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[2018] VSC 200
Supreme Court of Victoria
2018-04-27
SIFRIS J
Original judgment source is linked above.
COSTS - Trial over 3 Stages - Plaintiffs largely unsuccessful - Defendant trustees in breach of Trust but successful at Stages 2 and 3 - Approach to costs - Costs decided on success at each Stage.
COSTS - Whether defendant entitled to indemnity costs - Defendant's conduct also unsatisfactory - Defendants failed to concede breach of trust until trial of Stage 1 - No entitlement to indemnity costs.
CIVIL PROCEDURE - Overarching obligations - ss23 and 24 Civil Procedure Act 2010 (Vic) - Overarching obligations to narrow issues in dispute and ensure costs are reasonable and proportionate - s28(2) Civil Procedure Act 2010 (Vic) - Court's power to take contravention of overarching obligations into account in exercising discretion as to costs.
1 This is my fourth substantive Judgment in this case.[1] It deals with the costs of the proceeding. I will assume familiarity with my three previous decisions and defined terms will bear the same meaning.
2 In the First Judgment I found various beaches of trust on the part of the Trustees of the Scots Church Property Trust ('SCPT' or the 'Trust') ('Trustees'). I found that the acquisition of the Assembly Hall and improvements made were all in breach of trust. The Assembly Hall was acquired for $4.5 million and improvements were in excess of $6.9 million. These amounts were required to be distributed equally to each of the charitable objects of the Trust, being the Presbyterian Church of Victoria ('PCV') and the Board of Management ('BOM'). The funds were not so distributed and were deployed in breach of trust. All seven agreed questions (and the related matter of the Lease Premium)[2] as referred to below concerned these matters.
3 In the Second Judgment I answered four further agreed questions relating to the appropriate remedy consequent upon the breaches of trust. I also dealt with a fifth agreed question relating to the stipend issue.[3]
4 I held that, as a result, '[t]he PCV holds a 37% proprietary interest in the Assembly Hall and the BOM holds a 63% proprietary interest in the Assembly Hall'.[4] This was the entire remedy for the identified breaches.
5 In relation to the stipend issue, I held that the amount stated in the Trust Deed, that is the sum of £1000 (in 1891) was to 'change from time to time to keep pace with the changing value of money'.[5]
6 In the Third Judgment, I rejected the PCVTC's application for accounting orders and/or a declaration concerning accounting under clause 8 of the Trust Deed.
7 Although the third party proceedings and the Trustees' claim for indemnity out of the assets of the SCPT have yet to be determined, it was considered desirable to deal with the costs of the proceeding before the remaining issues. Needless to say, the costs issue is, in many ways, directly relevant to the remaining issues.
8 PCVTC seeks an order that the Trustees pay 70 per cent of its costs on the standard basis.
9 The Trustees seek an order that PCVTC pay their costs on an indemnity basis.
10 The BOM seeks an order that the PCVTC pay its costs on the standard basis.
12 By summons filed 10 November 2017 PCVTC claims costs against Ansvar Insurance Limited ('Ansvar'). The claim is for 70 per cent of the costs on the standard basis. Ansvar is and was at all relevant times the insurer of the Trustees under a Directors and Officers Liability and Reimbursement Insurance Policy, amended so as to apply to the Trustees. Submissions were filed by Ansvar and a reply submission by PCVTC.
C. The course of the proceeding - Stages 1 to 3
13 On 7 June 2016 I published reasons for holding that the acquisition of, and improvements made to the Assembly Hall by the Trustees were all in breach of trust.[8]
14 The Assembly Hall was acquired for $4.5 million and improvements were in excess of $6.9 million. These amounts were required to be distributed equally to each of the charitable objects or beneficiaries of the Trust,[9] being the PCV and the BOM. The funds were not so distributed and instead were deployed in breach of trust. A summary of the various claims made is set out at paragraphs [4]-[16] of the First Judgment.
15 The first stage of this proceeding ('Stage 1'), to which the First Judgment was directed, involved answering seven agreed questions.
16 The seven questions and answers were as follows -
A - The Lease Premium was distributable. It was clearly moneys received under or by virtue of a lease.
2. Q - If the moneys were distributable pursuant to clause 7 -
(a) was the $4.5 million used to pay the purchase price of the Assembly Hall distributed pursuant to clause 7 of the Trust Deed?
(b) If it was not so distributed, what is the consequence in law?
A - (a) The Lease Premium was not distributed. It was, by agreement, paid out prior to distribution. The fact that the structure of the transaction was premised on how a distribution would have taken place, merely provides an explanation but does not make it a distribution.
(b) The consequence is that there was a breach of trust.
(a) pursuant to any provisions of the Trust Deed, including clause 9, conferring a power on them to do so? or
(b) on separate express trusts independent of the SCPT Deed.
A - (a) No. The SCPT does not permit the acquisition of the Assembly Hall and clause 9 does not provide such authority.
(b) The purported acquisition of the Assembly Hall was not acquired on separate trusts.
A - Yes, the Assembly Hall is charged with the repayment.
A - The consequence is that the Assembly Hall is charged with the repayment of this amount.
17 In the First Judgment I expressed some preliminary conclusions. Paragraphs [197]-[208] are in the following terms -
206 Third, matters associated with proprietary relief -
18 After a number of directions hearings and further argument, the parties agreed on five further questions relating to the appropriate remedy consequent upon the breaches of trust. The fifth question related to the stipend issue.
19 The four questions directed to the appropriate remedy were as follows -
1. Whether an election is to be made by or for either charitable object in relation to the relief that may be ordered in consequence of the breaches of trust which have been found by the Court;
2. If an election is to be made as to the relief that may be ordered, the identity of the electing party or parties;
3. If an electing party elects to take an interest in the Assembly Hall (being the land contained in certificate of title Vol. 3757 Fol. 276), the extent of that party's interest in the Assembly Hall or the proceeds of a sale of the Assembly Hall subsequent to its election;
4. The validity of the lease dated 7 May 2008 granted by the first to fifth defendants to the second plaintiff in respect of part of the Assembly Hall and what if any relief is appropriate to rectify any invalidity.
21 The remaining issues related to the application by the PCVTC for accounting orders, and/or a declaration concerning accounting under clause 8 of the Trust Deed. A proposed declaration and comprehensive orders for the taking of accounts before an Associate Judge were submitted.
22 The Trustees resisted the application and contended that no such declaration or orders for the taking of accounts should be made. They were successful. The BOM elected not to appear and made no submissions.
23 There are three important points that should be noted at the outset.
24 First, unlike most Judgments, I do not propose to rehearse the various arguments put forward by the parties. They are unnecessarily long, repetitive and at times reasonably and perhaps unnecessarily complex and there is little point in summarising the arguments, which as noted, exceed 150 pages. I have read, re-read and considered all of the submissions. They will be referred to where necessary or desirable. Finally, the path of reasoning for the decision as to costs is clear and readily apparent and will not be assisted by any such summary, save where may be appropriate. Courts must strive to keep Judgments shorter.
25 Secondly, other than to state the obvious, that is, that the Court has a very broad discretion in relation to costs and may adopt an issue by issue approach if appropriate, there is no need to refer to any authority, save where a specific matter or issue so requires. The relevant principles have become trite and a lengthy recitation of authority should be avoided.
26 Thirdly, as may be expected in a case of this kind, there are no offers of compromise under the Rules and no offers that can readily or easily be called Calderbank type offers. However, there were numerous offers and counteroffers, intense negotiations and three failed mediations. Each party has attacked the conduct of the other both prior to the commencement of the proceeding and during the course of the proceeding, including the various stages of the trial. Numerous correspondence has been referred to. Each party adopted a negotiating position severely criticised, in some cases fairly, by the other.[12] It is neither desirable, necessary nor appropriate to undertake a detailed progressive analysis of the conduct of the litigation by the parties, save where may be relevant.
27 This analysis must be the starting point and indeed the most important consideration.
28 The critical issues with which the First Judgment and Stage 1 was concerned (despite the agreed 7 questions) related to the acquisition of the Assembly Hall, by SCPT from PCVTC, for $4.5 million and the improvements in the sum of about $6.9 million. The relevant funds were deployed in breach of trust and should have been distributed in accordance with the provisions of the SCPT Deed.
29 The position of the relevant parties in relation to the acquisition of the Assembly Hall is as follows:
The outcome was that the Assembly Hall was charged with the repayment of the sum of $4.5 million (see answer to question 5) a position not advanced by any party.
30 Early in the trial of Stage 1 it was agreed that the Trustees were not authorised to deduct the sum of approximately $6.9 million for the renovation and improvement of the Assembly Hall and thus such deductions constituted a breach of trust.[13] Accordingly the point was not argued and the Court held that the Assembly Hall was charged with the repayment of the said amount (see answer to question 7).
31 Realistically, no party succeeded in Stage 1. In relation to the acquisition of the Assembly Hall, the Court made a finding against the contention of the parties, and the breach of trust associated with the renovation and improvement of the Assembly Hall was agreed, save for the relief which the Court dealt with in question 7. Perhaps this should have been agreed or conceded by the Trustees at an earlier stage given the extensive particulars provided by PCVTC (and other matters).[14]
32 The critical issue with which the Second Judgment and Stage 2 was concerned (despite the agreed 5 questions) related to the appropriate remedy consequent upon the breaches of trust as found by the Court in Stage 1. The position of the relevant parties in relation to the appropriate remedy is as follows:
• PCVTC - Lost in full (asserted that the Assembly Hall must be sold, alternatively a 50/50 division with adjustments).
• BOM - Lost in part (made a claim for 100 per cent).
• Trustees - Won (percentage interests in the Assembly Hall are as submitted by Trustees and accepted by the Court - PCV 37 per cent and BOM 63 per cent).
33 It must be noted, however, that although PCVTC did concede that adjustments were required, its primary position was that the remedy of a constructive trust was not available, given the nature of the trust, and that the only remedy was an order for sale of the Assembly Hall in order to replenish the trust estate. This submission was rejected. The suggested equal division was its alternative submission. That submission was also rejected.
34 Aside from the percentages, there was much argument about the remedy itself and the primary position of the PCVTC. In this regard BOM (and the Trustees) succeeded and PCVTC lost.
35 The remaining part of the Second Judgment and Stage 2 dealt with the stipend issue. The result was as follows:
36 The critical issue which the Third Judgment and Stage 3 was concerned referred broadly to the taking of accounts. The result was as follows:
37 Although PCVTC was unsuccessful, the Trustees did make some concessions in relation to the structure and formatting of the accounts.
39 In my opinion PCVTC is not entitled to recover any of its costs, whether against the Trustees or Ansvar.
40 First, PCVTC was almost entirely unsuccessful. Stages 2 and 3 were entirely unsuccessful. So far as Stage 1 is concerned, the only question is whether it should get its costs of the breach of trust claim relating to the renovation and improvements to the Assembly Hall up until the time such breach was effectively admitted.[15] The other part of the Stage 1 case was lost. In the exercise of my discretion I do not consider that PCVTC should recover such costs. Aside from matters of calculation which would burden the Court further, a simple case could have been run dealing with such breach unencumbered by the numerous other allegations that effectively came to nought.
41 Secondly, and of considerable importance is that I do not consider the PCVTC was simply an innocent beneficiary denied its entitlement as a result of the unilateral conduct of the Trustees acting in breach of trust. It is not necessary to resort to concepts such as complicity, aiding and abetting or knowledge of (or participation in) such breach. It is sufficient for present purposes to say that there was, in effect, one indivisible and composite transaction that involved multiple breaches of trust and that PCVTC was an integral part of this transaction in every sense, from conception to completion and ultimately receiving a substantial amount from the sale of the Assembly Hall[16] which it repeatedly refused to bring to account asserting that such sale was a separate and distinct transaction.
42 Even where a trustee has been found to be in breach of trust, as in this case, the Court has power to shape its costs order to meet the circumstances of the case. In particular, the Court has the power[17] to make orders taking into account a plaintiff's conduct of the proceeding notwithstanding that the defendant trustees were found to be in breach of trust in some respect.[18]
43 That ability to shape its orders as to costs is reinforced by the obligations contained within the Civil Procedure Act 2010 (Vic) of all parties (plaintiffs included) to narrow the issues in dispute and to ensure that costs incurred are reasonable and proportionate.[19] Those principles are, of course, equally applicable to trust proceedings.[20]
44 In Nissen v Grunden - a prolonged breach of trust case in which, notwithstanding the existence of a breach of trust, the plaintiff was in substance unsuccessful - Barton J observed:
Law, though sometimes a necessary medicine, is generally a nauseous one; and it resembles some other medicines in this, that it is apt to induce ailments more disagreeable than those for the cure of which it is invoked. I trust that the respondent [ie plaintiff], when he reflects on the order of this Court, will realize this truth, and will also realise that attempts to administer medicine to others may sometimes result, quite justly, in having to swallow it oneself. A little sensible conversation, conducted in a spirit of fair play, would probably have resulted in an arrangement completely satisfactory to all really concerned, unless personal differences were held more important than the interests of the beneficiaries; and I decidedly think that an endeavour to that end should have been made. The litigation was rashly entered upon, and still more rashly continued...[21]
45 The conduct of the litigation has been remarkable and the comments of Barton J, made over 100 years ago, are equally applicable to this case. No party is entirely free from blame.
46 In the final analysis the position taken by the PCVTC from beginning to end was extravagant, unrealistic, disproportionate, and perhaps opportunistic. This brings me to the third reason why PCVTC should not recover any costs, namely conduct. This conduct, dealt with in more detail in the next section, as part of the Trustees' application for indemnity costs, certainly militates against any order for costs in favour of PCVTC. Of course it does not necessarily follow that the Trustees are entitled to indemnity costs. There are other issues to consider and the next section deals with the Trustees' application for costs.
47 Finally, it is not without significance that the Trustees are voluntary Trustees and their composition has changed from time to time. Further, to some extent they acted on legal advice and in tandem with PCVTC in an endeavour which has been of substantial benefit to all.[22]
48 There should be no order for costs in favour of PCVTC.
49 I do not consider that the Trustees should recover any costs relating to Stage 1. They lost the point relating to the power to acquire the Assembly Hall and made a late albeit appropriate concession (well into the trial of Stage 1) that they were in breach of trust relating to the renovation and improvements to the Assembly Hall.
50 However, I consider that they should have their costs relating to Stages 2 and 3 notwithstanding that they have been found to be defaulting trustees.
51 They won Stage 2 and 3. The Court accepted their submissions and there was - following Stage 1 and the appropriate concession referred to - no need for Stages 2 and 3. I do not consider that their breaches of trust, serious as they are, particularly given the legal advice received from leading Queen's Counsel, should disqualify them from recovering such costs. The costs, however, should only relate to the trial of Stages 2 and 3, including the hearing, preparation and submissions. I do not propose to allow other interlocutory costs, such as pleadings, directions hearings and the like. I also do not consider that, despite such success, they should recover such costs on an indemnity basis.
52 Although there is some substance in their submissions relating to the conduct of PCVTC, such as would enliven the jurisdiction to award indemnity costs, their own conduct generally cannot be ignored. In the exercise of my discretion I consider that in all of the circumstances of this case the Trustees should not recover indemnity costs relating to Stages 2 and 3, or indeed Stage 1 as sought.
53 The Trustees claim indemnity costs on two bases. First, disregard of known facts or established law and, second, offers of settlement. Underpinning both bases is the Trustees' repeated reference to several matters relating to the justice of the case that compel, it was submitted, the exercise of the discretion to award indemnity costs. Indeed, paragraph G of the Trustees' submissions is headed 'The Justice of the Case'.
54 It is as well to set out several paragraphs of the Trustees' submissions in this regard:
(a) the creation of a separate Assembly Hall Trust;
(b) the payment by the Trustees of millions of dollars by way of restoration of the SCPT;
(c) the taking of accounts;
(d) declarations as to the appropriate amount to be deducted for minister's stipends and the collegiate charge;
(e) declarations as to the validity of maintaining a sinking fund.
(a) which has substantially enhanced the value of the corpus and the amount of the distributable income of the SCPT;
(b) which had been sanctioned by the General Assembly; and
(c) in which the PCVTC and the PCV were integrally and intimately involved.
55 Although there is some substance in each ground there are also some difficulties and matters that, when considered in the context of the case as it unfolded, make it more desirable not to award indemnity costs, and in the exercise of my discretion I decline to do so. Each basis has its difficulty and the justice of the case is not all one way.
56 The first argument, disregarding known facts and established law, is not persuasive in relation to Stage 1. The assertion and claim that the acquisition of the Assembly Hall was on different trusts failed. However, the claim was not plainly hopeless. The Trustees disagreed and said the acquisition was within power. Further, in their negotiating position, the Trustees were prepared to consider such alternative trust. The Court held differently. The costs relating to the expenditure on renovation and improvement was not only arguable, but indeed succeeded. Although Stages 2 and 3 are different and there is more of a basis to claim indemnity costs, there were a number of matters that were fairly arguable. The precise percentages as between PCV and the BOM, the stipend issue, the precise structure of the accounts were all arguable. PCVTC lost the argument and must pay the costs, but there is no ground to make a special award on the first basis, save perhaps for the argument that a sale of the Assembly Hall was the only remedy. It clearly was not and the contention, in my view, had little or no merit. However, being part of a broader issue and in the context of the entire case, an order for costs on the standard basis is, in my view, desirable and appropriate.
57 The second argument is also not entirely persuasive for the reasons set out in paragraph 26 above. The force of the Trustees' submission referred to above is substantially reduced by its own failure to acknowledge a breach of trust in relation to the acquisition of the Assembly Hall (and the associated expenditure on renovation and improvements which was only conceded during Stage 1) and the need to attend to this breach in the traditional way, as indeed the Court has done. Any discussion and settlement was based on the wrong premise. These were critical matters. The basis of the discussions and proposals did not adequately take these fundamental core matters into account. The alternative trust that the parties were discussing failed to give consideration to the substantive breaches of trust (which were not asserted or indeed acknowledged) and the necessary remedy that was required to take into account the position of the charitable objects. In these circumstances it cannot be asserted that one party should have simply accepted the position of the other.
58 Finally, it is not, in my view, productive or persuasive to submit that, in retrospect, if the conduct of PCVTC was not so extravagant and unreasonable - which it was in many ways - the matter would likely have settled. As the trial Judge, I am far from confident in making such an assumption and, in any event, I am even less confident that the relevant breaches of trust would have been adequately dealt with. The fact is the parties did not try hard enough and were not prepared to make the necessary concessions and admissions.
59 Although not strictly relevant, I note that the Trustees have, in any event, been indemnified for their costs by Ansvar, and they are not personally out of pocket.
60 The BOM did not participate in Stages 1 and 3. It had limited success in relation to Stage 2. It succeeded in resisting the claim made by PCVTC that there is no alternative but to sell the Assembly Hall (a point successfully argued by the Trustees) but failed in the determination of percentage interests as between the beneficiaries.
61 In all of the circumstances I consider that BOM should recover 50 per cent of its costs of the trial of Stage 2, including the hearing, preparation and submissions, but excluding other interlocutory costs. These costs should be taxed in the absence of agreement on the standard basis.
62 I consider and indeed said on many occasions that this was a most unnecessary and undignified dispute. It is in fact shameful. The matter should never have come to Court, particularly given the identity of the litigants. I am almost minded to call for an inquiry into costs. No doubt millions of dollars could have been deployed for charitable purposes. What a waste of considerable time and money. Nobody can escape blame and it is not productive to assign degrees of blameworthiness. I can only yet again encourage the parties to resolve all matters once and for all and not burden the Court of Appeal with matters that are best and only properly dealt with and resolved between the parties, using the Court, if required, in its extensive supervisory jurisdiction.
63 There will be no order for costs in favour of PCVTC.
64 PCVTC is to pay 50 per cent of the costs of the BOM of the trial of Stage 2 on the standard basis, such costs to be taxed in the absence of agreement.
65 PCVTC is to pay the costs of the Trustees of the trial of Stages 2 and 3 on the standard basis, such costs to be taxed in the absence of agreement.
66 The summons by PCVTC addressed to Ansvar is dismissed with costs on the standard basis to be taxed in the absence of agreement.
[1] The Presbyterian Church of Victoria Trusts Corporation v Anstee, Nuske, Evans, Holman, Kerss & Ors (No 1) [2016] VSC 297 ('First Judgment'); The Presbyterian Church of Victoria Trusts Corporation v Anstee, Nuske, Evans, Holman, Kerss & Ors (No 2) [2017] VSC 102 ('Second Judgment'); Presbyterian Church of Victoria Trusts Corporation v Anstee, Nuske, Evans, Holman, Kerss & Ors (No 3) [2017] VSC 374 ('Third Judgment').
[2] The Lease Premium was the sum of $5.5 million paid by APN to the Trustees on 7 April 2008 under a ground lease between the parties. The sum of $4.5 million was used by the Trustees to acquire the Assembly Hall.
[3] See First Judgment at [80]-[93] and Second Judgment at [66]-[83].
[6] PCVTC submissions dated 31 October; Trustees' submissions dated 31 October 2017; BOM submissions dated 31 October 2017.
[7] PCVTC submissions dated 15 November 2017; Trustee's submissions dated 15 November 2017; BOM submissions dated 18 November 2017. The third party also filed submissions on 15 November 2017.
[9] Given the structure of the Trust and in particular the obligation to distribute all income received in a certain order or priority with the balance to be divided equally between two stated 'entities' it is not unhelpful to refer to those entities (PCV and BOM) as beneficiaries. It is indeed those identified beneficiaries that have stated charitable objects. Although nothing turns on this, SCPT does not as such make charitable bequests in accordance with stated objectives. Rather, this is carried out by those identified beneficiaries. I have used the terms interchangeably.
[11] The Mezzanine Lease was set aside without concession. In relation to the Stipend issue, see paragraph [35] below.
[12] I have read the table of 'without prejudice' offers and all of the offers. The offers, counteroffers and revised offers are no more than the negotiating position taken by the parties. None were readily capable of acceptance and none adequately reflects the decision made by the Court at the relevant stage. Accordingly they are of limited utility, particularly in a case concerned with a range of matters, the major issues not easily dealt with separately.
[13] According to Carruthers this was on day 7 of the trial (see affidavit of Amanda Victoria Melanie Carruthers sworn 15 November 2017 [5]).
[14] See the preliminary conclusions expressed in the First Judgment at [197]-[208].
[15] It is not without relevance that the claim in this regard was only made by an amendment to the statement of claim on 5 November 2014.
[16] Leaving aside the substantive benefits associated with the Mezzanine Lease which was later set aside without concession.
[18] Nissen v Grunden (1912) 14 CLR 268; Hagan v Waterhouse (No 2) (1992) 34 NSWLR 400.
[19] Civil Procedure Act 2010 (Vic) ss 23, 24.
[20] Robinson v Jones (No 2) [2015] VSC 334, applying Yara Australia Pty Ltd v Oswal [2013] VSCA 337; (2013) 41 VR 302.
[21] (1912) 14 CLR 268 [311]-[312].
[22] The benefit is obvious and it is hardly necessary to resort to the expert evidence sought to be tendered by the Trustees but objected to by PCVTC.
[23] The payment of $4.5 million (split in equal parts between the PCVTC and the PCV) and the 99 year lease (with 2 options for a further 99 years each) granted to the PCVTC for the mezzanine area of the Assembly Hall at a peppercorn rent.
[24] To be held on trusts of one or other kind.
The Presbyterian Church of Victoria Trusts Corporation
Anstee, Nuske, Evans, Holman, Kerrs & Ors
(1912) 14 CLR 268
(1992) 34 NSWLR 400
(2013) 41 VR 302