Plaintiffs v Defendants

2 By his will dated 13 November 2015, the deceased appointed the defendants as his executors and trustees and left the residue of his estate on trust for the plaintiffs ('the trust').

3 By originating motion filed 5 June 2018, the plaintiffs sought orders, inter alia, for the defendants to file an affidavit of documents disclosing all estate documents and documents in any way related to the deceased's bank statements, superannuation death benefits, Telstra share dividends and production of bank statements and records in relation to the financial affairs of the deceased before and after his death. In addition, the plaintiffs sought the removal of the defendants as executors and trustees of the estate and the appointment of Ms Perkins as administrator of the estate and for their costs to be paid personally by the defendants on an indemnity basis.

4 Ultimately, there was consensus between the parties, save for the costs. Written submissions as to costs were filed to be determined on the papers.

5 The plaintiffs seek orders that the defendants personally pay the costs of the plaintiffs, on an indemnity basis, without recourse from the estate of the deceased, that the defendants bear their own costs of the proceeding and, to the extent they have already paid their costs from the estate, those funds be reimbursed to the estate.

6 The defendants seek orders that there be no order as to the costs of the plaintiffs' litigation guardian, that the plaintiffs' litigation guardian not be entitled to be indemnified for her costs by the plaintiffs and that the defendants' costs be had and retained out of the estate of the deceased on a trustee indemnity basis.

7 The deceased and Ms Perkins commenced their relationship between 2005 and 2006. The plaintiffs were born in November 2008. In 2012, Ms Perkins and the deceased separated. Prior to his death in April 2016, the deceased provided financial support for the plaintiffs. After his death, Ms Perkins supported the plaintiffs financially. She works part time and earns a modest income. As the trust was for the benefit of the plaintiffs, Ms Perkins sought financial information from the defendants for the benefit of the plaintiffs.

8 Prior to the commencement of the proceeding, Ms Perkins and the plaintiffs' solicitors made many requests of the defendants for the documentation and information in relation to the estate of the deceased. These requests were set out in the affidavit of Ms Perkins sworn 28 May 2018.

9 On 14 October 2016, Ms Perkins requested the defendants to provide information as to the amount available for the benefit of the plaintiffs from the trust. At that time, Ms Perkins considered that the residue of the estate should have included the net proceeds of sale of the deceased's property in Kilcunda, the deceased's superannuation and shares in Telstra valued at approximately $47,000.

10 On 10 November 2016, the defendants informed Ms Perkins that the residue of the estate was held on trust for the plaintiffs but did not inform her of the value of the residue. They also informed her that neither the plaintiffs nor Ms Perkins were listed as beneficiaries to the deceased's superannuation or life insurance.

11 On 13 February 2017, Ms Perkins again raised her concerns with the defendants as to their administration of the trust and the estate. She sought reimbursement for certain expenses for the plaintiffs that she considered should be paid from the trust. Subsequently, the plaintiffs' then solicitors wrote to the defendants seeking payment of various expenses from the fund.

12 On 2 June 2017, the defendants advised that a grant of probate for the estate would not be sought and that the estate comprised of a motor vehicle valued at $3,000 and the sum of $20,000 held in a St George bank account.

13 On 13 September 2017, Ms Perkins wrote to the complaints department at Telstra Super Pty Ltd. On 11 October 2017, Telstra Super confirmed that the deceased had made a binding death nomination and that the superannuation funds had been distributed in accordance with that nomination. Correspondence between Telstra Super and the first defendant dated 18 October 2016 indicates that the death benefit of $533,804.97 was distributed to the estate of the deceased.

14 On 15 March 2018, the plaintiffs' solicitors wrote to the defendants highlighting their concerns regarding the deceased's assets, including the superannuation, Telstra shares and the proceeds of sale of the Kilcunda property.

15 On 8 May 2018, the defendants indicated, inter alia, that the superannuation benefit was held as part of the deceased's estate and that the proceeds of sale of the Kilcunda property and the Telstra shares were of a significantly lower value than the value suggested by the plaintiffs. The defendants did not provide a full accounting of the financial affairs of the estate, as requested by the plaintiffs. The defendants' solicitors also stated that even though the defendants had not been required to obtain a grant of probate, for the avoidance of doubt, they were prepared to do so.

16 By letter dated 16 May 2018 to the defendants, the plaintiffs foreshadowed issuing a proceeding in regard to their concerns over the lack of information about the assets of the estate and the inconsistencies in the information provided by the defendants, alleging that since the deceased's death the defendants had failed to obtain a grant of probate, failed to account for the various estate assets, including the deceased's superannuation, and had not yet made any distributions to the plaintiffs.

17 On 5 June 2018, the plaintiffs issued this proceeding supported by an affidavit sworn 28 May 2018 by the plaintiffs' litigation guardian, Ms Perkins.

18 On the first return date of 27 July 2018, the Court noted that, insofar as the plaintiffs sought orders for the removal of the defendants as executors and trustees of the estate, no grant of representation had yet been made to the defendants. The plaintiffs informed the Court they had intended to apply for leave to amend their application. The defendants indicated to the Court that they would soon obtain a grant of probate of the deceased's will, having advertised their intention to apply for a grant on 9 April 2018, and that they now agreed to provide the documentary information sought in the plaintiffs' originating motion.

19 Consent orders were made for the filing of affidavits by the defendants in response to the affidavit of the litigation guardian. The plaintiffs indicated that provision by the defendants of this information and obtaining a grant of probate may allay their concerns and could result in the resolution of the proceeding. The defendants indicated they proposed to provide the information concerning the assets and administration of the estate to the plaintiffs but queried the necessity of the proceeding.

20 The defendants' affidavit in response was filed on 29 August 2018. Not all of the requested information was included in the affidavit. By letter dated 19 September 2018 to the defendants' solicitors, the plaintiffs' solicitors again requested information and documentation as to the administration of the estate, including bank statements disclosing estate funds. By 3 October 2018, the defendants provided all the requested documents to the plaintiffs but had not obtained a grant of probate. At the directions hearing on 12 October 2018, the Court was informed the only issue outstanding was the costs of the proceeding.

21 The plaintiffs submit that the necessity of the proceeding was the failure of the defendants to provide information, obtain a grant of probate or administer the estate of the deceased. They contend that, despite their requests, the defendants have consistently failed to provide information and accounts since the date of death of the deceased. While the defendants filed affidavits responding to the plaintiffs' application on 28 August 2018, it was not until 13 October 2018 that the plaintiffs received proper documentary evidence concerning the financial position of the estate that then obviated the need for the continuation of the proceeding.

22 The plaintiffs submit that it has taken two and a half years, numerous requests and the proceeding for the defendants to provide proper accounting of the assets of the estate of the deceased. They submit that by the defendants' conduct and failure to provide any funds to the plaintiffs, the defendants have demonstrated a complete disregard for the terms of the deceased's will. Had it not been for the proceeding, it is unknown when, and indeed whether, the defendants would have provided proper information as to the financial affairs of the estate.

23 In respect of the defendants' failure to obtain a grant of probate of the deceased's will, the plaintiffs note that it took the defendants almost two years to advertise their intention to apply for a grant of probate. Only one month later, that is, on 8 May 2018, they informed the plaintiffs that they were not obliged to obtain a grant 'due to the assets held in the Estate', but that they would do so 'for the avoidance of doubt.' However, despite further indications that a grant would be obtained, at the date of the written costs submissions, the defendants had not obtained a grant of probate of the deceased's will.

24 The plaintiffs submit that the defendants' conduct falls within the category of cases where a special order for indemnity costs is warranted against the defendants, as the defendants' actions necessitated the proceeding and the defendants displayed a total lack of regard of their obligations as executors and trustees, contrary to the timely, orderly and transparent administration of the estate of the deceased.

25 The defendants submit that the plaintiffs should not be entitled to their costs being paid from the estate of the deceased. The defendants rely on the plaintiffs' application and the nature of their conduct, including_:_

(a) that the plaintiffs' application was premature, being issued before the defendants had an opportunity to answer the plaintiffs' requests. This caused unnecessary costs and expenses to the estate, which could have been avoided had they waited for an answer before commencing the proceeding;

(b) that in issuing the proceeding, the plaintiffs were not in keeping with their overarching obligations under the Civil Procedure Act 2010 (Vic) to take steps to resolve the dispute, narrow the issues in dispute and avoid unnecessary costs_;_

(c) that the defendants are independent lay trustees, with no financial interest in the estate or trust. They have endeavoured to discharge their duties honestly and there is no blameworthy conduct on their behalf. If any blame is found on the part of the defendants, the Court should find that they have acted honestly and that any breach of duty ought be excused pursuant to s 67 of the Trustee Act 1958 (Vic); and

(d) the proceeding brought a wide range of orders against the defendants and they were reasonably justified in defending the proceeding.

26 The defendants raised technical issues with the proceeding and the manner in which the plaintiffs seek their costs as follows:

(a) there is no formal application for costs before the Court, making it unclear whether the plaintiffs seek summary judgment, interlocutory costs orders or that the proceeding be discontinued;

(b) parts of the relief sought by the plaintiffs could not be granted and had no proper basis;

(c) there is no 'event' from which a costs order follows and there ought be no summary findings where there has been no hearing on the merits;

(d) the plaintiffs now seek a summary determination that the defendants have engaged in conduct so egregious as to warrant a special costs order. Such allegations are defended and it would not be appropriate to make such findings on a summary basis.

27 The jurisdiction of the Court as to costs is conferred by s 24(1) of the Supreme Court Act 1986 (Vic). This general discretion must be exercised in accordance with Order 63 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic).[1] A successful party is prima facie entitled to a costs order. The 'usual order as to costs' is that 'costs follow the event' and a successful party in litigation is entitled to an award of costs in its favour.[2] The unsuccessful party bears the liability for the costs of the unsuccessful litigation.[3]

28 The power to order costs is usually exercised after a hearing on the merits. Success in the action or on particular issues is the factor that controls the exercise of the discretion in most cases.

29 Where a proceeding is undetermined and has not been resolved by contest before a court in a hearing on the merits, the Court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. The Court has discretion to make costs orders either where a defendant has consented to a grant of final relief or if there is consensus as to the outcome of the proceeding.

30 In considering the costs of the proceeding where there is no determination on the merits, the Court may reach a conclusion that a costs order should be made, for example, in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin, McHugh J stated:

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. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. 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. [4]

31 The prima facie position in respect of costs in litigation is for standard costs to be ordered by the Court. A special costs order will only be made where the proceeding exhibits a special or unusual feature or special circumstances.[5] Each proceeding must be considered on its own facts and, specifically, whether those facts support the making of a special order for costs. In Ugly Tribe Co Pty Ltd v Sikol__a, Harper J identified the types of circumstances that warranted a special costs order, noting that the categories of circumstances are not closed.[6]

32 The plaintiffs are the beneficiaries of the residue of the estate and are entitled to information concerning the assets and financial details of the estate and how the trustees propose to administer the estate for their benefit.

33 The defendants are the trustees of the estate. They have a personal obligation to hold and deal with trust assets for the benefit of the beneficiaries and must account to them and provide them with complete and accurate information as to the administration of the trust.[7] Where relevant information is not forthcoming after proper requests are made and time is allowed for the provision of the information, it is reasonable for beneficiaries to approach the Court seeking orders for the provision of that information.

34 The terms of the deceased's will are uncontroversial and, as now revealed, the nature of the estate assets is not complex. Prior to commencing the proceeding, Ms Perkins requested the information as to the assets and administration of the estate from the defendants. The requests commenced in October 2016 and continued for more than two years after the deceased's death. In that time, the defendants did not provide any funds for the benefit of the plaintiffs and they provided elusive and conflicting responses to requests for information. By way of example, the defendants' responses to Ms Perkins' initial enquiries as to the assets of the estate failed to include significant assets, such as the proceeds of the deceased's superannuation held by the defendants since October 2016.

35 In addition, their responses regarding the proceeds of sale of the Kilcunda property, the Telstra shares and the deceased's bank account were inconsistent and uninformative. On 8 May 2018, the defendants indicated the proceeds of the sale of the Kilcunda property and the Telstra shares were valued at approximately $32,000. This information conflicted with their previous advice that the only assets of the estate were the deceased's motor vehicle and the sum of $20,000 in the bank. In response to this conflicting information and the defendants' attitude as to what comprised the assets of the estate, the plaintiffs made a further request on 16 May 2019 for a full accounting of the estate of the deceased, production of various bank statements and an explanation as to the reasons for the lack of distributions to the plaintiffs.

36 In view of these failures, the defendants' submissions that the defendants acted reasonably in discharging their duties as trustees, that the plaintiffs' requests would have been met without the proceeding, and that issuing the proceeding was premature must be rejected. The plaintiffs were justified in issuing the proceeding and it was reasonable and proper for them to do so. The focus of the plaintiffs' relief was for the provision of adequate and proper financial information and accounting of the estate of the deceased. Notwithstanding that the proceeding was issued in June 2018, the defendants did not provide all relevant information and documentation concerning the estate until 3 October 2018. It was at that stage that the plaintiffs' concerns were met and there was no further need for the continuation of the proceeding.

37 Insofar as the plaintiffs sought orders for the removal of the defendants as executors and trustees of the estate in circumstances where no grant of representation had been made, the defendants advertised their intention to do so on 9 April 2018 and informed the plaintiffs of their intentions. In May 2018, they told the plaintiffs they were prepared to obtain a grant and they informed the Court at the first directions that they would soon obtain a grant. The plaintiffs indicated that they would seek to amend the relief if a grant were not obtained. In view of the indications and statements of the defendants as to obtaining a grant, there was nothing to alert the plaintiffs that the defendants would fail to take that step. In substance, the orders for removal were subsidiary to the substantive relief sought by the plaintiffs, being information and documentation as to the assets of the estate in circumstances where more than two years had elapsed since the death of the deceased.

38 In respect of the defendants' submissions that no summons was issued by the plaintiffs seeking the costs of the proceeding, both the originating process and summons filed at the commencement of the proceeding sought the costs orders that the plaintiffs now seek. In the circumstances, it is unnecessary for the plaintiffs to issue a further summons seeking costs orders against the defendants.

39 The orders sought by the defendants include that the litigation guardian pay the costs of the plaintiffs. The Court will not make a personal costs order against a litigation guardian lightly. Generally, a litigation guardian, and not the person under disability, incurs the liability for the payment of costs.[8] However, a litigation guardian is generally entitled to recover all costs incurred on behalf of the person under disability in relation to the proceeding in which the litigation guardian has acted, provided that they have acted properly and in good faith.[9] The general rule is that a litigation guardian will not be ordered to pay the costs incurred by the person under disability except in the case of unreasonable behaviour or misconduct on the part of the litigation guardian.[10] In this proceeding, the litigation guardian has not behaved unreasonably, nor has she misconducted herself.

40 While there has not been a hearing on the merits of the proceeding, the plaintiffs were ultimately successful in the proceeding, as it resulted in the provision of the necessary information and documentation for the estate. The conduct of the defendants in failing to provide the information and documentation concerning the assets and administration of the estate over an extremely lengthy period of time, and providing inconsistent information to the plaintiffs, necessitated the proceeding. After the proceeding was commenced, the difficulty in obtaining the information continued for some months. The failures of the defendants to account to the plaintiffs in a timely manner and to provide them with complete and accurate information as to the administration of the trust over an extended period of time was unreasonable on their part and has caused a significant waste of time to the plaintiffs and to the Court. Such conduct falls with the special circumstances that warrant a special costs order against the defendants. It is not an answer to such conduct to submit now that they should be excused pursuant to s 67 of the Trustee Act 1958 (Vic).

41 The plaintiffs also seek orders that the defendants personally pay the plaintiffs' costs without recourse from the estate of the deceased. Where expenses in or about the administration of a trust are incurred, a 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.[11] The concept of proper expenditure excludes conduct demonstrating want of prudence or diligence.[12] Expenses and liabilities that are improperly incurred, such as when acting beyond power, in bad faith or exercising power 'with an absence of the 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.[13]

42 As stated, the defendants failed to provide the requested information concerning the assets and administration of the estate over a lengthy period of time and also provided inconsistent information. The defendants ought to have provided proper and accurate information much earlier, thereby obviating the need for the proceeding. The defendants' conduct, particularly their inexplicable failure over a significant period of time to meet their clear obligations to provide adequate disclosure, necessitated the proceeding. Such conduct lacked care, diligence and prudence on their part and they should bear the costs personally without recourse from the estate of the deceased. To the extent that the defendants have already paid their costs from the estate of the deceased, those funds are to be reimbursed to the estate forthwith.

(a) The defendants personally pay the plaintiffs' costs of the proceeding on an indemnity basis without recourse from the estate of the deceased; and

(b) The defendants bear their own costs of the proceeding and, to the extent they have already paid their costs from the estate, that those funds be reimbursed.

[1] Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) [2012] VSC 399, [11] (Croft J), affd on the issue of special costs Sunland Waterfront (BVI) Ltd & Anor v Prudentia Investments Pty Ltd & Ors [2013] VSCA 237, [538]-[551] (Warren CJ, Osborn JA and Macaulay AJA). See also Coombes v Ward (No 2) [2002] VSC 84.

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

[4] [1997] HCA 6; (1997) 186 CLR 622, 624 (McHugh J), cited in Seng Hpa v Walker [2017] VSC 320, [77]-[81] (McMillan J).

[5] Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, 230 (Sheppard J), quoting Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, 400-1 (Woodward J).

[6] [2001] VSC 189, [7]-[8]. See also Colgate-Palmolive Co v Cussons Pty Ltd (n 5); Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) (n 1).

[7] Re Simersall; Blackwell v Bray [1992] FCA 310; (1992) 35 FCR 584, 587-9 (Gummow J); Skaftouros v Dimos [2002] VSC 198, [11] (Mandie J), affd Dimos v Skaftouros [2004] VSCA 141; (2004) 9 VR 584; Re Fairbairn, deceased [1967] VicRp 72; [1967] VR 633.

1. [8] Dey v Victorian Railways Commissioners (1949) 78 CLR 62, 113 (Williams J); Murray v Kirkpatrick (1940) 57 WN (NSW) 162; Stephenson v Geiss [1998] 1 Qd R 542, 558 (Lee J); NSW Insurance Ministerial Corporation v Abualfoul [1999] FCA 433; (1999) 94 FCR 247.
2. [9] Slaveski v State of Victoria [2009] VSC 596; (2009) 25 VR 160, 185-6 (Kyrou J).

[10] Morgan v Morgan (1865) 12 LT 199; Australian and New Zealand Banking Group Ltd v Dzienciol [2001] WASC 305 (S), [17] (McLure J). See also Anthony v Vaclav [No 2] [2009] VSC 626, [8] (Vickery J).

[11] Trustee Act 1958 (Vic) s 36(2).

[12] Nolan v Collie [2003] VSCA 39; (2003) 7 VR 287, 303-10 (Ormiston JA); Dimos v Skaftouros (n 7) 617 (Dodds-Streeton AJA), referring to National Trustees Executors & Agency Company of Australasia Ltd v Barnes [1941] HCA 3; (1941) 64 CLR 268.

[13] Nolan v Collie (n 12) 308 (Ormiston JA). See also Re O'Donogue [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 (Finkelstein J).