Succession - Wills, probate and administration - Probate and letters of administration - Costs - Where litigation caused by testator, executor or persons interested - In general - Costs of successful action for revocation of grant of letters of administration with will annexed - Whether administrator had reasonably arguable case - Whether language of the testator was unclear - Administrator seeking to obtain a personal benefit.

Sharp v Lush (1879) 10 Ch D 468; Higstrim v Ray (1895) 16 LR(NSW) Eq 1; In re Groom [1897] 2 Ch 407; In re Hall-Dare [1916] 1 Ch 272; Re Jones; Christmas v Jones [1897] 2 Ch 190; Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572, considered.

Applicant in 460 of 2009: Butler McIntyre & Butler

Respondent in 460 of 2009: Chris Boland Lawyer to 22/12/2009

Judgment Number: [2010] TASSC 1

TASMANIAN PERPETUAL TRUSTEES LTD v WANDA MAE BELL

1 By his will dated 22 November 1971, the testator, Gordon Bell, appointed one of his brothers, George Bell, to be the sole trustee and executor of the will. By cl 3, he devised and bequeathed the residue of his estate to his trustee to be divided equally between his five siblings "or the survivors of them as Tenants-in-Common".[1]

2 The testator died on 30 March 2007. He was predeceased by all of his siblings other than Catherine. On 18 June 2007, she also died. The will had not been proved at that time.

3 The plaintiff is the personal representative of Catherine by virtue of probate of her will granted to it on 24 July 2007. Plainly she had an interest in the residuary estate and under the Probate Rules 1936, r21(c), was entitled to apply for a grant of administration with the will annexed as an ultimate residuary legatee. However, she made no application and ill-advisedly, as I will explain, the plaintiff, as her personal representative, formally renounced its right to a grant of letters of administration.

4 On 19 February 2008, letters of administration with the will annexed were granted by the Court to the defendant. That was done by the Court ill-advisedly also. The defendant was the widow of George, one of the testator's four siblings who predeceased him, and she was the executor of George's will. Because George's estate had no interest in the testator's estate, she had no right to the grant. However, at that time, no one realised that.

5 Subsequently, the plaintiff realised that the defendant had no entitlement to a share in the estate, and that she had no right to apply for and obtain letters of administration. It decided that it had renounced mistakenly, and should have applied instead for letters of administration with the will annexed. On 18 June 2009, it commenced this action by which it sought an order revoking the grant to the defendant.[2] By originating application, it applied for leave to withdraw its renunciation.[3] The action came on for hearing before me. On 11 September 2009, I pronounced judgment for the plaintiff and made an order revoking the letters of administration with the will annexed that was granted to the defendant and declaring the same to be null and void to all intents and purposes of the law whatsoever.[4] The defendant accepted the result and in the proceedings commenced by originating application, an order was made by consent that the plaintiff have leave to withdraw its renunciation of its right to letters of administration.

6 The plaintiff has applied for an order that the defendant pay indemnity costs to the plaintiff in respect of both the action and the originating application. The defendant opposes the application and seeks an order that her costs of both proceedings be paid out of the estate. I will consider first the costs of the action.

7 The principal argument of the defendant at the trial was that the testator's expression "or the survivors of them" meant, or included, the spouse and issue of any of the siblings who predeceased the testator. In par14 of my reasons for judgment, I said that I could find no merit in her arguments. I went on to point out that a "survivor" is one who outlives another, and that everyone living at the time of George's death was a survivor of George, and not just his spouse and issue. I held that it was clear that what the testator intended by "them" were his siblings, and that by using the expression "the survivors of them" he was referring only to those of his siblings who survived him.

8 The defendant provided no authority for "survivor" meaning surviving spouse and issue. In my searches, I found no example of her argument being considered in scores of cases in which a testamentary reference to a survivor or survivors caused difficulties of interpretation.

9 In support of the application for costs, counsel for the plaintiff submitted that no question of construction properly arose and that there was absolutely no merit in the interpretation for which the defendant contended. He also relied on notice having been given to the defendant to that effect.

10 An affidavit of Miles Farrow, who was employed by the plaintiff as Manager Compliance and Legal, was relied on by the plaintiff in support of its application for costs. It provided the following information.

11 By early December 2007, the plaintiff, in its capacity as executor of Catherine, had become aware that the estate had an interest in Gordon's residuary estate and that the defendant, through her legal practitioners, was purporting to administer Gordon's estate. On 5 December 2007, the plaintiff wrote to the defendant's legal practitioner asking that he confirm that Catherine had an interest in Gordon's estate and asking for copies of probate, if any, and a schedule of assets and liabilities.

12 On 6 December 2007, the defendant's legal practitioner replied to the plaintiff. He confirmed that he acted for the defendant and said that he had been instructed to apply for a grant of letters of administration with Gordon's will annexed. As to the defendant, he said: "Mrs Bell is the Executor of the estate of the late George Bell who is a named residuary legatee in the Will of Gordon. In addition we note that you are the Executor of the estate of the late Catherine Page and note that Catherine is also a named residuary legatee in Gordon's Will." He asked whether the plaintiff wished to join with the defendant in applying for letters of administration or whether it wished to renounce its entitlement to apply.

13 In an internal email of 21 December 2007, the plaintiff's employee who was administering Catherine's estate, noted (erroneously) that the estate had a one-third interest in Gordon's residue, that the defendant's legal practitioner was administering Gordon's estate, that Catherine's one-third interest was estimated at $130,000, and that for reasons that were explained, it was advisable that the plaintiff should renounce its right to apply for administration of Gordon's estate and leave it to the defendant to apply for administration. Many errors of fact and judgment were made by the plaintiff's employee. In particular, she erroneously accepted that the defendant had an interest in the estate and a right to apply for a grant.

14 On 21 December 2007, the plaintiff wrote to the defendant's legal practitioner advising that the plaintiff would renounce its right to apply for letters of administration.

15 On 23 January 2008, the plaintiff renounced, and on 19 February 2008, letters of administration with the will annexed were granted to the defendant in respect of Gordon's estate.

16 The next evidence is that on 16 December 2008, the Registrar of the Court wrote to the defendant's legal practitioner. She set out the names of Gordon Bell's siblings and the dates of death of Gordon and each of them, and stated that on the basis of that information it appeared that the grant of letters of administration had been made in error. A response was sought.

17 As a result of that letter, the defendant's legal practitioner wrote to the plaintiff on 22 January 2009. He mentioned that the Registrar had raised concerns with the grant to the defendant and continued:

"These concerns stem from the Registrar's interpretation of the late Gordon Bell's Last Will and Testament dated 22 November 1971 and whether the estate of the late George Bell is to be correctly considered a residuary legatee. We are currently in the process of drafting a deed of settlement involving all beneficiaries included in the above-mentioned Will which we consider will resolve the concerns held by the Registrar and allow for the finalisation of the estate. It is our instructions and clear understanding that all beneficiaries will be amicable to a settlement by way of deed to resolve an [sic] potential for irregularity or later conflict. It is hoped that this deed will be presented to all beneficiaries by mid-February 2009."

18 The letter expressed no view concerning the correctness of the Registrar's conclusion that the grant had been made in error.

19 On 18 February 2009, the defendant's legal practitioner sent to the plaintiff a draft deed of settlement "for consideration by each estate standing to benefit from the distribution of the late Gordon's estate. Once all parties are agreed on the contents of the deed this matter can be resolved and a final distribution made." Once again, the practitioner avoided making any comment about the view expressed by the Registrar.

20 The draft deed of settlement provided for its execution by the defendant on behalf of the testator's estate, and by the defendant, the plaintiff, and three other sets of people as personal representatives of each of Gordon Bell's siblings. The draft contained lengthy recitals. They included: "The Residuary Gift was ambiguous and noting GORDON's charitable and caring nature WANDA adopted the preferred interpretation having the effect that the residuary was given to all five named siblings, or should they have predeceased GORDON, their surviving issue, as tenants in common in equal shares ('WANDA'S Interpretation')[5]." The recitals included that a renunciation of the right to apply for letters of administration of Gordon's estate had also been provided by the executor of the estate of James Kinear Bell, one of Gordon's siblings who had predeceased him. It is to be inferred that renunciations were not obtained from the representatives of two other siblings who had predeceased Gordon, which is puzzling.

21 Another recital referred to a letter of 9 January 2008 from the defendant's legal practitioner to the legal practitioner for the executor of the estate of James, advising, among other things, that James' estate held a one-fifth share in the residuary estate as a tenant in common. That appeared to conform with "Wanda's Interpretation". It is not apparent why it was the view of the plaintiff at that time that the estate of Catherine was entitled to a one-third share.

22 I mention the specific devise and bequest in the will of Gordon to his brother George. It concerned his unit known as Flat 9, 14 Ashfield Street, Sandy Bay inclusive of the furnishings, plate and glassware contained therein and used therewith, and also the motor car of which Gordon should die of possessed**.** It is clear law that the devise and bequest lapsed because George predeceased the testator. All of that property fell into residue. However, the recitals reveal that contrary to the law, the defendant had distributed to herself as personal representative of George, the proceeds of the sale of the unit amounting to $263,989.13, and she also took for George's estate the testator's car or the proceeds of its sale. Incredibly, for there was no legal justification, in explanation for doing so the recitals stated that "WANDA determined that the doctrine of lapse did not apply on the basis of the special and moral obligation owned by GORDON to GEORGE because inter alia the special and enduring bond between GORDON and GEORGE throughout GEORGE's life and the financial assistance and accommodation given and rendered by GEORGE to GORDON in his youth, his development and in later years but not repaid or returned other than by the said specific gifts of the Unit and the Car." It is apparent from that recital, that the defendant had decided that although the law concerning lapse did apply, her husband's estate should have those substantial assets because the testator had a moral obligation to her late husband. Her recitals continued with a statement that the personal representatives of all of the other siblings of the testator accepted her distribution of the proceeds of the sale of the unit and the car.

23 The recitals then went on to say that the Registrar of the Court, "noting the ambiguity of the Will regarding the Residuary Gift, charged WANDA with the task of resolving this matter." Those statements misrepresented what the Registrar had done when she raised with the defendant's legal practitioner that it appeared that the grant of letters of administration had been made in error and requested the practitioner to consider the situation and advise if there were any facts or issues he believed to be relevant.

24 Another recital stated that the defendant acknowledged "that a resolution of the ambiguity could only be obtained by litigation resulting in a court order or the reaching of a settlement" and that while she was "prepared to litigate the matter which would result in a significant diminution of the estate in legal costs and give rise to delay in the final administration of the estate WANDA has opted to settle the matter in the terms of this deed."

25 It was proposed by the deed that the representatives of the estates of each of the five siblings of the testator would receive 20 per cent of the residuary of the estate. However, the defendant was to retain the $263,989.13 from the proceeds of sale of the unit along with the car. It was also proposed by the deed that the defendant's legal costs and disbursements of administering the estate, amounting to $5,800, be paid out of the residuary estate before distribution.

26 Finally, it was proposed by the deed that each of the parties would release and indemnify the defendant from all actions and claims in respect of the administration of the testator's estate, the grant of letters of administration and the distribution of the proceeds of sale of the unit and the car.

27 The plaintiff questioned the defendant's claim to a share in the estate and the grant to her of letters of administration with the testator's will annexed. On 24 April 2009, its legal practitioners sent a 15-page letter (bearing 7 April 2009 as its date) to the defendant's legal practitioner. They set out at length the relevant facts and law and strongly argued that the defendant had never had a right to a grant of administration, that she had misappropriated a substantial part of the estate and that she was attempting to distribute the remainder contrary to law. They argued what should have been argued long before, that the plaintiff was the only person entitled to apply for a grant of administration of the testator's estate and that all of the estate should have been distributed to those entitled to the estate of Catherine, because she was the only sibling of the testator to survive him. Reserving the right to seek an order from the Court renouncing the grant of administration to the defendant, the plaintiff's legal practitioners demanded, among other things, an immediate assurance from the defendant that she held the entirety of the estate on trust for those entitled to George's estate, and an assurance that the only costs that the defendant would take from Gordon's estate would be the reasonable costs of obtaining letters of administration with the will annexed.

28 On 7 May 2009, Mr P Turner, Assistant Director of Public Prosecutions, wrote to the defendant's legal practitioner on behalf of the Registrar of the Court. He said that it was plain that the defendant had no entitlement to the grant, that it ought to be revoked and that there was a need for the estate to be properly administered by the plaintiff. He sought confirmation by the following day that the defendant would consent to the revocation of the grant.

29 On 8 May 2009, the plaintiff's legal practitioners wrote to the defendant's legal practitioner advising that their client's position was that the grant ought to be revoked.

30 On 20 May 2009, the defendant's legal practitioner responded to the plaintiff's legal practitioners and to Mr Turner. He proposed that an application should be made to the Court for a determination of the proper construction of the will. He argued:

1 "The current dispute comes down to and is determined by the proper construction to be given to the Will."

2 "We maintain that there is ambiguity in the terms of the Will. It inter alia concerns the question of whether 'survivorship' should be determined inter se the named siblings or the heirs and successors of such siblings."

3 "The full expression used in the Will is 'or the survivors of them as tenants in common' ['emphasis added']. Regardless of the effect of the tenancy specified on the proper interpretation, if the testator had intended the survivorship to operate inter se the named siblings, he might, which would have avoided ambiguity, easily have said 'such of them as survive me'. The testator chose not to do so. Instead, he left the question of survivorship to be determined not in relationship to himself, but in ambiguous relationship to the named siblings which arguably include the spouse and issue of the siblings at the time of their respective deaths."

4 It was not unreasonable to assume that it was improbable that the testator intended to exclude "the wife of his dear brother, George - the very brother to whom he had left his principal asset in the knowledge that George might occupy it with Wanda Mae and that upon George's death Wanda Mae might continue in occupation".

5 The will might easily be construed to achieve that result and that "the 'survivors of them' are that class of persons who survive the named siblings and may include the named siblings (or some of them) and their survivors."

31 On 22 May 2009, the plaintiff's legal practitioners wrote to the defendant's legal practitioner in these terms: "The position adopted by your client is puzzling to say the least. Your client should take this correspondence however as a warning that there is absolutely no basis for your client to bring the Will into Court 'for a determination of its proper construction'. We feel confident that should she in fact take that step, the application will be dismissed and your client will be ordered to pay the costs of the application personally on an indemnity basis." The plaintiff relies on that letter as a warning to the defendant that the present application for costs would be made if the defendant maintained her position. Its practitioners sent another warning letter on 27 August 2009, the day before the hearing of the action, in which they said: "We are instructed that should our client be successful on the action, it will seek an order that the Defendant pay costs on an indemnity basis. In those circumstances, a copy of this letter will be tendered to the Court in support of such an application."

32 On 29 May 2009, the plaintiff filed its application for leave to withdraw its renunciation. On 18 June 2009, it filed its writ seeking a revocation of the grant to the defendant.

Should an order for the costs of the action be made against the defendant?

33 I have no hesitation in concluding that an order for the costs of the action should be made against the defendant in favour of the plaintiff.

34 Under the Supreme Court Civil Procedure Act 1932, s12, the Court has an unfettered discretion to award costs, subject to the Act and the rules of court. By subs(2), the discretion extends to the costs of all proceedings whatsoever, including the administration of estates and trusts, "and the Court or judge shall have full power and authority to determine by whom or out of what estate, fund, or property, and to what extent such costs are to be paid". By the Supreme Court Rules 2000, r57(1), the costs of the proceeding are to be in the discretion of the Court or judge, but by subr(2), that subrule "does not affect the entitlement of an executor or administrator ... who has reasonably instituted, carried on or resisted any proceeding, to costs out of a particular estate or fund". Rule 64 provides that the costs of, or relating to, an enquiry to ascertain the person entitled to any legacy, money or share are to be paid out of the legacy, money or share, unless the Court or a judge otherwise orders. Rule 739 does not add to the resolution of the issue as to costs, for all it says is that in a probate action, which is what is involved here, the Court or judge may order that costs be paid out of the estate or out of a particular part or parts of the estate. It is silent as to how the discretion is to be exercised.

35 There are some accepted principles that inform the proper exercise of the discretion. One is that if in the proper performance of the duty of an executor or administrator, he or she seeks the assistance of the court to decide a question, the costs occasioned by the proceeding instituted by the executor or administrator for that purpose will normally be ordered to be paid out of the estate or the fund to which the question relates, and that includes not only the costs of the executor or administrator but also the costs of the other parties to the proceedings. It makes no difference that instead of the executor or administrator coming as plaintiff to ask for the direction of the court, one of the beneficiaries comes and asks for the same direction in a proper case. Sharp v Lush (1879) 10 Ch D 468 at 471.

36 Another principle that is generally applied is that where the construction of a will by the court is sought, arising out of the testator's use of unclear language, it is appropriate for the costs of all necessary parties to the application to be treated as testamentary expenses and paid from the residue of the estate. Higstrim v Ray (1895) 16 LR(NSW) Eq 1; In re Groom [1897] 2 Ch 407 at 411; In re Hall-Dare [1916] 1 Ch 272. However, circumstances might arise where it is proper to order payment of the costs out of some other part of the estate. Patching v Barnett [1907] 2 Ch 154 at 155 - 156; Metcalfe v O'Kennedy (2) (1904) 4 SR(NSW) 663; Moran v House [1924] HCA 44; (1924) 35 CLR 60 at 67. See a discussion of the cases in Murdocca v Murdocca (No 2) [2002] NSWSC 505.

37 It is often said that for a trustee, executor or administrator to have his or her costs paid out of an estate, he or she must have acted properly, that is to say, without impropriety. For that reason, it is normally the case that an executor or administrator who commences or defends an action in that capacity, is entitled to be indemnified out of the estate for the costs incurred in doing so, even if the litigation is unsuccessful and the conduct of the executor or administrator is found to have been mistaken. Re Jones; Christmas v Jones [1897] 2 Ch 190 at 197; Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572 at 578. That principle is one that is central to the issues between the parties here, as is the principle that an executor or administrator should not have his or her costs paid out of the estate if they were incurred in furtherance of a personal interest. Re Jones at 197 - 198; Miller v Cameron at 578 - 579; Plimsoll v Drake (No 2) unreported B37/1995.

38 I am satisfied that the defendant should pay the plaintiff's costs of the action, and that she should pay her own costs of it, for the following reasons. She did not reasonably defend the action. She had no case that was reasonably arguable. Prior to the commencement of the action, she ought to have realised that her case was a hopeless one, particularly in the light of the letters from the Registrar, and the Assistant Director of Public Prosecutions, and the detailed and reasoned letter from the plaintiff's legal practitioner bearing 7 April 2009 as its date. Her claim for the benefit of the specific devise and bequest of the testator's unit and chattels had no merit whatsoever. There was no jurisprudential basis for it. She and her issue had no right to an interest in the residuary estate either and she should have realised that if she was properly advised. Her standing as administrator of the estate was untenable and she unreasonably fought to maintain it. The language of the testator was not unclear. Further, she was fighting for a benefit for herself or her issue. There was no altruistic purpose in mind. Her argument that she was also seeking to benefit the issue of other siblings who predeceased the testator had no merit, for she had no choice but to accept that if she or her children had an interest in the residuary estate, the spouses or children of the other siblings who died before the testator also had an interest.

39 This is a clear case for applying the principle that the costs of the action should follow the event and be paid by the losing party.

Should the costs of the action be paid on an indemnity basis?

40 Costs as between solicitor and client, otherwise known as indemnity costs, may be awarded instead of party and party costs. Supreme Court Civil Procedure Act, s12(3).

41 It was submitted for the plaintiff that indemnity costs should be ordered because the defendant's case was patently a hopeless one, that it was pointed out to her that it was hopeless prior to the action, and that she should have recognised it as a hopeless case at that stage. Further, she was warned that indemnity costs would be sought from her.

42 However, it is not the plaintiff's case that the defendant acted fraudulently or that she wilfully withheld material facts from the plaintiff which led to the plaintiff's concession and decision that administration should be granted to the defendant and that the plaintiff should renounce its right to apply for a grant. On the other hand, it was submitted for the plaintiff that it trusted the defendant and her legal practitioner to have a sound legal basis for her claim on the estate and for her right to apply for a grant. It was claimed by its counsel that if the defendant had revealed the dates of death of all of the siblings of the testator at an early stage, it would have realised that she had no valid claim on the estate and that the plaintiff should be the sole applicant for a grant.

43 I do not accept that the defendant is the only one to blame for those early decisions of the plaintiff. As the personal representative of Catherine it should have made all due enquiries. It has itself to blame for the fact that it was not adequately informed of the facts. It should have made it its business to discover them.

44 Quick on Costs cites authorities for the proposition that indemnity costs may be ordered if the prosecution or defence of proceedings ought not to have been undertaken or continued had the party been properly advised. See, for example, Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397 at 401, where Woodward J concluded:

"I believe that it is appropriate to consider awarding 'solicitor and client' or 'indemnity' costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion."

I do not consider that the defendant had an ulterior motive for defending the action. A desire to benefit herself or her issue does not alone amount to an ulterior motive. Nor do I consider that she wilfully disregarded known facts or clearly established law. Certainly fraud is not asserted by the plaintiff. The feeling I have is that she was incorrectly advised by her legal practitioner and was urged by him to maintain her defence. That has caused me to hesitate concerning whether this is an appropriate case for indemnity costs.

45 Another factor I take into account is that it is not the defendant's fault alone that an order had to be sought to revoke the grant. It was also the plaintiff's fault by not making adequate enquiries in the first place and by not seeking to satisfy itself that there were sound reasons justifying the grant to the defendant.

46 On balance, and with some difficulty, I have concluded that this is not a proper case for ordering costs on an indemnity basis.

Should an order for the costs of the originating application be made against the defendant?

47 There will be an order that each party's costs of the proceedings commenced by the originating application for withdrawal of the plaintiff's renunciation be taxed as between party and party and paid out of the residuary estate. Both parties were at fault originally. Both parties believed at that time that the defendant was entitled to the grant. The plaintiff made an ill-informed decision to renounce its right to apply for the grant. It failed to make adequate enquiries. If it had made them, it would have realised that the defendant had no right to apply and that the plaintiff should apply. Of course, the plaintiff should have realised that as well. So they were both at fault.

48 Their errors resulted in the application to withdraw the renunciation having to be made by the plaintiff. In support of the application, the plaintiff filed an affidavit. Little else happened in the proceedings. It appears that the parties were content to wait for the outcome of the action before resolving them. When it was known that the plaintiff's action was successful, the defendant consented to an order that the plaintiff have leave to withdraw the renunciation.

49 Both parties being at fault, it is just that the residuary estate should bear the costs of them both. However, those costs should be recoverable only as between party and party and not as between solicitor and client. The plaintiff is a professional trustee that should have done better and prevented this state of affairs occurring. The defendant never had a case for a claim on the estate. In the circumstances, it would not be just to award either of them costs on a solicitor and client basis.

50 In the action it will be ordered that the defendant pay the plaintiff's costs of the action to be taxed as between party and party. In the application, it will be ordered that the costs of each party be taxed as between party and party and paid out of the residuary estate.

[1] There was a prior devise and bequest to George that lapsed because George predeceased the testator.

[4] Tasmanian Perpetual Trustees Ltd v Bell [2009] TASSC 79.

[5] If that was her view, she accepted something that was contrary to what she argued before me, which was that she had a beneficial interest in the residuary estate as well as her children. She was George's spouse and not one of his issue.