Vidyagauri Hiralal v Nitin Hiralal & Ors

Judgment 1This is the Court's second judgment in these proceedings. It deals with the costs of the proceedings so far. In my first judgment the Court: (1) dismissed the defendant's motion which challenged the jurisdiction of this Court to grant the relief sought in the plaintiff's summons; and (2) declined to grant a stay of the proceedings on forum non conveniens grounds: Hiralal v Hiralal [2013] NSWSC 984. At the time of giving the principal judgment the Court directed the parties to file any submissions in relation to costs of the motion. The parties took up that opportunity. This costs judgment follows those written submissions, without further oral argument. This judgment should be read with the Court's principal judgment. Events, matters and things are referred to in the same way in both judgments. 2As the Court observed in its principal judgment, costs would normally follow the event unless one or other party seeks a special costs order: Hiralal v Hiralal [2013] NSWSC 984 at [207]. 3The plaintiff seeks special costs orders. The plaintiff submits that the following costs orders should be made: (a) the defendants pay the plaintiff's costs of the motion; (b) the plaintiff is entitled in any event to her costs out of the fund on the indemnity basis beyond her entitlement, or on the ordinary basis against the defendants; (c) if the plaintiff cannot readily recover her costs from the defendants, the plaintiff may have all her costs on an indemnity basis out of the fund in conformity with Uniform Civil Procedure Rules 2005 ("UCPR") r 42.5; (d) the first and second defendants are not entitled to their costs out of the fund. 4The plaintiff argues that she is seeking relief as a trustee in these proceedings, which relief will be of advantage to the beneficiaries generally. And she further contends, although she is herself a beneficiary, that does not detract from her principal role in the proceedings as a trustee seeking relief for the advantage of all beneficiaries. She says that the Amended Summons, which as a result of dismissal of the defendants' motion the Court will now entertain, will preserve the fund the subject of the trust for all beneficiaries. 5The plaintiff says that, as she is acting in substance in the capacity of a trustee, she should be compensated under the rules that apply to the costs of trustees: UCPR r 42.5 (indemnity costs) and UCPR r 42.25 (costs of trustee or mortgagee). UCPR r 42.5 provides as follows: 42.5 Indemnity costs (cf SCR Part 52A, rule 37) If the court determines that costs are to be paid on an indemnity basis: (a) in the case of costs payable out of property held or controlled by a person who is a party to the proceedings: (i) in the capacity of trustee, executor, administrator or legal representative of a deceased estate, or (ii) in any other fiduciary capacity, all costs (other than those that have been incurred in breach of the person's duty in that capacity) are to be allowed, and (b) in any other case, all costs (other than those that appear to have been unreasonably incurred or appear to be of an unreasonable amount) are to be allowed. 6And UCPR r 42.25, a special rule relating to costs of trustees, provides as follows: 42.25 Costs of trustee or mortgagee (cf SCR Part 52A, rule 42) (1) Subject to subrule (2), a person who is or has been a party to any proceedings in the capacity of trustee or mortgagee is entitled to be paid his or her costs in the proceedings, in so far as they are not paid by any other person, out of the fund held by the trustee or out of the mortgaged property, as the case may be. (2) The court may order that the person's costs not be so paid if: (a) the trustee or mortgagee has acted unreasonably, or (b) in the case of a trustee, the trustee has in substance acted for his or her own benefit rather than for the benefit of the fund. 7The plaintiff also submits that as far as possible the trust funds should be protected from depletion by the defendants' erroneous pursuit of the motion that has now been dismissed. So, the plaintiff seeks to have payment of her costs on the indemnity basis out of the trust fund, and to deny the first and second defendants any costs out of the fund. 8The plaintiff is entitled to an ordinary costs order against the defendants. Although the motion was interlocutory, the plaintiffs successfully resisted a motion to dismiss her proceedings entirely as frivolous and vexatious and she successfully resisted a stay on forum non conveniens grounds. The action will now proceed here. 9The plaintiff should not yet have an order for payment of indemnity costs out of the trust fund. But nor for that matter should the defendants have access to trust funds for their costs. This is so for two principal reasons. 10First, the Court's findings so far are entirely interlocutory and not final. The Court's principal judgment was based upon what the evidence appeared to establish, without the making of findings on a final basis: Hiralal v Hiralal [2013] NSWSC 984. For example, it has not yet been established that the defendants or either of them are executors de son tort in New South Wales, nor has it been established that the plaintiff should be appointed as executor ad colligenda bona. Nor has it been established that the defendants have mismanaged the trust fund in New South Wales, or indeed how large that fund is within the jurisdiction. There is too much uncertainty at the present time for the Court to make orders out of trust funds. Such orders may yet be made if the plaintiff proceeds to trial and establishes an entitlement to final relief. The Court would then have a firmer basis for deciding whether any costs orders should be made out of trust funds. 11Secondly, it is not strictly accurate for the plaintiff to say she has brought these proceedings as trustee. That certainly is not the capacity, for example, in which she claims that the defendants have acted as executors de son tort. Moreover, given the structure of the deceased's will, the principal immediate benefit which is likely to flow from bringing the proceedings will be to the plaintiff herself, in her capacity as beneficiary. And in that capacity an indemnity costs order is not appropriate. 12Thirdly, if the plaintiff's position is ultimately vindicated she is likely to get an order for costs out of the fund. But before such a vindication occurs, ordinarily the Court will only recognise her acts as trustee (as distinct from beneficiary) when she acts in concert with the other two trustees: Luke v South Kensington Hotel Co 1879 11 Ch Div 121 at 125. In fact, the Court's reasoning so far has looked at the plaintiff's case from her perspective as a beneficiary with complaints against the trustee. To the extent that she and the other trustees continue to disagree about the future administration of the trust and unanimity is lost a risk exists that the administration of the trust may devolve upon the Court: In the Estate of William Just, deceased (No.1) 7 SASR 508. 13But nor should the defendants have their costs out of the trust fund. Although the case is still at an early stage, the evidence shows the defendants have a case to answer as to their administration of the trust: Hiralal v Hiralal [2013] NSWSC 984 at [142] [143] [148] [163]. And authority makes clear that trustees who unsuccessfully take a position in litigation must show that it was proper to have done so before their costs come out of the fund: In Re Beddoe 1893 Ch 547 at 558. Generally, they should seek judicial advice before taking a position in litigation against a beneficiary: Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 at 74, [2008] HCA 42. In any event for the defendants' costs of the motion to be paid out of the trust fund their payment would have to be authorized by all three trustees. 14For these reasons I decline to make all the orders the plaintiff seeks. But I leave open for subsequent consideration for the trial judge whether or not the plaintiff can have recourse to the trust fund to satisfy these costs orders. That may be a more obviously appropriate order at the end of the proceedings, than it is at this stage. 15So the orders of the Court are that : (1)The defendants pay the plaintiff's costs of the defendants' motion of 25 May 2012; (2)The defendants may not indemnify themselves in respect of their liability to pay the costs the subject of order (1), or in respect of their own costs of the defendants' 25 May 2012 motion, out of any funds held as executors or as trustees of the estate of the late Bhagwandas Hiralal. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 February 2014