Plaintiff v First Defendant

1 On 16 March 2011 I made an order approving a cy-près scheme which had been proposed by the parties as a consent order. The agreement between the parties regrettably did not extend to the costs orders to be made in the above two proceedings. At the conclusion of the hearing, I indicated that I would give my reasons for approving the scheme at the same time as I determined the dispute over costs.

2 By a Deed of Trust dated 19 November 1923, William Eastwood Thompson gave certain land and buildings at Phillip Island on trust for the purposes of establishing a hospital at Cowes ("the Thompson Deed of Trust"). The hospital was to be furnished and equipped by local residents. Part of the recital to the Thompson Deed of Trust contained the following:

WHEREAS I am now registered or entitled to be registered as proprietor of an estate in fee simple [of the land described] and WHEREAS I am not the beneficial owner of the said land and the buildings erected thereon the same having been purchased for the purposes of a Hospital at Cowes aforesaid to be called Worley [sic] Hospital to be administered by the Committee for the time being of the Cowes Centre of the Victorian Bush Nursing Association. ... I the said William Eastwood Thompson do for myself and my executors and administrators and other the Trustees or Trustee for the time being of these presents (hereinafter called 'the Trustees') HEREBY ADMIT ACKNOWLEDGE AND DECLARE that the Trustees hold the said land and all other property real and personal (if any) hereafter to be received or acquired by the Trustees for the purposes of these presents and all investments representing the same or any part thereof and the income rents profits and produce thereof upon trust and subject to the terms conditions stipulations and provisions hereinafter contained ...

3 Clauses 1 and 5 relevantly provided as follows:

The Trustees shall permit the said land and the buildings erected thereon to be used and occupied for the purposes of a Hospital under the management and control of the Committee for the time being of the Cowes Centre of the Victorian Bush Nursing Association.

...

If at any time hereafter the Committee of the Cowes Centre of the Victorian Bush Nursing Association ceases for a period of three months without the consent in writing of the Central Council of the said Association to use the said land and keep open and maintain the said buildings for the purposes of a Hospital of which fact a certificate in writing under the hand of the Secretary for the time being of the Central Council of the said Victorian Bush Nursing Association authorized by resolution passed at a Meeting of the said Central Council shall as regards the Trustees and all persons or corporations dealing with them be conclusive evidence the said land and buildings shall thereafter be held by the said Trustees upon trust for the said Central Council of the Victorian Bush Nursing Association absolutely and freed and discharged from the trusts herein created in favour of the members and committee of the Cowes Centre of the said Association.

**4 The inaugural hospital committee that later became known as the Committee of the Cowes Centre of the Victorian Bush Nursing Association ("the VBNA") was established in August 1923. It carried out the objects of the VBNA within the Cowes district. Residents of Phillip Island paid membership subscriptions to the Cowes Centre. Further, from time to time, fundraising activities were held on Phillip Island to ensure the hospital's continuing operation, to purchase equipment, furnishings and day-to-day provisions and to enable the purchase of additional land and buildings to expand the capacity of the hospital. Such funds were donated to the Cowes Centre, not the trust created by the Thompson Deed of Trust. There was no intermingling of these funds with the trust assets. The only exception to this was the use of donated funds to purchase additional lands that were registered in the names of the trustees. Members of the local community also performed voluntary work for Warley Hospital.

5 In December 1979 the registered name of the trust was changed to the Warley Cowes Bush Nursing Hospital Trust. In 1980 a new aged care facility was opened on the hospital site.

6 In September 1986, the Warley Cowes Bush Nursing Hospital was incorporated under the Associations Incorporation Act 1981 to become the Warley Hospital Incorporated ("Warley"). Upon incorporation, all of the assets held by the trustees vested in Warley and it became the registered proprietor of all of the hospital lands and buildings. The Statement of Purposes of the newly incorporated body provided that the purposes of the hospital were:

(i) To provide hospital and/or nursing home and/or hostel accommodation for the care and treatment of persons in need thereof in the district of Warley or elsewhere and provide facilities and nursing service for the care and treatment of such persons; and

(ii) To do such things as may be incidental thereto or conducive to the attainment of the purposes hereinbefore set out.

7 Due to financial constraints, Warley closed the hospital on 31 January 2008 and the nursing home on 1 September 2008. In May 2009, the land was sold by the receivers and managers appointed by the National Australia Bank Ltd. The balance of the proceeds of sale after all liabilities were met has since been held by Warley as trustee. By the time of the hearing the amount held on trust exceeded $1.4 million.[1]

8 Following the closure of the hospital, a dispute arose between the Aged and Community Care Victoria Limited ("ACCV") and Warley as to what was to happen to the land and buildings, and later the net proceeds of sale. The disagreement was about the meaning and application of clause 5 of the Thompson Deed of Trust.

9 Mr Gerard Mansour, the Chief Executive Officer of ACCV, stated in his affidavit sworn on 20 January 2011 in support of its position on costs ("Mr Mansour's costs affidavit") that ACCV is a not-for-profit entity which:**

... is the umbrella organisation for aged and community care providers in Victoria both non-profit and for-profit. It provides information and support to aged and community care providers. It is also the public representative of the Bush Nursing movement and the successor to the Central Council of the Victorian Bush Nursing Association which previously held that role.

10 The VBNA was established in 1910. Its original constitution set out the objects as follows:

The objects of the Association shall be to provide gratuitously or otherwise Trained District Nurses and other requisites and attention for the sick and injured persons in country towns and districts.

The general sick nursing of the patients shall be carried out under the direction of the medical practitioners, except in cases of emergency.

11 In 1959, the VBNA was incorporated under s.67 of the Hospitals and Charities Act 1958. In September 1990, the VBNA was incorporated under the Associations Incorporation Act 1981 and became the Victorian Bush Nursing Association Incorporated ("VBNA Inc"). The purposes of the VBNA Inc were:

1.01 To encourage and assist the provision throughout Victoria (especially in rural areas) of nursing, hospital and related services by bush nursing centres, hospitals, nursing homes and aged persons hostels.

1.02 To do all such other lawful things as may be incidental thereto or conducive to the proper and effective attainment of the above purposes.

**12 In September 1998, the VBNA Inc amalgamated with Aged Care Victoria to become the Victorian Association of Health and Extended Care Limited ("VAHEC"), a company limited by guarantee. VBNA Inc was wound up. There was a dispute between the parties as to whether all, and not only some, of the assets of VBNA Inc were transferred to VAHEC. All VBNA Inc staff were employed by VAHEC which continued to offer a similar range of services to Bush Nursing Centres and Bush Nursing Hospitals to that provided by VBNA Inc prior to the amalgamation.

13 On 27 March 2006, ACCV was incorporated as a company limited by guarantee. On 27 April 2006 the members of VAHEC resolved to wind up VAHEC and transfer its assets to ACCV. All of the assets of VAHEC were transferred to ACCV which continued to carry out substantially the same role in relation to Bush Nursing as VAHEC. ACCV was an amalgamation of VAHEC with the Aged Care Association of Victoria.

14 The objects of ACCV are set out in clause 2 of its constitution. In 2008, that clause read as follows:**

The objects for which the Company is established are:

2.1 promoting, encouraging and assisting the health and needs of the aged;

2.2 providing information to health professionals, carers and the public about the health and needs of the aged and their care;

2.3 researching the health and needs of the aged;

2.4 promoting best practice in the care of the aged and the prevention of diseases in the aged;

2.5 promoting and developing the highest ethical standards of service by Members in the provision of services to the aged;

2.6 acting as a co-ordinating, advising and liaising body for Members who provide services to the aged including:

2.6.1 disseminating information about administrative and financial matters affecting the interests of Members;

2.6.2 providing administrative and other assistance and services to Members; and

2.6.3 disseminating information about existing and proposed legislation and policies concerning the care of the aged;

2.7 establishing relations with and further co-operation between other bodies whose objects are substantially similar to those of the Company.

**15 The operator for the time being of the Warley Hospital was a member of each of these successive organisations.

16 According to Mr Mansour's costs affidavit, ACCV's relevant involvement with Warley arose through assistance ACCV provided to Warley at the time it decided to cease operating as an aged care provider. After he became aware of the provisions of the Thompson Deed of Trust, Mr Mansour told David Luscombe, the president of the Warley Committee of Management, that ACCV was the successor to the VBNA and suggested that a cy-près application needed to be made. Discussions between the parties followed but, although at one time it was thought an "in principle" agreement had been reached, the parties remained at odds over what was to be done with the trust assets.

17 In September 2008 ACCV engaged a management consultant, Adrian Nye. Mr Mansour said in his costs affidavit that Mr Nye:**

was asked to investigate and report on options "for the application of the Warley assets for the principal service of the health needs of the Phillip Island community". The Board of ACCV had considered at length the concern that the Warley funds could be disbursed outside the geographical catchment of Phillip Island. Managing community anxiety on this point was a significant consideration in ACCV's actions leading to successful stewardship of the assets of the Warley Trust. The rationale for this engagement was, therefore, twofold. First its aim was to ensure that any decision in relation to the assets of the trust be made on a properly considered and researched basis and that the assets which comprised the trust were deployed wisely and for the best benefit to the people of Phillip Island. Secondly, the involvement of the community was considered an important ingredient to the success of the resolution of the dispute with Warley. In part this consideration was important because there was a significant lack of clarity about which agency could service Phillip Island and would be capable of receiving and managing the funds in a responsible manner.

**18 Mr Mansour also said that as part of the investigation undertaken by Mr Nye and as part of a process of consulting the community, a public meeting was held at Cowes on 29 October 2008. In addition, Mr Nye consulted a number of people prior to presenting a report to ACCV.

19 Mr Mansour said that despite legal advice that ACCV was the owner of the trust assets without restriction, he continued to advance ACCV's position that it would apply them for the benefit of the Phillip Island community.

20 Nevertheless, on 16 December 2008, ACCV issued an originating motion naming Warley as the first defendant and the State of Victoria as the second defendant.[2] In that proceeding, No.10336 of 2008 ("the ACCV proceeding") ACCV sought declarations that Warley held the specified land (and after amendment, the net proceeds of the sale of that land) and all of its other assets, rights and entitlements on trust for ACCV absolutely, freed and discharged from the trusts created by the Thompson Deed of Trust.

21 On 24 December 2008, ACCV's proposal entitled the "Way Forward" was published in the Phillip Island and San Remo Advertiser in a paid placement. According to Mr Mansour:**

This publication had previously been antagonistic to the actions of ACCV and a paid placement was necessary to communicate to the wider Phillip Island community the fruits of Mr Nye's labours and the proposal promulgated by ACCV. This was managed through CPR Communications Pty Ltd, a public relations firm.

22 ACCV's attempts to reach a resolution of the dispute were possibly hampered by its requirement that its legal costs and its community consultation costs including the costs of Mr Nye be paid out of the trust assets. For example, in a letter dated 26 May 2009 headed "Without prejudice save as to costs", ACCV's solicitors advised Warley's solicitors of a compromise proposal which contained the term that a sum of $130,000 be paid to ACCV out of the Trust Fund:

to recompense it for the costs it has expended in this matter which includes the cost of consulting with the community on the most appropriate use of the Warley assets on Phillip Island.

**23 By a letter dated 18 August 2009, the Victorian Government Solicitor, acting on behalf of the Attorney-General, wrote to the solicitors for both ACCV and Warley advising that in their view a cy-près scheme was necessary regardless of whether the Court applied the surplus trust funds for the purposes of a hospital at Cowes and/or for any other purpose in aid of the objects of the Cowes Centre of the VBNA or a gift over for the charitable purposes of the Central Council of the VBNA. The letter urged both ACCV and Warley to file and serve relevant cy-près applications.

24 On 23 October 2009, Warley issued an originating motion naming the Attorney-General for the State of Victoria as the defendant. In that proceeding, No.9742 of 2009, ("the Warley proceeding") Warley asked the Court to answer a number of questions concerning the Thompson Deed of Trust and sought an order that the subject matter of the trust in clause 5 ought to be applied cy-près and/or in accordance with s.2 of the Charities Act 1978.

25 By this time, seven affidavits with numerous exhibits (together totalling 585 pages in the Court Book) had been filed by ACCV in the ACCV proceeding, and four affidavits with numerous exhibits (together totalling 534 pages in the Court Book) had been filed by Warley in opposition to ACCV's claim. By 4 December 2009, two affidavits with exhibits (together totalling a further 56 pages in the Court Book) had been filed by Warley in the Warley proceeding. A further short two page affidavit had also been filed by Warley in the ACCV proceeding.

26 On 4 December 2009, Evans AsJ ordered by consent in each proceeding that subject to any direction of the trial judge the one proceeding be heard together with the other proceeding and that the affidavit material in the one proceeding stand as evidence in the other proceeding.

27 Both ACCV and Warley filed yet another affidavit each in 2010. In the ACCV affidavit, which was sworn by Mr Mansour on 26 July 2010, ACCV gave notice that it wished to apply to amend its originating motion to seek in the alternative that "the subject matter of the trust or gift in clause 5 of the Thompson Deed of Trust be interpreted cy-près and/or in accordance with s.2 of the Charities Act 1978". A draft trust deed was produced.

28 Rather than proceeding with the application to amend, the parties agreed that the practical way to proceed was for ACCV to be added as a defendant in the Warley proceeding. On 24 August 2010, Daly AsJ made such an order by consent. However, at this time ACCV was still seeking the relief sought in the ACCV proceeding. As stated in a letter dated 17 August 2010 from ACCV's solicitors to Warley's solicitors:**

Our client therefore continues to seek the relief sought in the ACCV Proceeding and will press for that relief at trial. Our client seeks to have the trust assets applied cy-près in accordance with the affidavit of Mr Mansour sworn 26 July 2010 only in the alternative to the relief sought in the ACCV Proceeding. Our client's position is that if, and only if, the Court refuses the relief sought in the ACCV Proceeding, the trust assets should be applied cy-près in accordance with Mr Mansour's affidavit.

29 On 9 September 2010, both matters came on for hearing before me. By consent, the hearing was adjourned to 4 November 2010 because, although it was stated that agreement in principle had been reached, a deed had to be drafted to carry the agreement into effect. However, as a result of a number of adjournments, as indicated above the matter did not come back before me until 16 March 2011.

**30 In my opinion, the purpose of the Thompson Deed of Trust was a general charitable purpose namely to assist the sick and injured of Phillip Island by setting aside land for the purpose of a hospital in Cowes on Phillip Island.[3] I am satisfied that it has become impossible to continue running the hospital as a means of assisting the sick and injured. Clause 5 of the Thompson Deed of Trust therefore became relevant and arguably the trust over would have come into effect were it not for the fact that the VBNA had gone out of existence before the gift took effect in possession. A cy-près application may be made by the Court where "by reason of lapse of time and change of circumstances", the original purpose cannot be carried into effect in the exact way directed by the settlor/testator.[4]

31 The cy-près scheme put forward by the parties for approval was contained in an unexecuted document entitled Charitable Trust Deed of the Warley Trust. Senior counsel for Warley took me through the provisions of the Trust Deed, most of which were in standard form. Some of the more important provisions are discussed below.

32 Clause 2.1 of the Trust Deed contains the Declaration of Trust. It provides that the Trustee will hold the Trust Fund on trust for the Charitable Purpose. The Trust Fund is defined in clause 1.1 as meaning:**

all Property for the time being held by the Trustee upon the terms of the Trust and shall include:

(a) the funds held by Warley Hospital Incorporated, as trustee of the Original Trust which are to be transferred to the Trustee;

(b) Cash held by the Trustee as at the date of this Deed;

(c) any further Property as is from time to time donated to or settled upon the Trust; and

(d) any proceeds of any of the foregoing.

33 Clause 3.1 of the Trust Deed sets out the Charitable Purpose of the Trust. It provides that the Trustee must hold the Trust Fund and the income of the Trust Fund on trust for the purpose of:

(a) providing to people of or on Phillip Island nursing, hospital and related medical and paramedical services and bush nursing, excluding residential aged care, and doing all such other lawful things as may be incidental thereto or conducive to proper and effective attainment thereof (Primary Purpose); or

(b) where, and only where and only insofar, as it may not be possible to attain the Primary Purpose, providing throughout rural areas of Victoria nursing, hospital and related services by bush nursing centres and hospitals, other rural hospitals and rural health services.

**34 Clause 5.1 empowers the Trustee to apply all or any part of the income of the Trust Fund for the Charitable Purpose. Clause 5.2 permits the Trustee to accumulate the same. Clause 2.2 provides that the Trust Fund will be applied solely in furtherance of the Charitable Purpose and that no portion will be distributed directly or indirectly to the Trustee or to any member or officer of the Trustee, except as bona fide compensation for services rendered or expenses incurred on behalf of the Trust.

35 It was agreed that ACCV would become the trustee of the Warley Trust. Senior counsel for Warley submitted that ACCV was an appropriate body, without conceding that it had any legal right to be so appointed, or that it had any interest in the trust funds. It was said to be a pragmatic solution having regard to the size of ACCV, the infrastructure it had available to administer the Warley Trust, the fact that its membership includes bush-nursing bodies, its willingness to take on the responsibility and the amendment of its constitution. The reference to ACCV amending its constitution was to the fact that by a special resolution passed at the Annual General Meeting of ACCV held on 27 October 2010 the following additional object of the company was added to its constitution:**

2.8 To promote, encourage and assist the provision throughout Victoria (especially in rural areas) of nursing, hospital and related services by bush nursing centres and hospitals and other providers of small rural health services.

36 Clause 8.1 of the Trust Deed established an Advisory Committee "to advise and make recommendations to the Trustee in relation to the administration of the Trust Fund for the Charitable Purpose". In accordance with clause 8.2, the Advisory Committee is to operate in accordance with Terms of Reference annexed to the Trust Deed. Clause 8.3(a) provides that at all times, the majority of the members of the Advisory Committee must consist of Responsible Persons. Clause 8.3(b) then sets out the eight initial members of the Advisory Committee. Responsible Person is defined in clause 1 as meaning:

a person who performs or performed a public function or who belongs or belonged to a professional body which has a professional code of ethics and rules of conduct and otherwise has a degree of responsibility to the Phillip Island community as a whole and includes current or former Church authorities, school principals, judges, clergy, solicitors, doctors, accountants and other professional persons, mayors, councillors, town clerks and members of parliament.

37 Clause 4.1, the drafting of which I was told had involved a lot of careful consideration, deals with the relationship between the Trustee and the Advisory Committee. It provides:

Without limiting the responsibilities and powers of the Trustee, the Trustee will have regard to, and, if considered appropriate by it, will act on, the recommendations of the Advisory Committee properly communicated to the Trustee in accordance with the terms of this Deed, provided that the recommendations are consistent with the Charitable Purpose and are otherwise in accordance with this Deed and any legislation or other law in Australia as it relates to trusts.

**38 Having read the Trust Deed and having heard from counsel, I was satisfied that the provisions of the Trust Deed were appropriate and effective for its intended purpose. I was satisfied that ACCV was an appropriate body to be the Trustee. I considered that the concept of the Advisory Committee was an appropriate one in that it provides an avenue for some involvement by the members of the Phillip Island community. I was satisfied that the initial membership of the Advisory Committee and the provisions for its future membership were appropriate. I also considered that the clause dealing with the relationship between the Trustee and the Advisory Committee was sensible and workable. Finally and most importantly, I accepted the submission that the Charitable Purpose reflected as far as possible the purpose of Mr Thompson's initial gift.

39 Accordingly, on 16 March 2011, I pronounced judgment in the Warley proceeding as follows:**

1. The following property shall be applied cy-près pursuant to section 2 of the Charities Act 1978 on the terms set out in the deed ("the Warley Trust") attached to this judgment:

(a) the funds held by the plaintiff as trustee of the trust created by Deed of Trust dated 19 November 1923 by William Eastwood Thompson (as amended on 1 February 1952);

(b) cash held by the plaintiff as at the date of this judgment;

(c) any proceeds of any of the foregoing,

(together referred to as the "Trust Funds").

1. The second defendant is appointed trustee of the Warley Trust.

1. The second defendant execute the deed attached to this judgment as soon as practicable.
2. The plaintiff transfer the Trust Funds to the second defendant as trustee of the Warley Trust.

All that was left unresolved was the question of what costs orders should be made in each proceeding, and it is to those issues that I now turn.

**40 The dispute about the appropriate costs orders had a slightly unusual aspect in that in both proceedings Warley did not seek any professional costs but only orders for the recovery of its disbursements, which I was informed included matters such as court fees and photocopying charges. This was because both the firm of solicitors and the counsel acting for Warley were doing so pro bono. This is yet another example of members of the legal profession upholding the finest traditions of an honourable profession. The Court congratulates everyone involved on their commitment. Nevertheless, the fact that one party was seeking only very limited orders for costs in its favour had the potential to render the debate rather lopsided. This feature was heightened by the fact that the limited amount of funds in the Warley Trust were at risk of being substantially reduced depending on what costs orders were made.

41 Counsel for all of the parties had exchanged written submissions on costs. At my suggestion, over the luncheon adjournment counsel for each party also drafted the costs orders which that party submitted should be the orders made in each proceeding. As can be seen from the summary below, the parties were a long way apart on a number of issues.

42 With respect to both proceedings, ACCV submitted that there should be an order that the parties' costs of and incidental to the proceeding be paid out of the assets of the Warley Trust, such costs to be taxed on a solicitor and client basis. ACCV also submitted that in the ACCV proceeding there should be a declaration that it was:**

entitled to be reimbursed out of the assets of the Warley Trust for the following expenses incurred to assess who was best able to provide a suitable service to Phillip Island and who would be capable of receiving and managing funds in a responsible manner and for the purpose of community consultation:

(a) fees of Adrian Nye in the sum of $20,638.40;

(b) fees of CPR Communications Pty Ltd in the sum of $2,538.06.

43 With respect to the ACCV proceeding, Warley submitted that there should be an order that:

(a) ACCV pay Warley's disbursements in the proceeding; and

(b) ACCV should pay the Attorney-General's costs of the proceeding, on a party and party basis.

Warley further submitted that ACCV should not be entitled to its costs out of the Trust Fund.

44 With respect to the Warley proceeding, Warley submitted that there should be an order that:

(a) its disbursements be paid out of the Trust Fund; and

(b) the costs of the Attorney-General and of ACCV of and necessary to the proceeding, limited to those incurred after 23 October 2009, be taxed and paid out of the Trust Fund on a party and party basis.

45 With respect to the ACCV proceeding, the Attorney-General submitted that there should be an order that:

(a) the costs of ACCV up until 18 August 2009 be taxed on a party and party basis and paid out of the Trust Fund, such costs to exclude any extra-legal costs sought including the fees of Mr Nye and CPR Communications Pty Ltd; and

(b) the Attorney-General's costs be taxed on a solicitor and client basis and paid out of the Trust Fund.

**46 The rationale behind stopping the costs to be recovered by ACCV at 18 August 2009 was that ACCV, having received the letter from the Victorian Government Solicitor's Office referred to above, should have realised that its current proceeding was not appropriate because it did not include any cy-près application.

47 With respect to the Warley proceeding, the Attorney-General submitted that there should be an order that the Attorney-General's costs and ACCV's costs of and incidental to the proceeding be taxed on a solicitor and client basis and paid out of the Trust Fund.

48 The first issue to be considered is what order should be made with respect to ACCV'S costs in the ACCV proceeding. That question is complicated because, as a result of the agreement about the cy-près scheme, there has been no final determination of the initial claim made in that proceeding.

49 The difficulty of awarding costs where there has been no hearing on the merits has been considered in a number of cases. In Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia: Ex parte Lai Qin,[5] McHugh J said:**

In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.[6]

50 In Australian Securities Commission v Aust-Home Investments Limited,[7] Hill J outlined the following five propositions 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] [References omitted]

51 In Lai Qin,[9] McHugh J approved of 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.[10]

**52 I am certainly not in a position at this stage to decide whether or not ACCV would have been successful in its claims if the ACCV proceeding had continued until judgment. I have not heard full argument on this issue and it would defeat one of the purposes of a settlement to require the parties to present such an argument.

53 I have had the advantage of reading and hearing some submissions on the question of whether or not it was unreasonable for ACCV to commence this proceeding. However, I do not consider that I can reach a conclusion even on this point. As counsel for Warley submitted, the ACCV proceeding was not a cy-près application or one seeking from the Court answers to questions but rather a claim by ACCV that Warley held the specified land (after amendment, the net proceeds of the sale of that land) and all of its other assets, rights and entitlements on trust for ACCV absolutely, freed and discharged from the trusts created by the Thompson Deed of Trust. If ACCV lost that claim, then, depending on the view one took of the strength of the competing arguments, one might very well conclude that commencing the proceeding was not reasonable. On the other hand, if the conclusion was that both ACCV and Warley acted reasonably in commencing and defending the proceeding, then that should mean that the result would be that there was no order as to the costs of the ACCV proceeding.

54 An alternative submission by ACCV was that it was always intended that its proceeding would raise the cy-près question and that much of the material that was prepared was included with that in mind. The difficulty with that submission is that even though cy-près applications may have been discussed between the parties prior to the commencement of litigation, the proceeding that was commenced by ACCV was adversarial in nature, sought declarations that it was the absolute beneficial owner of all of the trust assets and made no mention of any cy-près application. In my opinion, this provides no reason to depart from the normal costs outcome where there has been no hearing on the merits. Further, I do not consider that it is the Court's task to go through ACCV's material in support of its application in the ACCV proceeding to decide whether any, and if so how much, of it is relevant to the Warley application.

55 I have decided, therefore, that as there has been no final determination of ACCV's claim, there should be no order that ACCV recover its costs of the ACCV proceeding.

56 The reasoning behind this conclusion means that there should be no order that Warley recover the limited costs it seeks in the ACCV proceeding, either by payment by ACCV or from the Trust Fund.

57 It is a rather more difficult point whether the same reasoning applies to the costs of the Attorney-General in the ACCV proceeding. In my opinion, it does. Whilst I do not consider that Warley was correct to submit that ACCV should pay the Attorney-General's costs, this submission does highlight that as the ACCV proceeding was adversarial in nature, the unsuccessful party, either ACCV or Warley, could have been ordered to pay the Attorney-General's costs and that those costs would not automatically have been ordered to be paid out of the Trust Fund. In the circumstances that have arisen, namely, that there is to be no determination of ACCV's initial claim in the ACCV proceeding, I consider that the general rule that there be no order as to the costs of such a proceeding should apply to the Attorney-General as well as to the other parties. Putting it another way, I have no basis for deciding that the Trust Fund should bear the Attorney-General's costs of the ACCV proceeding rather than one of the other parties. In reaching this conclusion I have not overlooked the well recognised principle that the Attorney-General stands in a special position with respect to litigation involving charities.[11]

58 The next issue that I should decide, in case I am in error in determining that there should be no order as to the costs of the ACCV proceeding, is whether ACCV would be entitled to recover the costs of the two external consultants, Mr Nye and CPR Communications Pty Ltd ("CPR"), if an order were made in its favour. On one view, this dispute could perhaps be left to a taxation of the costs, but as it has been argued before me I consider it appropriate to express my conclusion. Presumably, these costs were claimed as disbursements.

59 Mr Mansour included Mr Nye's invoice as an exhibit to his costs affidavit. The work described in the invoice referred in part to "drafting of report and review of same". The fee was calculated as "80 plus hours @ $250 per hour excluding GST, but say $20,000 inclusive of GST", plus $638.40 for three return trips to Cowes.

60 Mr Mansour also exhibited four invoices from CPR totalling $14,132.11 and that was the amount sought in ACCV's written submission on costs. However, counsel for ACCV said that all that was sought to be recovered was $2,538.06[12] for the last two invoices in respect of the cost of advertising the meeting, hiring the hall and publicising the result in a paid placement in the local newspaper.

61 Although r.63.01(1) of the Supreme Court (General Civil Procedure) Rules 2005 ("the Supreme Court Rules") provides that "costs" includes disbursements, the disbursements must, in my opinion, relate to the proceeding in which the costs order is made. I do not consider that the cost to ACCV of engaging Mr Nye, hiring a hall and publicising the result of his work comes within the concept of disbursements in a proceeding. These costs were not, in my opinion, relevant to the ACCV proceeding, the outcome of which depended on the question of the construction of clause 5 of the Thompson Deed of Trust. Further, whilst I do not think it is determinative, I note that all of the invoices were addressed to Mr Mansour at ACCV and not to its solicitors. Counsel for Warley also pointed out, although Mr Nye was said to have prepared a report it was not part of the evidentiary material filed by ACCV, even though an affidavit by Mr Nye had been filed in the ACCV proceeding.

62 Initially, I considered that it might be fatal to ACCV's claim that, with the exception of one invoice from CPR, namely the one relating to the paid placement, the fees related to work done or costs incurred prior to the commencement of the ACCV proceeding on 16 December 2008. However, research revealed that the inclusion of the words "of and incidental to" in a costs order may extend the ambit of the order to include costs incurred as part of the preparations for litigation.[13] However, the disbursements still have to relate to the proceeding and, in my opinion, these disbursements did not.

63 An alternative submission by ACCV was that it should be entitled to these costs on the basis that they were administrative costs legitimately incurred by it as the trustee of the Trust Fund. The problem with this submission is that ACCV was not the trustee of the Trust Fund and it was not seeking control of the trust funds as a trustee but as a beneficiary, or, if it was seeking a finding that it was the trustee, there has been no such determination in its favour.

64 I have decided, therefore, that, even if ACCV had obtained an order for the costs of the ACCV proceeding, such costs would not have included the costs of engaging Mr Nye and CPR.

65 I turn then to the question of what costs orders should be made in the Warley proceeding. In the end, it seemed to me that there was disagreement between the parties on only two issues. Importantly, the parties were agreed that any costs payable should be paid out of the Trust Fund. Further, although it was not expressly stated, I did not understand counsel for either ACCV or the Attorney-General to be opposed to an order that Warley recover any disbursements incurred by it in the Warley proceeding. Hopefully, I will make it clear what is intended to be included if I refer in the order to Warley's non-professional disbursements.

66 The first issue in dispute in respect of the Warley proceeding was the basis on which the costs to be paid to ACCV and the Attorney-General out of the Trust Fund were to be assessed. In cases involving trust funds, such as a cy-près application, where ACCV, Warley and the Attorney-General were all necessary parties and their costs were incurred for the benefit of the Trust Fund, I consider that the usual order would be that the costs of all parties be taxed on a solicitor and client basis and be paid out of the Trust Fund.[14] Section 24(1) of the Supreme Court Act 1986 provides that in all matters in the Court, including the administration of estates and trusts, costs are in the discretion of the Court and the Court has "full power to determine by whom and to what extent the costs are to be paid". Pursuant to r.63.02 of the Supreme Court Rules the power and discretion of the Court as to costs under s.24 are to be exercised subject to and in accordance with order 63. Rule 63.32(2)(a) provides that "... the Court may order that costs be taxed on a solicitor and client basis where the Court makes an order for - (a) the payment to a party of costs out of a fund ..." All of the above would suggest that there should be an order that the costs be taxed on a solicitor and client basis.

67 The only ground advanced by counsel for Warley for ordering that ACCV's costs be taxed on a party and party basis was that it was not involved in the capacity of a potential beneficiary but as a "hostile" claimant. I do not agree. With respect to the Warley proceeding, ACCV was an appropriate party to the cy-près application. The fact that the ACCV proceeding was adversarial is not relevant to the question of the appropriate order for costs in the Warley proceeding. One was left with the feeling that the real ground was that there was only a limited amount left in the Trust Fund.

68 The only ground advanced by counsel for Warley for ordering that the Attorney-General's costs be taxed on a party and party basis was that he was a public office holder charged with the responsibility for administering charities in the State of Victoria and that the assumption of those responsibilities should not be burdened upon a limited trust fund. It should not be forgotten that the issue being considered here is the basis on which the Attorney-General's costs are to be assessed, not whether the Attorney-General should receive any costs at all. I see no reason to depart from what I consider to be the usual order with respect to the costs of the Attorney-General in a cy-près, or similar, application.[15]

69 Whilst it is regrettable if the quantum of the Trust Fund is significantly reduced by the payment of the parties' costs, I consider that this is not a relevant factor to take into account in deciding the basis on which the costs are to be assessed. I therefore conclude that the usual basis, namely solicitor and client, should apply to the orders for costs in favour of both ACCV and the Attorney-General.

70 The second issue is whether the wording of the order should be "the costs of the proceeding", "the costs of and necessary to the proceeding" (as sought by Warley) or "the costs of and incidental to the proceeding" (as sought by ACCV and the Attorney-General). Warley's concern was that the last form of wording might allow ACCV to recover as part of its costs incidental to the Warley proceeding, all of its costs of the ACCV proceeding, particularly as there were the orders of 4 December 2009 that the evidence in the one proceeding stand as evidence in the other proceeding.

71 In my opinion, the appropriate wording is the broader expression "the costs of and incidental to the proceeding" in order to ensure that the costs of the important work of resolving the dispute and reaching agreement on the terms of the Warley Trust Deed are recovered. I consider that Warley's legitimate concern about the costs of the ACCV proceeding being recovered indirectly can be met by including in the order concerning ACCV's costs a statement that it is limited to costs incurred on and after 4 December 2009, when the two proceedings were ordered to be heard together. I consider that date to be appropriate, even though ACCV was not formally added as a defendant in the Warley proceeding until 24 August 2010. Nevertheless, the costs incurred by ACCV between 4 December 2009 and 24 August 2010 would properly be held, in my opinion, to be "incidental to" the Warley proceeding.**

**72 Apart from the orders for costs, the parties were agreed that in the ACCV proceeding an order needed to be made by consent dismissing that proceeding and that in the Warley proceeding no further orders were required in addition to those pronounced at the conclusion of the hearing.

73 The orders for costs that I propose to make are as follows:**

1. That there be no order as to the costs of the proceeding.

1. That the plaintiff's non-professional disbursements of and incidental to the proceeding be taxed, in default of agreement, and paid out of the Trust Fund of the Warley Trust.
2. That the first defendant's costs of and incidental to the proceeding be taxed, in default of agreement, on a solicitor and client basis and paid out of the Trust Fund of the Warley Trust.
3. That the second defendant's costs of and incidental to the proceeding, limited to those costs incurred on and after 4 December 2009, be taxed, in default of agreement, on a solicitor and client basis and paid out of the Trust Fund of the Warley Trust.

[1] The evidence disclosed that as at 5 October 2010 the sum of $1,389,824.58 was held in a term deposit and that as at 31 January 2011 the sum of $16,323.81 was held in a cheque account.

[2] Although no order was made changing the name of the second defendant, the parties were agreed and they proceeded on the basis that the correct description of the second defendant should have been "Attorney-General for the State of Victoria".

[3] Royal North Shore Hospital of Sydney v Attorney-General for New South Wales [1938] HCA 39; (1938) 60 CLR 396, 428 (Dixon J); Attorney-General for New South Wales v Perpetual Trustee Company (Limited) [1940] HCA 12; (1940) 63 CLR 209, 225 (Dixon and Evatt JJ).

[4] In Re Weir Hospital [1910] 2 Ch 124, 131 (Cozens-Hardy MR); Parker v Moseley [1965] VicRp 74; [1965] VR 580, 584 (Starke J).

[5] [1997] HCA 6; (1997) 186 CLR 622.

[6] [1997] HCA 6; (1997) 186 CLR 622 at 624.

[7] [1993] FCA 585; (1993) 44 FCR 194.

[8] [1993] FCA 585; (1993) 44 FCR 194 at 201.

[9] [1997] HCA 6; (1997) 186 CLR 622.

[10] [1997] HCA 6; (1997) 186 CLR 622 at 624-5.

[11] In Re Cardwell; Attorney-General v Day [1912] 1 Ch 779.

[12] By my calculations the two relevant invoices in fact total $2689.57.

[13] See Minister for Home and Territories v Smith [1924] HCA 41; (1924) 35 CLR 120, 129-130 (Isaacs ACJ and Starke J); Pêcheries Ostendaises (SA) v Merchants' Marine Insurance Co [1928] 1 KB 750, 757 (Lord Hanworth MR); Frankenburg v Famous Lasky Film Service Ltd {1931] 1 Ch 428, 435-436 (Lord Hanworth MR); Myer v Myer [1932] VicLawRp 46; [1932] VLR 322, 333 (Cussen ACJ); In Re Gibson's Settlement Trusts [1981] Ch 179, 184 (Megarry VC); McIntyre v Perkes (1988) 15 NSWLR 417, 426 (Samuels JA); Admiral Management Services Ltd v Para-Protect Europe Ltd [2002] EWHC 233; [2002] 1 WLR 2722, [21]-[25] (Burnton J).

[14] See, for example, in respect of applications by trustees concerning the administration of trusts, In Re Buckton, Buckton v Buckton [1907] 2 Ch 406, 414 (Kekewich J).

[15] In Re Cardwell; Attorney-General v Day [1912] 1 Ch 779. Whether the Attorney-General would be prepared to agree to a request by the parties that he waive any costs orders in his favour given the limited amount left in the Trust Fund is a matter for him, not the Court.