basis, without indemnity from the estate, and the defendant is to bear his own costs of the proceeding, without indemnity from the estate of the deceased.

33 The proceeding raises further issues of concern as to the defendant's conduct, having regard to the inclusion of various remuneration clauses in the will. In addition to clauses 3 and 4 of the will, clause 9(a) provides for payment of certain debts out of the residue of the estate, with specific mention to 'commission and legal costs of providing my will to my lawyer and trustee of my will'. Clause 15 also appoints the defendant's firm to act in proving the will and transacting any legal business arising from the administration of the trusts thereof. Other than the various remuneration clauses, the will is straightforward. The cost of preparing the will is stated to be $2,200, which would appear to be on the higher side for such a simple will.

34 In the application for the grant of probate, the defendant was required to provide an affidavit deposing to his compliance with Rule 12 of the Legal Profession Uniform Law Australian Solicitors' Conduct Rules 2015. His affidavit filed 16 July 2020 deposes that 'under the circumstances, I believe that I did comply as best as I could with Rule 12'.

35 Having regard to the fact that the defendant agreed in this proceeding that written informed consent was not obtained from the deceased for the inclusion of clauses 3 and 4 in the will prior to making the will or at any subsequent time afterwards, his affidavit is incorrect. Prima facie, the circumstances described in the affidavit fail to establish that the defendant complied with Rule 12. The Court requires the defendant to state the basis on which it can be said that he complied with Rule 12.

36 The defendant must also provide an explanation for the inclusion of clauses 9(a) and 15, and as to whether informed consent was obtained from the deceased for the inclusion of those clauses prior to her signing the will. In addition, the defendant must set out the steps he took to comply with his obligations concerning the costs charged to the deceased for the preparation of the will.

37 A further issue concerns the inclusion of the superannuation entitlements in the inventory of assets filed in the probate proceeding, as the deceased's superannuation entitlements were subject to a valid binding death benefit nomination and were not estate assets. Unless the plaintiff was aware of this, a claim for commission would be unduly inflated in terms of the quantum of any commission. The defendant is to provide an explanation for including the deceased's superannuation entitlements in the inventory of assets.

38 The final issue concerns the defendant's position that he may still seek commission pursuant to s 65 of the Act. In order to complete what should have been a straightforward administration, the defendant must inform the Court whether he intends to seek commission and if so, the amount to be sought by him.

(a) the defendant pay the plaintiff's costs of the proceeding on the standard basis, without indemnity from the estate, and the defendant bear his own costs of the proceeding, without indemnity from the estate of the deceased.

(b) on or before 22 July 2022 the defendant file an affidavit in relation to the issues raised in paragraphs to 34 to 38 of these reasons.

[1] Supreme Court Act 1986 (Vic), s 24(1). See also Order 63 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), which informs the exercise of the Court's power and discretion as to costs.

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

[3] Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622, 624-625 (McHugh J) ('Ex parte Lai Qin'); Seng Hpa v Walker [2017] VSC 320, [77]-[81] (McMillan J).

[4] Oshlack v Richmond River Council (n 2).

[5] Earnshaw v Loy (No 2) [1959] VicRp 44; [1959] VR 252, 253 (Sholl J); see G E Dal Pont, Law on Costs (Lexis Nexis, 3rd ed, 2013) [6.15].

[6] ASTA Developments (Aust) Pty Ltd v Amasya Enterprises Pty Ltd [2016] VSCA 186, [25] (Whelan and Ferguson JJA); Ex parte Lai Qin (n 3); Seng Hpa v Walker (n 3); Re Bovill; Bovill v Bovill [2017] VSC 697, [31], [38] (McMillan J); Re Tsaousis [2019] VSC 511, [28]-[29] (McMillan J).

[7] Re O'Donoghue [1998] 1 NZLR 116, 121 (Hammond J); Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628; (2001) 188 ALR 566, 606-607 [148]-[152] (Finkelstein J); Nolan v Collie [2003] VSCA 39; (2003) 7 VR 287, 307-308 [52]-[53] (Ormiston JA, with whom Batt and Vincent JJA agreed).

[8] It is assumed that the defendant was also unaware of the requirements of s 49A of the Wills Act.