Varma v Varma [2010] NSWSC 785 | Case summary

1 HER HONOUR: These proceedings (to which I have referred elsewhere as the tutor proceedings) were commenced on 17 September 2008 by Parveen Varma in the stated capacity as tutor for her then 98 year old (now deceased) father-in-law Sah Dev (Sid) Varma. 2 In the tutor proceedings, Parveen sought, among other things, a declaration that share transfers which had taken place in April and June 2008 in favour of two of Sid's grandsons (and her nephews), Gautam and Arjun Varma, in the share capital of the family company, Taj Food Sales Pty Ltd, were void. Parveen alleged that the share transfers were void by reason of undue influence and sought orders for the transfer back to Sid of the shares, the subject of those share transfers. 3 At the time of commencement of the proceedings, Parveen held a power of attorney for Sid but she did not rely upon that when commencing the proceedings. Sid was then in hospital. After he was discharged from hospital, an application was brought in his name by his solicitor, Mr Ron Czinner, challenging the retainer of Parveen's solicitors on the basis that he was not under a legal incapacity. That application came before me for hearing in October 2008 but was not completed by the time Sid died on 25 November 2008. 4 After various interlocutory motions were filed on both Parveen's part and that of Gautam and Arjun, an administrator ad litem was appointed to Sid's estate for the purpose of determining whether to prosecute the claims the subject of the tutor proceedings (whether in these or other proceedings). That appointment was on 14 May 2009. The administrator obtained legal advice and subsequently (though asserting his belief that there was a cause of action available to the estate) informed the court that he had decided not to continue the proceedings brought in Sid's name. No reasons for that decision were given and it is not for me to speculate as to that. I gave leave for the discontinuance of the proceedings with effect from 30 September 2009 and in due course ordered that the administrator's costs be shared equally as between Parveen on the one hand and Gautam and Arjun on the other hand. I noted that the question of the respective parties' costs of the tutor proceedings (and the ultimate liability as between the parties, or out of the estate, for the administrator's costs) would be dealt with in the context of the overall disposition of this matter and of the related matter (2009/289939) which had by then been commenced in the name of Parveen and in which she sought the transfer of all of the shares in the company to her. In the later proceedings (the main proceedings), the estate was subsequently joined as a party. 5 The only outstanding issue in the tutor proceedings, therefore, is the question of costs. Gautam and Arjun, by Amended Notice of Motion filed 12 October 2009, seek an order that Parveen pay the costs of the proceedings on an indemnity basis or, failing that, on a party/party basis. For Parveen, an order is sought that she have her costs of the proceedings on an indemnity basis out of the estate (and, as I apprehend it) that there be a similar order in relation to the administrator's costs. 6 The background to the disputes which have occupied the Varma family for some time in relation to the ownership of the shares in Taj Food Sales Pty Ltd is set out in some detail in my reasons for judgment handed down today in relation to the main proceedings and I do not repeat that here. I dismissed those proceedings on the basis that I was unable to be satisfied (given the close scrutiny required in cases where allegations of oral representations are made against a deceased) that Sid had made the promises or representations alleged by Parveen. I noted my concern as to the circumstances in which the share transfers had been effected (being of the view that this was a situation in which a presumption of undue influence had arisen and being unpersuaded, on the evidence before me, that it had been rebutted). As there was no claim by or on behalf of the estate to set aside the inter vivos share transfers, it was not open to me to take that issue any further, nevertheless it is of some relevance on the present application in that it seems to me that it cannot be said that it was unreasonable for the issue to be considered on behalf of the estate (nor that it was unreasonable for Parveen to have sought to have this issue agitated on behalf of Sid while he was alive provided that was done in an appropriate forum). 7 On the current application, Gautam and Arjun rely upon a body of material relating to the circumstances in which the initial claim was brought (and sought after Sid's death to be proceeded with) by Parveen in the stated capacity as Sid's tutor. In particular, they rely upon an affidavit of their solicitor, Luke Friedman, of 14 September 2009; the transcript of an earlier interlocutory application in these proceedings before Rein J in September 2009; a bundle of correspondence from the administrator ad litem exhibited in the main proceedings and an affidavit of Arjun Varma in the main proceedings on 4 March 2009, which annexed certain correspondence in relation to the proceedings. 8 The central submission of the applicants is that, whatever the outcome might have been of the challenge to the retainer of Parveen's solicitors, there was a lack of good faith and an ulterior purpose on the part of Parveen in commencing the tutor proceedings; that they should never have been instituted; and that they were an abuse of process. Reliance was placed in that regard on Hawke v Limbo [1990] NTSC 23, Packer v Meagher [1984] 3 NSWLR 486, Ragata Developments Pty ltd v Westpac Banking Corp (unreported, Federal Court, 5 March 1993) and Lamesa Holdings BV v Commissioner of Taxation [1997] 74 FCR 416. 9 Alternatively, it is submitted that Parveen should pay the costs of Gautam and Arjun, of and incidental to the proceedings, as an incidence of her office as tutor (Yakmor v Hamdoush (No 2) [2009] NSWCA 284). 10 Counsel for both sides are agreed that, for the purposes of the present application, it is not necessary for me to determine the substantive issues left unresolved on Sid's application challenging Parveen's retainer (and indeed I was positively discouraged from so doing) or the merits of the tutor proceedings as instituted. 11 In Yakmor, Giles JA considered the position of a tutor and said (at [45]):

A tutor represents the person under incapacity, and does on the person's behalf in relation to the conduct of the proceedings whatever the person could do. A tutor is on the record at least in the sense that consent to act has been filed. The person under incapacity is named on the record, but cannot do anything for him or herself. The tutor cannot have any conflicting interest. There is practical identity between the tutor and the represented party in bringing and conducting the proceedings, albeit the name on the record as plaintiff or defendant (in this case as appellant) is the name of the person under incapacity. The costs liability of the tutor, as an incident to the office, is legal identity for costs purposes, on the rationale that one of the reasons a tutor is required is that there should be a person answerable for costs. For costs purposes, then, the tutor is to be regarded as a party. 12 Accordingly, there is power under r 42(3) of the Uniform Civil Procedure Rules 2005 (NSW) for a costs order to be made against the tutor (though that tutor is not named as a party in the proceedings). (Alternatively the order is sought in the inherent jurisdiction of the court.) 13 The prima facie position, therefore, is that (just as a person who commences proceedings in his or her own right may be liable for costs on a subsequent discontinuance of those proceedings), a person who commences proceedings in the name of (and in the stated capacity as tutor for) a person said to be under a legal incapacity may on a discontinuance of those proceedings be liable for those costs as if named as a party to those proceedings in the first place. 14 The question is whether any such costs order should be made and, if so, on what basis. There is, of course, a discretion as to the award of costs in these circumstances. It is submitted by Counsel for Gautam and Arjun, Ms Baxter, that that discretion should be awarded in their favour in this instance on the basis that, having regard to the conduct of Parveen after the commencement of the tutor proceedings, it is clear that the proceedings were prosecuted at all times for her benefit and not for the benefit of Sid. In Sale v Sale (1839) 1 Beav 586 and L v L (1942) NSWLR 455, costs were awarded against the person in the position of tutor (the next friend in Sale and the guardian in L v L) where it was found that he had really acted for his own benefit, not that of the party he represented. Reliance is placed on that common law authority for the proposition that Parveen's responsibility for costs should extend past the date on which an administrator ad litem was appointed. 15 At the time Parveen commenced the proceedings, her affidavit filed in support of the application (sworn either on 9 September 2008 or 17 September 2008, it being inconsistently dated on the document as filed), disclosed an allegation that there had been a promise or agreement by Sid that the shares in question were, as and from his death, to be Parveen's. Claims based alternatively in contract or relying on an express trust or promissory estoppel in relation to the promises said to have been in respect of the shares were the substance of the main proceedings. Accordingly, it was submitted by Mrs Baxter that it must at all times have been clear that Parveen was to be material witness against the person she was purporting represent in the tutor proceedings. 16 In one sense, in circumstances where what Parveen was seeking by way of relief in the tutor proceedings was to have the shares brought back into Sid's hands then at the time of commencement of the proceedings (while Sid was still alive), then it might be said (and this was what was argued for Parveen) that the proceedings were for Sid's benefit. Once back in Sid's hands, had the application been successful, then the shares would either have fallen to be dealt with under his will in due course or he might have chosen to take other steps in relation to the shares (which might have lead to other proceedings). 17 Parveen's position in that regard, as submitted by Mr Washington, is that there is a critical distinction between proceedings prosecuted for the purpose of seeking to return property to Sid (that property, it was said, having been transferred in circumstances of undue influence) and other proceedings which might later have been brought depending on what happened with the shares once returned to Sid. 18 Mr Washington noted Sid's response in cross-examination in the tutor proceedings on 21 October 2008 when Sid said that if the shares were legally his property "I should not be deprived of them" and that "it should be automatic. It should be moral obligation to do that [return them]" (T 47). (Parveen herself had in effect disavowed an entitlement to hold or have transferred to her the shares at any time prior to Sid's death.) 19 Mrs Baxter nevertheless submits that, by the time the tutor proceedings were commenced, Parveen had all the indicia required to seek relief from the court for anticipatory breach (relying on Foran v Wight [1989] HCA 51; (1989) 168 CLR 385; (1989) 88 ALR 413) and did not do so; that she had, rather, sought to obscure her real interest in the proceedings, thus burdening Gautam and Arjun by the costs of proceedings in which she was acting in her own interests as opposed to the interests she was purportedly representing. Thus, it is said, it was an abuse of process for Parveen to commence the proceedings and to continue them purportedly in the interests of the estate, when the underlying motive was to press her personal interests. 20 Reliance was also placed on a letter annexed to Arjun's 4 March 2009 affidavit which, it was said, was inconsistent with submissions made to the court that Parveen was not prosecuting any claim against the estate (that being a letter in respect of which Parveen ultimately did not press a claim for privilege). That letter had been forwarded by Parveen's solicitors to the company's office, addressed to Parveen. It was observed by Arjun on a fax machine at the company office. Its contents were read by Arjun who copied it and attached it to his affidavit. 21 Mr Washington, in response, relied on Chahwan v Euphoric [2008] NSWCA 52; (2008) 245 ALR 780; (2008) 227 FLR 43; (2008) 65 ACSR 661; (2008) 26 ACLC 262, for the proposition that very few cases would be brought but for some personal interest and, again, distinguished between having a personal interest generally in the outcome of litigation and having an adverse interest in specific litigation. 22 While I accept that a party may have a personal interest in the outcome of litigation being prosecuted on behalf of someone else (who also has an interest in the litigation), the difficulty here is that at some point it seems clear that there was potential for Parveen and Sid's respective interests to part ways. 23 Parveen's ultimate claim (the facts of which she clearly had knowledge at the time) was that once the shares were back in Sid's hands he would not have been free to dispose of them (other than to her on his death). 24 The fact that there was no claim made by Parveen directly against Sid in the tutor proceedings does not seem to me to address the problem that it is recognised in the cases (and this seems to be the reason for the certification) that it is not appropriate for a person to be appointed as tutor where the proposed tutor has an adverse interest to that of the person to be represented. It is clear that the existence of a conflicting interest is a basis on which a tutor may be removed (Re Birchall (1880) 16 Ch D 41; Woolf v Pemberton (1877) 6 Ch D 19; Hutchinson v Norwood (1885) 31 Ch D 237; R v Registrar of Melbourne County Court [1927] VLR 406; Douglas v Douglas [2004] NSWSC 279, at [19]-[20]). (That a tutor has an interest in the proceedings that is adverse to the defendants or other parties whom they are not representing will not make the tutor unsuitable (Douglas v Douglas.) 25 In Gouder v Gouder [2005] NSWSC 1116, it was considered that it would not be appropriate for the holder of a power of attorney who could exercise that power adverse to the interests of a person under a legal incapacity to be appointed as that person's tutor (at [4]). 26 In the present case, even apart from the fact that Parveen held, as at the date of commencement of the proceedings, a power of attorney which might be exercised contrary to the wishes of Sid (and might following its revocation by Sid have sought to put that in issue in the proceedings), the scope for conflict in relation to the basis on which the shares were held would in my view have made it inappropriate for Parveen to be appointed as tutor (if a tutor were necessary due to the asserted legal incapacity of Sid). 27 There must, it seems to me, have been a clear conflict of interest in circumstances where Parveen was asserting not simply a claim on Sid's behalf for the return of the shares but also an entitlement in her own right to those shares on his death (albeit not asserting that entitlement directly in the proceedings and not seeking any relief in relation thereto). It seems to me that this can be readily tested by posing the question as to what would have occurred, in the tutor proceedings, had Gautam and Arjun put forward a compromise proposal for resolution of those proceedings which involved the transfer back to Sid of less than the full amount of the shares which had been transferred to them. The interests of Sid and Parveen might well have diverged at that point. 28 It cannot be said that Parveen (or her representatives were unaware that this was an issue) almost as soon as the litigation was commenced. 29 Concerns as to Parveen's suitability as a tutor (solely, I might add, on the basis that she was asserting an agreement with Sid under which she was to be entitled on his death to the shares the subject of the tutor proceedings and because there was any suggestion that she was otherwise unfit to be a tutor) were raised at the time of the initial interlocutory proceedings before White J when injunctive relief was sought and obtained in Sid's name; again when a motion was filed by Gautam and Arjun addressing the question of Parveen's capacity on 30 September 2008; and during the course of argument before me in relation to Sid's application to challenge Parveen's retainer. 30 Those issues were again ventilated leading up to and during the course of the hearing in the main proceedings (including in the course of the hearing before Rein J in September 2009). 31 In that regard, I note that Parveen was initially pressing, after the death of Sid, for herself to be appointed as the representative of the estate for the purposes of running the tutor proceedings then on foot. Reliance is placed on submissions which were filed on behalf of Parveen in February 2009 in which her solicitors asserted, in effect, that Parveen was a proper contradictor and stated that Parveen made no claim as to her entitlement under the alleged agreement either in the tutor proceedings or in the separate proceedings by then also on foot in which she had made application for probate concerning Sid's estate. 32 Therefore, I consider that it was inappropriate for Parveen to put herself forward as tutor. Nevertheless, does that of itself lead to the consequence that she should pay more than costs on a party/party basis as an incidence of her position as tutor? It might be thought that had Parveen not put herself forward she would have put someone else forward for that purpose. 33 Much weight was placed by Mrs Baxter on the fact that Parveen (and her solicitor) had certified that as tutor she had no interest in the proceedings contrary to that of Sid. This raises the question as to the consequence of an incorrect certification (other than that the tutor would be liable to be removed). 34 Rule 7.16 of the Uniform Civil Procedure Rules requires a tutor to file, in addition to the formal consent to appointment, a certificate signed by his or her solicitor certifying that the tutor does not have an interest adverse to the person with a legal incapacity. The rule does not specify any particular consequence if the tutor fails to provide such a certificate, and nor have I been able to find any recent cases which consider this issue. (In this regard I note that it has been held that the failure to comply with the other requirement of r 7.16 (to file a consent to act as tutor) was a procedural irregularity only and could not be taken advantage of by a defendant (Re Wilson (1904) 21 WN (NSW) 98). In Re Wilson, Simpson CJ in Eq waived "the irregularity" of a failure to file a written authority of the tutor in compliance with s 28 of the Equity Act 1901 (NSW), stating that no substantial injustice had been caused thereby.) 35 If the failure to certify that there is no adverse interest in the proceedings is due to there actually being an adverse interest, then this is a ground for the removal of the tutor (Re Birchall; Woolf v Pemberton; Hutchinson v Norwood; R v Registrar of Melbourne County Court and see Daniell's Chancery Practice, 7th ed, 1901, p 121) and, as noted earlier, where there is a conflict of interest then the tutor may be liable for the costs of the proceedings (Sales v Sale; L v L) but that turns on the existence of a conflict not the incorrect certification. 36 Had there been a knowingly false certification then I would have had no hesitation in ordering costs on an indemnity basis (and, indeed, other consequences may well have flowed therefrom). However, Parveen's evidence in relation to the certification of the tutor proceedings (which I have no reason not to accept) is that she did so on the basis of advice received from Senior Counsel then briefed in the tutor proceedings. The advice he gave to her was set out in her affidavit. I cannot accept, in those circumstances, that Parveen certified the proceedings with any lack of good faith. Nor am I satisfied that the proceedings were commenced with any ulterior purpose of concealing her claimed interest in the shares. The agreement on which that claim is based was in fact disclosed in her affidavit in support in the tutor proceedings. 37 Therefore, notwithstanding that I consider that it was not appropriate for Parveen to put herself forward as tutor in view of what seems to be a clear potential for a conflict of interest, I am therefore not satisfied I should award costs on an indemnity basis against her. 38 I do, however, consider that, as part of the ordinary incidence of her office as tutor, Parveen should bear the costs of the proceedings from commencement up until the appointment of Mr Bray as administrator on a party/party basis. I do not think those costs should be borne out of estate, insofar as I think there must inevitably have been duplication of cost as a result of the fact that Sid's interests and those of his estate were in effect represented successively by two sets of solicitors when only one would have been necessary had the proceedings been commenced differently at the outset (ie with a tutor put forward other than Parveen or by proceedings commenced by Parveen in her own name). 39 I consider that Mr Bray's costs should be borne out of the estate on an indemnity basis. As orders have already been made in his favour, all that seems to be necessary is that there should be an adjustment in respect of the amounts paid to date by Gautam and Arjun on the one hand and Parveen on the other in that regard, such that the costs respectively borne by each should be reimbursed or set off against any amounts owing to each of them out of the estate on its administration in due course. 40 I am of the view that the appropriate order in relation to the costs of the parties other than the administrator, from 14 May 2009 in respect of the tutor proceedings is that each party should bear their own costs and that they should not be reimbursed out of the estate. I say this because I consider that the conduct of both sides in the prolongation of the interlocutory aspects of the matter since then has not been beyond reproach. 41 Accordingly I order as follows:

Varma v Varma

At a glance

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Before

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Judgment (14 paragraphs)

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Legislation Cited (2)

Cases Cited (10)

Cited By (4)