ROUSE & ORS v IOOF AUSTRALIA

3. Thus it was that the defendant destroyed the confidentiality attaching to those documents.

4. Thereafter the defendant and its advisers failed to disclose to the plaintiffs that it was in possession of and had read the plaintiffs' documents.

5. The defendant and its solicitors failed to advise the plaintiffs or the plaintiffs' legal advisers that it had these documents notwithstanding that it had advice from senior counsel that the documents should be returned.

6. It was not until the defendant made an application to this Court for a stay of these proceedings upon the basis that the proceedings were an abuse of process that the defendant's solicitors advised the plaintiffs' solicitors that the documents were in the defendant's possession.

7. The original documents were returned to the plaintiffs' solicitors on 16 July 1998. Copies were retained by the defendant and the defendant's legal advisers. On 20 July 1998, senior counsel for the plaintiffs, Mr T A Gray QC, applied orally for the return of all copies of the documents.

"1. That the defendant by close of business on Wednesday 29 July deliver to my associate/chambers all copies of the document, LJH10 to the affidavit of Mr Huxtable sworn on 16 July 1998. 2. That the defendant's solicitors, Johnson Winter & Slattery be permitted to retain one copy of that document and counsel, Mr Abbott QC, be permitted to retain a further copy of the document but that the content of the document is not to be communicated by the solicitors or by counsel to any other person except to the extent that it is necessary to do for the purposes of obtaining instructions from their client in connection with the application for the return of the remaining."

9. In due course that oral application for the return of the documents was renewed before me. The application was:

"That the defendant deliver up the copies of Exhibit LJH10 to the affidavit of Lindon John Huxtable sworn on 16 July 1998 in the possession of the defendant or the defendant's legal advisers."

10. Of course, if the Chief Justice's order had been complied with then the only copies of the documents out of the possession of the plaintiffs' were the copies in the possession of the defendant's solicitors and senior counsel.

11. On 30 March 1999, I delivered reasons for an order which I made on 31 March 1999 in the following terms:

"The defendant deliver to the Associate to Lander J by 4.00 pm 1 April 1999 all copies of the documents, the documents exhibited LJH10 to the affidavit of Lindon John Huxtable sworn on 16 July 1998 in the possession, custody or power of the defendant and its legal advisers not otherwise delivered up in accordance with the Chief Justice's order of 23 July 1998."

12. I am told the defendant has complied with the order.

13. Thereafter the plaintiffs sought the costs of the application to the Chief Justice and of the application to me. On 1 April 1999 I gave reasons for making the following order in relation to costs:

"That the defendant pay to the plaintiffs their costs of and incidental to the plaintiffs' application made to the Chief Justice on 20 July 1998 and finally determined by me on 30 March 1999 on an indemnity basis."

14. The plaintiffs are the beneficiaries of certain trusts administered by the defendant. I believe that there are about 25,000 beneficiaries in total so in number the plaintiffs are a very small number of the beneficiaries. However I understand it to be the case that the plaintiffs collectively are entitled to a greater share of the capital and income of the trust than their numbers suggest. It was put to me from the bar table that the plaintiffs were entitled to 5 percent of the capital and income of the trust.

15. The plaintiffs have sought a consequential order to the order for costs made on 1 April 1999.

"There be a declaration that the defendant not be entitled to trustees indemnity from the trust estate for 1. its own costs; or 2. the plaintiffs' costs of and incidental to the plaintiffs' application for return of the documents made on 20 July 1998."

Essentially the plaintiffs seek an order by way of declaration or otherwise that the trustee pay the order for costs made on 1 April 1999 out of its own resources and without recourse to the trust funds.

Naturally enough the defendant opposes any such order.

Neither party has sought to invoke the jurisdiction given by r101.06 of the Supreme Court Rules. Neither party has claimed that the parties' costs have been incurred improperly or without reasonable cause or have arisen because of the responsibility of the solicitors for the defendant.

If either party had sought to argue accordingly I would have been entitled, upon proper notice being given to those solicitors, if the circumstances warranted, to disallow the costs as between the defendant's solicitors and the defendant and order that the defendant solicitors personally indemnify the plaintiffs in relation to their costs.

The effect of such order if it had been made would have been to relieve the defendant of any liability for costs and therefore relieve the beneficiaries of any loss incurred by the defendant seeking recourse to the trust funds to meet those orders for costs.

However, as I say, neither party asserts that jurisdiction should be invoked.

That seems to me to be particularly important in the case of the defendant. The defendant cannot, it seems to me, defend itself in relation to this application by pointing to any impropriety or other default on the part of its solicitors. The defendant has associated itself with its solicitor's own actions. The defendant has done so in circumstances where its solicitors obtained the advice of senior counsel which if acted upon would have meant that the original documents and I think probably the copies would have been returned to the plaintiffs.

It was not suggested by the defendant that the plaintiffs were not entitled to bring this application. Nor was it suggested that in the circumstances in the proceedings before this Court that I did not have jurisdiction to make an order of the kind sought.

The matter was addressed by both parties upon the merits.

It was put by Mr Gray QC, who appeared for the plaintiffs, that the order for indemnity costs which I made on 1 April 1999 almost demanded that I make the order sought on this application. I do not agree with that proposition. Quite different considerations were relevant to the question of whether plaintiffs should have indemnity costs. I referred to those considerations in my reasons on 1 April 1999.

In support of their application the plaintiffs pointed to the criticisms of which I had made of both the defendant and the defendant's legal advisers in my reasons for decision published on 30 March 1999. It was submitted that the defendant's behaviour was such that that of itself should be sufficient reason to mulct the defendant in costs.

In the alternative, or in addition, the plaintiffs asserted that the defendant had failed to take advantage of a procedure available to it which would have obviated these proceedings. It was submitted that the defendant should have made an application pursuant to s69 of the Administration of Probate Act seeking advice or directions. I am not entirely convinced that s69 of the Administration of Probate Act is a procedure available to a trustee in the circumstances which confronted this trustee on 11 May 1998.

There is, however, a procedure under r63.04 of the Supreme Court Rules which allows a trustee to take out a summons for the determination of any question relating to a trust and in particular asking the Court to consider any question affecting the rights of any person claiming to be a cestui que trust or asking the Court to direct the trustees to do or abstain from doing any act relating to the estate of the trust.

The procedure under r63.04 would have allowed the trustee to obtain advice and directions in relation to whether or not an application ought to have been made to stay these proceedings as an abuse of process. It would not have been necessary that the plaintiffs in these proceedings be heard on that application: In Re Moritz (deceased) [1960] Ch 251.

A similar procedure is also available under r103.02 of the Supreme Court Rules. That Rule allows a trustee to seek the determination of any question which could be determined in administration proceedings including any question arising in the administration of an estate or in the execution of a trust.

Rule 103.06 provides that in proceedings relating to a trust all persons having a beneficial interest under the trust need not be made a party. In those circumstances it may have been possible for the trustee to seek directions without joining these plaintiffs.

I think it can be accepted that procedures were available to the trustee to make application to the Court for advice and directions in relation to any application for a stay of the plaintiffs' proceedings on the ground that the proceedings were an abuse of the process of the Court.

Section 35(2) of the Trustee Act 1936 provides:

"(2) A trustee may reimburse himself, or pay or discharge out of the trust premises, all expenses incurred in or about the execution of his trusts or powers."

Ordinarily a trustee is entitled to be indemnified in relation to all of the trustee's legal costs in relation to any litigation brought or defended by the trustee in respect of his or her duties as trustee: Turner v Hancock (1882) 20 Ch D 303; In Re Beddoe; Downes v Cottam [1893] 1 Ch 547; National Trustees Executors & Agency Co of Australasia Ltd v Barnes [1941] HCA 3; (1941) 64 CLR 268 at 277.

In Re Beddoe; Downes v Cottam (supra) Lindley LJ said at 558:

"I entirely agree that a trustee is entitled as of right to full indemnity out of his trust estate against all his costs, charges, and expenses properly incurred: such an indemnity is the price paid by cestui que trust for the gratuitous onerous services of trustees; and in all cases of doubt, costs incurred by a trustee ought to be borne by the trust estate and not by him personally. The words "properly incurred" in the ordinary form of order are equivalent to "not properly incurred". This view of a right of a trustee to indemnity is in conformity with the settled practice in Chancery and with Turner v Hancock (supra), the latest decision on the subject."

In National Trustees & Executors & Agency Co of Australasia Ltd v Barnes (supra) Williams J said at 279:

"Such expressions as acting "for the benefit of" "with reference to" or "on behalf of" the trust estate or in the discharge of his duty as a trustee are used indiscriminately in the judgments, but they all mean the same thing, namely, that the question is whether the costs, charges and expenses are properly incurred by the trustee as an incident of his administration of the estate."

Whether costs have been properly or not properly incurred is a matter of fact. In that determination regard will be had to whether the trustee could have sought advice and directions from the court; the legal advice which was taken; the circumstances in which the litigation arose; whether it was initiated or defended by the trustee; the real prospects of success of the litigation; the person or persons who would have benefited in a successful conclusion of the litigation; the conduct of the trustee in the litigation and the result of the litigation.

If a trustee is sued by beneficiaries claiming some breach on the trustees part the trustee is entitled to employ legal advisers to defend himself or herself. If a trustee, in those circumstances, successfully defends the suit then it would be almost impossible to say that the costs were not properly incurred.

However the question usually arises where the trustee has been successfully sued or where the trustee has been unsuccessful in a suit brought by the trustee. Then the question is whether the costs have been properly incurred.

In In re Jones; Christmas v Jones [1897] 2 Ch 190 Kekewich J indicated circumstances where a trustee could not establish that the trustee's costs were properly incurred. First if a trustee is found liable for a breach of trust and the trustee has incurred costs in resisting the claim against the trustee the trustee is not entitled to recourse to the trust funds to indemnify the trustee in respect of those costs. Secondly if a trustee brings a claim which ex facie on the evidence and documents could not honestly be brought forward then the trustee is not entitled to recourse to the trust funds. Thirdly if the trustee is motivated by dishonesty then, of course, the trustee is not entitled to indemnity in respect of the trustee's funds. Kekewich J then identified a fourth category which he described as a 'claim... of a monstrous character' which he defined as; "one which no reasonable man could say ought to have been put forward". In those circumstances the trustee should not be entitled to indemnity for the trustee's costs; "even though the executor may have believed it, and a solicitor may have prepared the case and counsel may have argued it; in such a case the Court has quite sufficient power to deprive the executor of his costs, or even to make him pay the costs he has occasioned to the estate".

In In Re: Beddoe; Downes v Cottam (supra) Lindley LJ said that having regard to the small cost which a trustee would incur in obtaining the opinion of a judge of the Chancery Division as to whether an action should be brought or defended a trustee who brings or defends an action without such an opinion must show that the costs were properly incurred (p558). Lindley LJ held that the fact that a trustee had relied upon the advice of counsel was a matter to be taken into account in determining whether costs had been properly incurred but that the opinion of counsel was not of itself determinative of the matter. In that same case Bowen LJ held that a trustee, who embarked on litigation on the advice of a solicitor even if the trustee honestly believed the solicitor's advice, was not necessarily entitled to be indemnified in respect of the trustee's costs. If the solicitor has been wrong headed and perverse then in those circumstances the trustee is to be deprived of the trustee's costs.

I think I should approach this matter in the following way. A trustee, even if unsuccessful, may be entitled to recourse to the trust funds to indemnify the trustee in respect of litigation upon which the trustee has embarked or defended. Where the trustee has embarked upon litigation and has been unsuccessful then it is upon the trustee to establish that the costs which have been incurred were properly incurred or not improperly incurred.

In circumstances where the trustee has been guilty of a breach of trust or has acted negligently, dishonestly or monstrously then the trustee may not be entitled to indemnity from the trust funds in relation to the costs incurred because the trustee would not have properly incurred costs.

A trustee is not entitled to merely say that the trustee has acted upon the trustee's solicitor's advice or the advice of counsel if that advice is wrong headed and perverse.

The question in this case is whether the trustee has been guilty of any conduct of the kind referred to above.

In my opinion the trustee has not been guilty of a breach of trust and there is no suggestion that the trustee has acted dishonestly. The real question is whether or not the trustee has acted "monstrously", in the way in which Kekewich J defined it.

I suppose in a consideration of the trustee's position one must have regard to the wider picture. This trustee has brought a substantial claim for many tens of millions of dollars on behalf of 25000 beneficiaries against some of these plaintiffs (plaintiffs in the management action). That matter was due to commence before Williams J.

Not long before the matter was due to commence these plaintiffs brought proceedings seeking the appointment of an inspector to the trustee. Most of these plaintiffs have connections with the plaintiffs who are defendants in the management action. A little later the plaintiffs sought to amend their proceedings by widening the ambit of the proceedings seeking access to documents which would not have been available to them in their capacity as defendants in the management action.

Apparently the trustee considered these proceedings as an abuse of process and, in particular, a manoeuvre by the defendants in the management action (some of the plaintiffs in this action) to obtain access to documents to which the defendants would otherwise not be entitled.

When the defendant found the plaintiffs' documents on 11 May 1998 the defendant believed that those documents contained evidence of that abuse of process.

I think thereafter the defendant was actuated by misguided enthusiasm and, with respect, inappropriate advice on the procedure to be adopted. Even if these documents did contain evidence of an abuse of process the defendant should have been advised that the plaintiffs were entitled to know that the defendant had come into possession of the plaintiffs' documents. The defendant should have been advised that those documents should have been returned to the plaintiffs.

If the defendant had been so advised the defendant could then have applied for discovery of those documents and then sought an order to inspect those documents. The matter would then have proceeded in the ordinary way as an interlocutory argument.

The defendant's solicitors sought an opinion from Mr Whitington QC. He advised that the originals and all copies should be returned to the plaintiffs. In my reasons delivered on 30 March 1999 I inferred, because of the absence of any evidence from IOOF's solicitors, that Mr Whitington's advice was never passed onto the defendant.

I reached that conclusion for the reason to which I have just referred and also because there was no evidence of Mr Whitington's advice on the defendant's solicitors' file nor was the junior solicitor who had conduct of the matter advised of the content of the advice.

I am prepared to draw that inference again in these proceedings. I am surprised, if the inference is correct, that the defendant's solicitors have not told me that Mr Whitington's advice was never passed onto the defendant. Because it was in the defendant's interests that I be advised that the defendant had not been provided with that advice the defendant's solicitors had an obligation to their own client to advise me accordingly.

However, notwithstanding that omission, I am still prepared to infer that the defendant was never advised that senior counsel had advised that the original and any copies should be returned.

In fact the defendant received advice which in my earlier reasons I summarised as follows:

"1. The documents are not the property of IOOF. 2. The documents belong to the plaintiffs' solicitors or the plaintiffs. 3. The documents would have to be returned upon a request for their return. 4. The documents would have been subject to legal professional privilege when created. 5. Any privilege in the documents had been lost because the documents had been read by Mr Huxtable and Dr Baxter. Moreover, the "production in furtherance of a collateral purpose would mean that legal professional privilege is in any event lost". 6. IOOF can use the information in the documents as it thinks fit. 7. The fact that there is a trustee/beneficiary relationship between the plaintiffs and the defendant is irrelevant. 8. "The documents suggest (although they are not unequivocal) that the principal purpose of Auspine in seeking the inspection of documents and in proceeding under section 84C of the Trustee Act for the appointment of an inspector, was to further Auspine's interest in the action brought against it by IOOF". 9. IOOF was entitled to copy the documents and use them as it liked."

It was not until 16 July 1998 that the plaintiffs' solicitors were advised that the defendant had possession of these documents. The original documents were returned to the plaintiffs' solicitors on that day when they attended to collect the documents having been advised that they were in the possession of the defendant. Mr Huxtable then swore an affidavit on 16 July 1998 disclosing that the defendant had in its possession copies of the plaintiffs' documents.

It was probably that day that Mr M L Abbott QC advised that the documents ought to be used for the purpose of supporting an application for a stay of these proceedings as an abuse of process.

I am sure that the defendant, on reflection, would appreciate that its conduct during May to July 1998 was inappropriate. As I say, even if these documents did evidence a collateral purpose on the part of the plaintiffs the defendant's conduct was, in my opinion, entirely inappropriate for any party let alone a trustee.

I am satisfied, however, that the defendant acted at all times on the advice of its solicitors and after 16 July 1998 on the advice of Mr Abbott QC.

The plaintiffs argued, however, that the advice the defendant was given was wrong headed or perverse as described by Bowen LJ in In Re: Beddoe; Downes v Cottam. They argued that the defendant is not entitled to hide behind its legal advice. They say that the defendant's behaviour over the period mentioned and its conduct in resisting the plaintiffs' application for the return of all of the documents was so "monstrous" that the defendant should not be entitled to recourse to the trust funds.

The documents, in my opinion, do not evidence an abuse of process of the court. They are not irrelevant, however, to an argument of an abuse of process.

I am unable to say any more about the documents without revealing the contents of them which would, having regard to my earlier decision, be inappropriate.

In the end I am not persuaded that the defendant should have recognised that the advice which it received from its solicitors was wrong headed or perverse such that it ought to have known instinctively that it should not have proceeded in the way that it did.

As I have already said I do not approve of the defendant's behaviour. I think the defendant was overly enthusiastic and overlooked its obligations as a trustee and as a party to litigation. I do believe that it should have known that it should not have behaved in the manner in which it did prior to 16 July 1998. That, however, is not so much relevant to whether or not it ought to obtain costs because if it had behaved properly it could still have mounted the same argument albeit in a different way. If the defendant had adopted the procedure which I think would have been appropriate, i.e. by immediately returning the documents and making an application for discovery and inspection of the documents it could not have been said that it had behaved monstrously. Because of the way the defendant came into possession of the documents it was thereafter entitled to argue that the documents were discoverable because they evidenced an abuse of process.

It would not have succeeded, in my opinion, because the documents do not evidence an abuse of process but an application for discovery and inspection on that basis would have avoided any suggestion that the defendant's actions were monstrous in the way that Kekewich J defined the term.

The plaintiffs have been protected from the extra cost they were put to by indemnity costs. The defendant should not now be punished for adopting an inappropriate procedure where a procedure was available to have the same argument agitated and ruled upon.

In the end result I am not persuaded that the defendant should have known that the advice it received was so wrong that it should not have proceeded to resist the application for the return of the documents.

In those circumstances I am not prepared to make an order in the terms sought.