COSTS - TRUSTEES - Application for leave to appeal costs order - Trustees unsuccessful in defending application to remove them where conflict of interest and duty - Trustees ordered to pay full costs and denied indemnity from trust funds - Whether vitiating error - Where judge considered legal question on which no submissions made or invited - Whether breach of natural justice - Application granted, so far as required - Appeal allowed - Revised order as to costs.

1 Before the Court is an appeal[1] and, if leave to appeal is required, an application for leave to appeal, against costs orders made by a judge in the Trial Division on 14 February 2014. The costs orders were the end stage of one aspect of litigation which culminated in orders that the appellants (it is convenient to so describe them) be removed as the trustees of four trusts, and be replaced by an independent trustee. The effect of the costs orders was that the appellants were obliged to meet their own costs, personally pay the costs of the first and second respondents Persephone and Rohan Wales (P&RW) and repay to the trusts any moneys expended by them out of trust funds[2] in defending the removal application. The costs orders which the appellants had sought were, in effect, that the costs of all parties to be met out of trust funds.

2 Various findings made by the judge in the removal application were relied upon by the competing parties in their submissions respecting costs. To understand those findings, something of the facts of the matter must be set out.

3 Harry and Marion Wales had three children: Murray Wales, Geoffrey Wales and Beverley Hutchison (née Wales).

4 Murray Wales and his wife had three children: Rohan, Julian and Ashley.

5 Geoffrey Wales and his wife Gladys had two children: Roslyn and Suzanne.

6 In the lifetime of Beverley Hutchison, four trusts were created - the HN Wales 1954 Trust, the HN Wales 1963 Trust, the MEM Wales Trust and the BMR Hutchison Trust. The first, second and fourth were created respectively in 1954, 1963 and 1963. The third was created by a clause in the will of Marion Wales, who died in 1974.

7 In the case of all four trusts, the original trustee was Geoffrey Wales. In 1978, his wife, Gladys Wales, became a trustee. In 2003, Geoffrey Wales resigned as a trustee. His daughters, Roslyn and Suzanne, were then appointed.

8 In the case of all four trusts, Beverley Hutchison was income beneficiary for life.

9 In the case of the first, third and fourth trusts, the residuary beneficiaries on the death of Beverley Hutchison - she died childless - were the grandchildren of Harry and Marion Wales - that is, Murray's three children and Geoffrey's two children. In the case of the second trust, the residuary beneficiaries on Mr Hutchison's death were Murray Wales and the children of Geoffrey Wales.

10 Mrs Hutchison died on 3 September 2010. By a will made long before her death, she had appointed Gladys Wales, wife of Geoffrey and mother of Roslyn (Matear) and Suzanne (Case), to be her executor, and she had named Roslyn and Suzanne as residuary beneficiaries.

12 In August 2011, Murray Wales made application to set aside the grant of probate, on the grounds that Mrs Hutchison had lacked testamentary capacity at a relevant time. That proceeding was settled in June 2012. The will in respect of which probate had been granted was unimpeached.

13 Murray Wales died on 2 April 2013. By his will, he appointed his sons Rohan and Julian, and his granddaughter Persephone, to be his executors and trustees. In these proceedings, Persephone consented to being appointed to represent his estate.

14 The residuary beneficiaries of Murray Wales' estate, it appears, were his sons, Rohan, Julian and Ashley.

15 In the upshot, in substance, the remaindermen under all four trusts on the death of Mrs Hutchison were Harry Wales' five grandchildren - Murray Wales' three sons and Geoffrey Wales' two daughters. Two of those grandchildren - Roslyn and Suzanne - were both beneficiaries and trustees.

16 Relatively soon after Mrs Hutchison's death, the trustees advised their intention of winding up the trusts.

17 Beginning in mid-2011, the solicitors for the trustees provided to the remaindermen statements of income and expenditure for the period from June 2005. They sought releases and indemnities from Murray, Rohan, Julian and Ashley Wales. Ashley Wales eventually signed a release and indemnity. But the others did not do so. They pressed for inspection of financial records of the trusts. I interpolate that Bell Potter Securities Ltd has managed the trust investments since 2004.

18 Later in 2012, the trustees drew the attention of all remaindermen to the circumstance that there had been, over a long period, a breach of trust in that Mrs Hutchison, in her lifetime, had not been paid all the income derived annually by the trusts. According to the trusts it was mandatory that she be paid such income. She had been regularly paid lesser amounts. The unpaid income had been added to the capital, in an admixed way. One consequence was that the amount of unpaid income over the long period of the life of the trusts could not be ascertained with any precision. Another consequence was that the corpus of the trusts had necessarily increased.

19 Based upon the accountants' estimate that in the period between 1998 and Mrs Hutchison's death in 2010 the amount of unpaid income was about $1.5 million, the amount not paid to her in that period, grossed-up to allow for capital growth, has been estimated by her trustees to be about $2 million. It seems that no figures are available - or are ever likely to be available - for underpayments in the period of more than 30 years preceding 1998.

20 The total amount standing to the credit of the trusts as at May 2013 was about $18.25 million. Some $15 million of that amount has now been disbursed between the five grandchildren. The remaining $3.5 million will be sufficient to meet the estimated liability of the trusts to Mrs Hutchison's estate (if there is any such liability), together with any legal and administrative costs. The irony, in view of the way in which this litigation has been pursued, is the likelihood that embedded in the $15 million already distributed are amounts of unpaid income which resulted in increased corpus of the trusts over a long period of time preceding 1998.

21 It appears that the trustees were aware - in the case of Gladys Wales for many years, and in the case of Roslyn Matear and Suzanne Case from 2004 - that there had been and continued a pattern of underpayment of income to Mrs Hutchison. What they did not appreciate, until about August or September 2012, was that the unpaid income might be, in law, a liability owing by the trusts to Mrs Hutchison's estate. That prospect, according to the principal reasons,[3] was raised by the accountants who were preparing accounts for consideration by the Court. They were preparing accounts because, even before the issue of unpaid income was disclosed to the other beneficiaries, the trustees had commenced a proceeding for directions under Order 54 of Chapter 1. That proceeding was commenced on 30 March 2012. It was commenced because Murray, Rohan and Julian Wales refused to sign releases and indemnities. In substance, the trustees sought to have the trusts wound up, and trust funds distributed. They sought to do so on the basis of the accounts which to that stage had been provided. They sought also to be discharged upon the passing of those accounts.

22 The Order 54 proceeding remains extant. The vehicle for the removal of the trustees, and for the costs orders which are now disputed, was a summons dated 30 November 2012 by which Murray Wales and his son Rohan sought the removal of the trustees on the ground that the latter were in a position of conflict of interest and duty. The summons (conveniently, the removal application) was filed in the Order 54 proceeding. The propriety of that course has never been debated.

23 The removal summons, to be clear, was filed after the trustees had become aware not simply of the fact of underpayment, but of its possible legal consequences respecting Mrs Hutchison's estate. It also was filed after the trustees had sought and received a joint opinion from senior and junior counsel as to what should be done respecting the issue of unpaid income; and after they had initiated an application to amend their Order 54 proceeding.

24 The trustees placed the opinion (dated 22 October 2012) before the judge on the removal application. Counsel had been asked to consider, in particular -

(a) whether the unpaid income remains owing by the trustees to Beverley's estate;

(b) whether any such amounts also carry an entitlement to interest or to the fruits of reinvestment;

(c) whether any such amounts are to be reduced if they derive from distributions made in excess of Beverley's entitlements; and

(d) whether any limitation period may limit the liability of the trustees in respect of any such amount.

1. The evidence available on our instructions leaves open the question whether unpaid income, and/or the fruits of reinvestment of that unpaid income, are payable by the trustees to Beverley's estate. At issue is whether Beverley gave up or intended to give up her rights to the unpaid income and fruits. Although the evidence that she did or so intended is scarce, it remains a possibility.
2. For this reason, we consider that the trustees should seek directions from the court, unless agreement among all beneficiaries can be achieved, as to the basis on which the trusts' accounts should be prepared. To assist the process of deciding the appropriate course to take, we suggest that draft accounts be prepared which calculate the amount of unpaid income (to the extent possible on available records), and the proportion of growth, if any, in the fund each year that may be attributable to the accumulated unpaid income.

• noted - and it was uncontroversial on the hearing of the removal application - that although Mrs Hutchison had not in fact received all the income each year, she had accounted for its receipt in her tax returns;

• considered at some length the question whether at least the unpaid income was a liability of the trusts to Mrs Hutchison's estate. They canvassed various arguments which could be advanced for and against there being any such liability.

27 It is unnecessary to rehearse those arguments. It suffices to say that in counsel's opinion the position was not clear cut.

28 Consonantly with counsel's opinion, the Order 54 proceeding was, as I have said, amended at the instance of the trustees so as to squarely seek directions as to how the accounts should be prepared. That amendment was effected on 5 December 2012, shortly after the date on which the removal application was filed. But the application to amend was made by summons filed 25 October 2012.[4] There could be no suggestion that the summons was responsive to the removal application.

The hearing and determination of the removal application

29 The removal application was heard over two days in May 2013. The trustees were represented by senior and junior counsel, and P&RW by counsel. The other sons of Murray Wales - Julian (JW) and Ashley (AW) - appeared unrepresented. JW supported the removal application. It was opposed by the plaintiffs and by AW.

30 According to the judge's reasons, it was submitted for P&RW that:

1. ... the issue of the unpaid income entitlement, including the mixing of the unpaid income entitlement with the capital of the Trusts, is an issue in which the plaintiffs now have a personal interest.
2. This is because the first plaintiff is the executrix of the estate of Beverley Hutchison and the second and third plaintiffs are the beneficiaries of her estate. If it is determined by them as trustees of the Trusts that the unpaid entitlement ought now be paid to the estate, then those moneys would be paid to the first plaintiff as the executrix of the estate and, ultimately, to the second and third plaintiffs as the sole beneficiaries of the estate.
3. ... by attempting to have the issue dealt with by way of direction from the Court, the plaintiffs seek to avoid bringing the two different conflicts together, that is, by avoiding having the executrix and beneficiaries of the estate make a formal demand for the unpaid income entitlement against themselves as trustees of the Trusts. It was submitted that this situation represents a classic case of conflict of interest and duty on the part of the plaintiffs.
4. ... the conflict is demonstrated as follows:

if the [trustees] want to maintain ... that the long unpaid income entitlements ... must now still be paid to [the estate of Beverley Hutchison] ... then they clearly have a conflict of interest and ought be removed as trustees and an independent trustee ought be appointed.

However, if the [trustees] (in their capacity as sole Executor and sole beneficiaries, respectively of [the estate of Beverley Hutchison]) no longer seek to assert any entitlement to those long unpaid income entitlements, ... then there would be no need to appoint new trustees and their proceeding for the passing of accounts and final distribution of the trusts could then be prosecuted expeditiously.[5]

1. The conflict between interest and duty remains while the plaintiffs wish to assert that, as the executrices and beneficiaries of the estate of Beverley Hutchison, the unpaid income entitlement should now be paid to the estate and they should also remain as trustees of the Trusts.
2. ... in relation to the unpaid income entitlement, there remains the issue whether it becomes payable after the death of Beverley Hutchison at all. [P&RW] accept that Beverley Hutchison was entitled to the income from the Trusts during her life, but they do not accept that the entitlement necessarily survives her death. It was submitted that this raises the question whether there may be defences taken by the trustees to a claim made by the estate of Beverley Hutchison and that, arguably, there could be the following defences available to the trustees:

(a) the awareness of the trustees that not all of the income was paid to Beverley Hutchison even though the trustees were aware that she was entitled to it;

(b) that the trustees acted in breach of trust in not paying all of the income entitlement to Beverley Hutchison during her lifetime;

(c) whether, in making a payment to the estate of Beverley Hutchison now, the trustees will profit indirectly from their own breach of trust;

(d) the fact that the first plaintiff, as the executrix of the estate of Beverley Hutchison, has failed positively to assert that the unpaid income entitlement must now be paid to the estate constitutes a waiver to the payment of the unpaid income entitlement;

(e) whether the trustees have equitable defences to a claim now made by the estate of Beverley Hutchison such as laches, lack of clean hands, estoppel of [sic] acquiescence; and

(f) whether the estate of Beverley Hutchison would be unjustly enriched if the unpaid income entitlement were now paid by the trustees to the estate of Beverley Hutchison.

31 The judge noted the submissions for the trustees as follows:

1. ... any conflict between duty and interest was wholly addressed by including the issue of the unpaid income entitlement among the matters for the Court's directions, including for the preparation of two sets of accounts of the Trusts and for the Court to settle those accounts.
2. ... Pope v DRP Nominees Pty Ltd[6] and See v Hardman[7] [supported] this submission ... the more appropriate path for the Court to take is to give effect to the directions sought by the plaintiffs on their original application 'by granting directions and relief directed to remedying some specific problem or difficulty'.[8] The plaintiffs prefer this approach to the alternative approach of removing a trustee. In closing submissions, counsel for the plaintiffs said of removing the trustees:

We would ask rhetorically, Your Honour, what would the appointment at this point in time of a different trustee achieve? The different trustee would need to become familiar with all of the documents, not just the documents that have been filed in the proceeding but all of the relevant documents. Presumably the trustee would need to consider the provisions of the trusts themselves and may take advice on the way in which the trusts operated but would in the end, Your Honour, be back in the same position as the trustees are here with a recognition that income that should have been paid to [Beverley] in her life hasn't been ...

1. The plaintiffs contended that the circumstances of the case are neither exceptional nor appropriate for the replacement of the plaintiffs as trustees. In their written submissions, they stated that the potential conflict of duty and interest is not of a kind that would warrant replacement. They point to the fact that the plaintiffs are not challenging the terms of the trusts.[9] They distinguish Monty Financial Services Ltd v Delmo on the basis that the resolution of the unpaid income entitlement issue, being the principal cause of the conflict of duty and interest, does not turn on the plaintiffs' evidence but on the terms of the Trusts and uncontested transactions.
2. The plaintiffs submitted that the position of all the parties is protected in the meantime by their determination not to make a final distribution of the Trusts' assets until the settlement of the accounts by the Court and that it is not in the interests of the Trusts or the welfare of the beneficiaries of the Trusts for the plaintiffs to be replaced as trustees of the Trusts at this stage of the administration of the Trusts.
3. They submitted that there is no substance in the criticisms of past conduct of the trustees in administering the Trusts and that the matters complained of could not affect the future administration of the Trusts. They say that, although the unpaid income entitlement was irregular and 'that in strictness there was a breach of trust because the trustees didn't in [Beverley's] lifetime distribute all of the income to her', her unpaid income entitlement was not lost in that the trustees reinvested in the capital of the Trusts and the trust funds of the Trusts remain safe and that the management of the assets of the Trusts remains under the control of Bell Potter and will remain with Bell Potter for the time being.
4. It was further submitted that, although there is now a problem of identifying what was the unpaid income entitlement, nothing was lost to the estate of Beverley Hutchison by the unpaid income entitlement remaining in the Trusts. The consequence is that the unpaid income entitlement can still be identified and paid to the estate of Beverley Hutchison.
5. The plaintiffs submitted that it is the primary obligation of the trustees to comply with the Trusts, which, in this case, was to pay all of the income to Beverley Hutchison. They contend that, if a trustee is in breach of trust and fails to do something, and it is possible thereafter for the trustee to redress the failure, then it should be redressed by the trustee and that whoever is the trustee will have the same obligation.[10]
6. The plaintiffs submitted that a breach of trust does not necessarily lead to the removal of a trustee. It is a particularly significant step where there is nothing further to be done by the trustees, that is, where there is no discretion to be exercised and the funds of the Trusts are not at any risk of loss. The Court would not, and should not, remove trustees without some concrete foundation in fact, supported by legal authority, that makes the application of defences real, rather than illusory. The plaintiffs contend that any defences relied upon by the defendants in their submissions are illusory.
7. In relation to any alleged conflict of interest and duty, the plaintiffs submitted that, although the second and third plaintiffs are the beneficiaries of the estate of Beverley Hutchison, if the trustees paid the unpaid income entitlement to the second and third plaintiffs, they would be paying them no more than they would have received had the unpaid income entitlement been paid to Beverley Hutchison during her lifetime and invested by her as her unspent income.
8. The other reason why the plaintiffs contend that the second and third plaintiffs are not paying themselves as beneficiaries of the estate of Beverley Hutchison is that there is an intervening critical factor in this case. That critical factor is that it was the wish of Beverley Hutchison, from 1976, when she executed her will, that her estate pass to the second and third plaintiffs and no one else. For this reason, the plaintiffs submitted that it is now their responsibility to pay the unpaid income entitlement to the estate of Beverley Hutchison. The second and third plaintiffs are, in fact, benefitting from the terms of the will of Beverley Hutchison and not from the breach of trust by the trustees.
9. The plaintiffs submitted that, if the second and third plaintiffs were not beneficiaries under the will of Beverley Hutchison, this application for their removal would not have been made, because in such circumstances the trustees would be obliged to pay the unpaid income entitlement to the estate of Beverley Hutchison. It follows that the obligation to pay the unpaid income entitlement cannot turn on who might be the beneficiaries of the estate of Beverley Hutchison.
10. In answer to the submissions of the first, second and third defendants that, because Beverley Hutchinson did not ask for the unpaid income entitlement, she did not wish to those moneys to be received by her in her lifetime, the plaintiffs contended that Beverley Hutchinson did not waive her right to receive the income in her lifetime. This was supported by the fact that, in some years, she was paid more than the income received. This indicated that Beverley Hutchinson and the trustees understood that the assets in the Trusts were a combination of capital and income, although the trustees conceded that, for most of the years, Beverley Hutchinson did not take all of her income.

32 It is clear enough, from the submissions noted by the judge at [98], [99], [101], [102], [103] and [104] of her principal reasons, that the disposition of the trustees was to pay the unpaid income to Mrs Hutchison's estate. They had taken a step to refer the unpaid income issue to the Court for directions. It should be assumed, however, that the submissions which I have just noted would have been reflected in the trustees' stance on the hearing of their Order 54 proceeding.

1. Although the submissions of the first, second and third defendants as to the relevant conflict of interest and duty focussed on the fact that the first plaintiff is the executor of the estate of Beverley Hutchison and the second and third defendants are the sole beneficiaries of the estate, I consider that the trustees' conflict between interest and duty does not arise solely from those circumstances. In that regard, I accept the plaintiffs' submission that the obligation to pay the unpaid income entitlement cannot turn on who might be the beneficiaries of the estate of Beverley Hutchison.
2. In my view, the facts and circumstances in this case give rise to a conflict between interest and duty on two separate fronts.
3. The first conflict arises from the trustees' stated position that, consistent with their primary obligation to comply with the Trusts, they must now pay the unpaid income entitlement to the estate of Beverley Hutchison. This position is inconsistent with their long held practice for the payment of the income from the Trusts during the lifetime of Beverley Hutchison. This conflict between interest and duty exists irrespective of the identity of the executrix or the beneficiaries of the estate of Beverley Hutchison.
4. The second conflict does arise from the first plaintiff being the executrix of the estate of Beverley Hutchison and the second and third plaintiffs being the residuary beneficiaries of her estate. Again, by maintaining their stated position on the payment of the unpaid income entitlement, the trustees are now preferring the personal and financial interests of the second and third plaintiff when they failed to prefer the interests of Beverley Hutchison during her lifetime. The trustees' stated position ensures that the second and third plaintiff will now receive the financial benefit denied to Beverley Hutchison during her lifetime.
5. In the consideration of the cases concerning conflict of interest and duty, Monty Financial Services Ltd v Delmo has the factual situation most similar to the facts of this case. This is because Mr Delmo had to make a determination in his position as executor and creditor of the estate whether to pay to himself the moneys allegedly owed to him. This required him to rely on his own 'truthfulness'.[11] As stated, the plaintiffs distinguish Monty Financial Services Ltd v Delmo on the basis that the resolution of the unpaid income entitlement issue does not turn on the plaintiffs' evidence but turns on the terms of the Trusts and uncontested transactions. I do not accept this submission.
6. In my view, there will be contested transactions that will need to be assessed on the their [sic] merits. To understand how the trustees came to pay Beverley Hutchinson less than her income entitlement during her lifetime, and how that unpaid income came to be mixed with the capital of the Trusts without appropriate documentation, requires evidence from the trustees as to their past conduct and administration of the Trusts and an assessment of that conduct and administration over many years in administering the Trusts in breach of trust. As trustees, they will be required to assess the merits of their own conduct as well as any defences concerning the unpaid income entitlement. There will also need to be an assessment of the calculation of the quantum of the unpaid income entitlement, the effect of the purchase of the Connault in that calculation, the effect of the unpaid income entitlement on the settlement of the capacity proceeding, the possibility of the re-opening and a different settlement of the capacity proceeding. There is also the issue of the unequal distributions to the beneficiaries of the Trusts since the death of Beverley Hutchison in the context of this litigation. The trustees' past conduct in the administration and management of the Trusts is, in my view, central to the resolution of the unpaid income entitlement issue and would be best undertaken by an independent trustee.
7. In maintaining the position that their primary obligation is to comply with the Trusts now, the trustees are making a determination in their positions as trustees without any assessment of the merits of any of the foreshadowed defences raised by the first to third defendants. In this sense, the trustees are, in reality, preferring the second and third plaintiffs, which, in turn, affects the entitlement of the beneficiaries of the Trusts.
8. I also do not accept the plaintiffs' submission that in paying the unpaid income entitlement of to the estate of Beverley Hutchison now the trustees would be paying the second and third plaintiffs no more than they would have been received if the income had been paid and the unspent income re-invested by Beverley Hutchison during her lifetime. The submission assumes that Beverley Hutchison would have re-invested her unspent income whereas the evidence of the spending habits of Beverley Hutchison during her lifetime was that, on balance, she would have used the unspent income rather than re-invested it. What Beverley Hutchison lost by not receiving her full entitlement of the income during her lifetime was her ability to deal with it during her lifetime.
9. The reliance by the trustees on the critical intervening factor of the will of Beverley Hutchison representing the wishes of Beverley Hutchison for her estate to pass to the second and third plaintiffs and no one else, in my view, is questionable because the issue of the capacity of Beverley Hutchison remains a live issue. It is conceded by the trustees that if the unpaid income entitlement were now paid to the estate of Beverley Hutchison, this would be grounds to re-open the capacity proceeding.
10. In my view, the seeking of directions from the Court and for the Court to settle the two sets of accounts rather than removing the trustees would not resolve the conflict inherent in the unpaid income entitlement issue as long as the trustees maintain their stated position on the unpaid income entitlement. In order to determine the issues between the parties, it is imperative that the Court have the benefit of the views of an independent person who is able to assess the various issues, including the merits of any defences. Without an independent trustee to do so, there is a danger that the Court will be presented with an unbalanced assessment of the evidence and the issues.
11. I consider that the welfare of the beneficiaries will also be assisted by the appointment of an independent trustee because of the friction and hostility that exist between the trustees and beneficiaries of the Trusts. Although this is not, in itself, a reason to remove the trustees, it is still a relevant consideration. The friction and hostility between the parties in this case are grounded in the manner in which the Trusts have been administered by the trustees over a long period of time and by their stated position on the unpaid income entitlement issue. Initially, the friction and hostility arose because of the issues concerning the production of documentation and financial information concerning the Trusts by the trustees to the beneficiaries. It has been exacerbated by the issue of the unpaid income entitlement. Other examples of issues that have caused friction and hostility are the unequal interim distributions made thus far to the residuary beneficiaries, the inability of the trustees to deal with the issues raised by the beneficiaries so far as the distributions are concerned, and the ongoing issue of the production of relevant financial documents. It is unlikely that the friction and hostility will heal while the trustees remain as trustees of the Trusts.

34 There was no appeal from the orders made consequential upon her Honour's principal reasons. Those reasons, in my respectful opinion, were clearly expressed and demonstrate that her Honour's conclusion was plainly available.

35 The judge heard submissions as to costs on 27 November 2013. She delivered reasons ('the costs reasons') and made orders on 14 February 2014.

36 The orders which her Honour made were as follows:

1. The plaintiffs pay the first and second defendants costs of their application by summons filed 30 November 2012 personally, calculated on a:
   1. solicitor-client basis up to and including 31 March 2013; and
   2. standard basis on and from 1 April 2013.
2. The plaintiffs bear their own costs of the aforementioned application, without being permitted an indemnity for their costs from the Trusts.
3. The plaintiffs refund to the Trusts any amount expended therefrom in defending the application.

37 The judge stated that the right of a trustee to be indemnified out of trust funds for costs and expenses incurred in the execution of a trust is confined to expenses and costs which are properly incurred.

38 Her Honour then identified the 'central question' as being 'whether the costs expended by the plaintiffs in defending the application ... were improperly incurred.' Relevant to the determination of that question was 'whether it was reasonable to defend the application.'[12]

39 Pausing, the appellants did not quibble, in this Court, with the question so identified.

40 Her Honour then observed that she had not found in her principal judgment that the appellants 'did not have a bona fide belief that the best course of action was to seek directions from the Court, as opposed to installing an independent trustee.'[13] She did not accept the submissions of P&RW that 'no prudent trustee could have considered that an independent trustee should not have been appointed.'[14] Rather, she positively accepted that the appellants 'formed a bona fide view that their proposal was the best course of action, and ... also accept[ed] that that view was not unreasonable.'[15]

that it was reasonable for the plaintiffs to oppose the application for their removal, without seeking direction from the Court on whether to defend the application. This [was] all the more so when it transpired that the unpaid income entitlement issue was vehemently opposed and that certain beneficiaries had formed the view that the trustees were in a position of conflict of interest. [16]

42 In those circumstances, the judge held that 'it was unreasonable to defend the application without the Court's approval'.[17]

43 The judge accepted a submission for the appellants that the finding of conflict of interest did not of itself warrant a denial of indemnity. Consistently with her Honour's acceptance that the appellants had formed a bona fide belief that their proposal was the best course of action, and that such view was not unreasonable, she noted that she had made 'no finding that the plaintiffs defended the application to avoid the exposure of a breach of trust or to protect their own position.'[18]

44 But, her Honour said, the appellants were cognisant of the circumstances giving rise to the conflict of interest, to the views of the first, second and third respondents that there was such a conflict, and 'the fact that the unpaid income entitlement issue was contested.'[19] The appellant's choice to defend the removal application must be viewed in that context.

45 Then her Honour restated her earlier conclusion that '[i]n those circumstances, it was unreasonable to defend the application without the Court's approval.' She said this:

1. In my view, the plaintiffs' costs of defending the application for their removal as trustees were not properly incurred and should be borne by them personally. When the application for removal was made, the trustees were confronted with the decision to contest the application; to accede to it and allow an independent trustee to be appointed; or to seek advice from the Court whether to contest it. The decision to defend the proceeding was not reasonable and should not be borne by the Trusts. Whatever the merits of the plaintiffs' initial proposal, I consider that the plaintiffs' resistance to the application for their removal, without seeking direction from the Court, was not justified in the circumstances. I do not consider the costs expended thereon to have been properly incurred. [20]

46 It is apparent that the decisive consideration for her Honour, respecting indemnity for costs, was the failure by the appellants, 'in the circumstances', to defend the removal application 'without seeking direction from the Court'. So much is clear not only from passages in her Honour's reasons already cited, but from references in her reasons to a passage in the judgment of Lindley LJ in Re Beddoe[21] and to passages in the judgment of Gummow A-CJ, Kirby, Hayne and Heydon JJ in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand ('Macedonian').[22]

47 '[T]he circumstances' were, on the one hand, the appellants' bona fide belief that the course which they advocated - undertaken in accordance with counsel's advice[23] - was the best course of action, her Honour's conclusion that their view was not unreasonable, and the absence of a finding that they defended the removal application to avoid exposure of a breach of trust or to protect their own position; and, on the other hand, the facts that the appellants were cognisant of the circumstances giving rise to their conflict of interest, of the view of the first to third respondents that a conflict of interest did exist, and the existence of hot dispute as to the proper resolution of the unpaid income entitlement issue.

48 To dispose of this matter, it is only necessary to set out grounds 1, 3, 6, 7 and 8 of the Further Draft Amended Notice of Appeal. Thus:

1. Her Honour erred in law in deciding that, because the appellants did not seek advice from the Court whether to contest the first and second respondents' application that the appellants be removed as trustees before opposing it, their opposition was not justified and the costs and expenses thereof were not properly incurred (Reasons at [27]), notwithstanding:

(a) as her Honour found:

(i) the appellants (as trustees) had a bona fide belief (at [23], [24]) that:

(A) the best course of action in relation to resolving a disputed issue of unpaid income entitlements was to seek directions from the Court; and

(B) it was not appropriate to install an independent trustee;

(ii) the appellants' view was not unreasonable (at [24]);

(iii) a prudent trustee could have considered that an independent trustee should not have been appointed (at [23]); and

(iv) the Court expressly made no finding that the appellants defended the application to avoid exposure of a breach of trust or to protect their own position (at [25]);

(b) the possible merits of the appellants' application for directions from the Court regarding the unpaid income entitlements;

(c) the respondents' application was not a suit alleging the appellants were liable to the Trusts;

(d) the respondents did not submit that the appellants should have sought judicial advice before opposing the application that they be removed; and

(e) her Honour did not put to the appellants during argument, for their submissions regarding the proposition, that they ought to have sought the direction of the Court whether to oppose the respondents' application that they be removed.

...

3. Her Honour erred in law in failing to consider:

(a) the absence of any submissions by any party on the relevance and materiality of the appellants not having sought the Court's advice whether to oppose the application;

(b) the prospect of the appellants not receiving judicial advice that they should not oppose the application;

(c) the costs and delays that would necessarily have been incurred in the appellants seeking such advice; and

(d) whether seeking such advice from the Court would in the circumstances have been consistent with the appellants' obligations under Parts 2.1, 2.2 and 2.3 of the Civil Procedure Act 2010.

...

6. Her Honour erred in law in deciding that the usual basis on which the appellants may be ordered to pay personally the costs of the first and second respondents was the solicitor-client basis (and not the party-party basis) (at [28]).

1. Her Honour erred in law, in deciding that the basis on which the appellants pay personally the costs of the first and second respondents was the solicitor-client basis (at [28]), in failing to consider or to take into account relevant considerations, including as her Honour found:

(a) the appellants (as trustees) had a bona fide belief (at [23], [24]) that:

(i) the best course of action in relation to resolving a disputed issue of unpaid income entitlements was to seek directions from the Court; and

(ii) it was not appropriate to install an independent trustee;

(b) the appellants' view was not unreasonable (at [24]);

(c) a prudent trustee could have considered that an independent trustee should not have been appointed (at [23]); and

(d) the Court expressly made no finding that the appellants defended the application to avoid exposure of a breach of trust or to protect their own position (at [25]).

1. Her Honour ought to have ordered the first and second respondents' costs to be paid:

(a) out of the Trusts; or

(b) alternatively, if to be paid personally by the appellants, on a party-party basis, and out of the Trusts to the extent of the difference between the respondents' costs assessed on a party-party basis and on a solicitor-client basis up to and including 31 March 2013.

49 Counsel for the appellants submitted that, insofar as his clients sought to challenge the costs orders, save and except for the bases upon which costs were to be taxed, an appeal lay as of right. Such orders, he submitted, were not orders 'as to costs which are in the discretion of the Trial Division' under s 17A(1)(b) of the Supreme Court Act 1986, but related to 'charges and expenses'. He relied upon observations by Lindley LJ in Re Beddoe[24] and by Jessel MR and Cotton LJ in Turner v Hancock.[25]

50 Counsel for P&RW submitted to the contrary. He contended that s 17A(1)(b) should be understood by reference to s 24(1) of the Supreme Court Act. The latter is subject to any express words in the Rules to the contrary. But Rule 63.26, referable to the costs of a party sued as a trustee, does not provide to the contrary. It sets out the position which applies subject to the Court otherwise ordering. Further, he submitted, s 36(2) of the Trustee Act 1958 did not impact upon the discretionary character of an order for costs in a proceeding in which a trustee is involved in litigation.

51 Re Beddoe, counsel submitted, addressed a different situation. There, costs having been awarded against a trustee in proceeding A, the trustee sought to be indemnified out of the trust funds in proceeding B. The answer to the question, whether leave to appeal from the order in proceeding B was required, depended upon the characterisation in that proceeding of the costs awarded in proceeding A. If they were still costs, then leave was required. But if, in proceeding B, (as their Lordships held) they were characterised as charges and expenses, then leave was not required.

52 The circumstances in Turner v Hancock, counsel submitted, were difficult to understand. But it was not apparent that the passages relied upon by the present appellants supported their submission.

53 I have set out the competing arguments in relatively shorthand form because, interesting though they were, there is no occasion to resolve the issue joined. That is because, assuming but not deciding that the appellants required leave to appeal against the costs orders so far as those orders related to indemnification, in my opinion they clearly made out the circumstances for a grant of leave.[26]

54 Counsel for the appellants conceded there must be a grant of leave before so much of the costs orders as specified the bases upon which costs were to be paid could be challenged. Later in these reasons I will address the substance of that issue.

55 Counsel for the appellants submitted that the decisive consideration for the judge ordering that his clients be denied indemnity in respect of costs was her Honour's conclusion that it was 'unreasonable', 'not reasonable', 'not justified' for them to have defended the removal application 'without seeking directions from the Court', and 'without the Court's approval' - the consequence being that the costs had been 'improperly incurred'. He submitted that this consideration had not been raised by counsel for P&RW on the costs argument. Neither had it then been raised by the judge in the course of submissions. His clients had been given no opportunity to meet the issue in argument. He did not dispute that the matter was one capable of being weighed in the balance. But had it been raised - by opposing counsel or the judge - submissions could have been made in response. In all, the appellants had been denied procedural fairness, and there was at least the possibility of a different outcome had there not been that denial. The same outcome on a re-hearing, or a re-determination by this Court, would not be inevitable. The error constituted an error of law and the costs orders were vitiated. He cited Ucar v Nylex Industrial Products Pty Ltd ('Ucar'),[27] oOH! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd ('oOH! Media')[28] and Farah Constructions Pty Ltd v Say-Dee Pty Ltd ('Farah Constructions').[29]

56 Counsel for P&RW frankly conceded that he had not raised the matter during the costs argument. His submissions, noted by the judge at [5]-[11] of the costs reasons,[30] bear out that concession. Further, in deciding the outcome of the costs application, it is clear from her reasons that her Honour addressed the arguments which counsel for P&RW in fact advanced - and they did not include this matter.

57 JW appeared unrepresented on the costs application. He supported the position advanced for P&RW.[31] He made no submissions about the matter now under consideration.

58 AW also appeared unrepresented below. He, likewise, made no pertinent submissions.

59 Counsel for P&RW made a short submission that there had been no want of procedural fairness in what had transpired. But his main submission was that her Honour's decision had been inevitable. The outcome would necessarily be the same on a re-hearing, or on a re-determination by this Court. His principal arguments in support of that position involved a repetition of submissions which he made below as to the evident impropriety of what the appellants had done.

60 Counsel for both the appellants and P&RW agreed that, if the Court concluded that there was vitiating error, it should make orders in lieu, rather than remit the costs issue to the primary judge. That course was not opposed by either of the unrepresented respondents.

61 I must first address the argument advanced for P&RW that what happened involved no denial of procedural fairness. It is making a lot out of a very short submission, but I understood counsel to argue that what happened here was the unexpected application of an uncontroversial (and, on the authorities, relevant) fact to the resolution of an uncontroversial legal test - that is, whether the appellants had improperly incurred costs - rather than an unexpected finding of fact founded on material not disclosed by the judge to the unsuccessful party; and that the latter, but not the former, situation constitutes a denial of procedural fairness. Further as I understood it, he argued that Ucar and oOH! Media were instances of the latter situation. The position which he advanced with respect to Farah Constructions - where a court had embarked, unexpectedly, upon resolution of a contentious legal issue - was not perspicuously clear.

62 Assuming that I have captured the gist of counsel's submission, I reject it. The authorities show that a broad range of 'non-disclosure' situations can constitute a vitiating denial of procedural fairness. Those situations should be understood to include what happened here. I will refer to the authorities cited by appellants' counsel, and other authorities also, to make good the proposition just stated.

63 First, Ucar. There, the judge made a finding of fact adverse to an applicant worker in a serious injury application. The finding relied in part upon observations which the judge had made of the worker whilst the latter was in court. The worker, at the pertinent time, had been out of view of his counsel. The judge did not disclose the fact of those observations, or the use to which she might put them, to counsel. Such failure was held to constitute vitiating error.

64 The case was thus concerned with the inability of the applicant's counsel to make submissions on a question of disputed fact, the consequences of which were discussed by Chernov JA[32] and by Redlich JA.[33] It is an instance of what I understood counsel to submit was a situation in which denial of procedural fairness may be discerned.

65 But denial of procedural fairness comes in multiple guises. It is next convenient to mention oOH! Media. There, counsel for a party relied in a submission upon a particular Act of Parliament. He did not refer to the second reading speech. It would have been permissible for the judge to refer to the speech as an aid to construction; but instead, the judge looked at the speech and then used it to make a finding as to the foreseeability of a pertinent factual situation eventuating. She did this without alerting counsel of her intention to do so. Whilst the judge's use of the speech did not prove decisive, Nettle JA stated that it constituted a denial of procedural fairness sufficient to vitiate the finding based upon it.[34] Redlich JA entirely agreed with the reasons of Nettle JA, and added an observation about the particular matter.[35]

66 Unlike Ucar, that case did not involve use of in-court observations, which a judge may legitimately make and use subject to an obligation to make disclosure in some circumstances. Rather, it involved recourse to material which was not in evidence, to which the judge was entitled to have recourse for one purpose - but not for the purpose for which the judge in fact used it.

67 The third authority referred to by appellants' counsel was Farah Constructions. There, the appellant did not rely upon denial of procedural fairness. But Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ said this in their joint judgment about an aspect of the decision in the New South Wales Court of Appeal:

Although the matter is not wholly clear, and although the Court of Appeal found Mrs Elias and her daughters liable on another ground, so that the restitutionary basis was not essential to the outcome, the reasoning appears to be offered not as supposedly helpful obiter dicta but as an independent ground of decision. It was unjust to the appellants to decide the respondent's appeal to the Court of Appeal on an independent ground which was never pleaded by the respondent, never argued by the respondent before the trial judge, and never argued by the respondent in the Court of Appeal. The authorities and writings relied on by the Court of Appeal were not put to the Court of Appeal for that purpose. The relevant part of the Court of Appeal's judgment would have come as a complete surprise to all parties. The Court of Appeal said that the question of restitution-based liability 'was not specifically exposed in any detail by the parties but nevertheless warrants consideration as it bears upon the true foundation of the first limb of Barnes v Addy upon which Say-Dee did clearly rely'. The true position, as counsel for the respondent accepted with commendable candour and straightforwardness during argument on the special leave application, is that the question was not discussed at all - specifically or non-specifically, in detail or not in detail. It is conceivable that the appellants might have wished to defeat restitution-based liability, not merely by advancing argument about its want of intellectual merit and its inconsistency with Australian authority, but also by calling evidence to show, for example, a change of position.[36]

68 There, what happened was not unexpected fact-finding at first instance, but unexpected legal analysis by the Court of Appeal. It is, I think, implicit in the passage cited that what that court did might successfully have founded a complaint of denial of procedural fairness because the unsuccessful parties were precluded from calling evidence to meet the point. On the footing that the legal analysis was wrong, the inability of the unsuccessful parties to address it in the Court of Appeal ultimately did not work to their disadvantage. If, however, the legal analysis had been sound and no additional evidence could have been called to address the point, then, if a complaint of denial of procedural fairness had been raised, it must have failed because there had been no vitiating error, the result having been inevitable. But it would have been otherwise if the unexpected analysis had been sound and the unsuccessful party had been unable to call available evidence which addressed the point.

69 I will mention some other circumstances in which a denial of procedural fairness has been discerned. In R v Fisher,[37] referred to in oOH! Media, a judge sentenced an offender and, in doing so, made findings adverse to him which could not reasonably have been anticipated, which were not supported by the evidence, and which had not been the subject of any submission advanced by the Crown. The failure of the judge to afford the offender an opportunity to deal with the adverse findings which she contemplated making was held to constitute a denial of procedural fairness.[38] It is not to the point that, in the end, the Court was not satisfied that a different sentence should be passed.

70 In Fisher, the judge had to consider the presence or absence of remorse and the offender's prospects of rehabilitation, which are always sentencing considerations. The unexpected findings which the judge made were adverse to the offender with respect to those matters. The analogy is not complete, but in the present case the pertinent question was whether the appellants had improperly incurred costs; and the judge unexpectedly selected as the decisive fact in resolving that question, a fact which was uncontroversial on the evidence, but which had not been relied upon by counsel for P&RW, nor even hinted at by the judge during argument.

71 The circumstances of denial of procedural fairness are in truth legion. Consider, for instance, the situations which arose in Re Refugee Review; Ex parte Aala,[39] Applicant NAFF of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs[40] and R v Alexandridis.[41]

72 In all, as I have said, I reject what I understand to have been the submission for P&RW that the judge's failure to alert counsel to the prospect that she would rest her decision on the appellants' failure to seek the advice of the Court whether to contest the removal application was incapable of constituting a denial of procedural fairness. In my opinion, it was capable of, and did, constitute such a failure. In that connection, although stated in the context of a judge's failure to disclose his or her observations to a party, I consider that a useful touchstone may be found in 'fair play' (or 'fairness') and 'common sense'.[42]

Procedural fairness must be upheld for its own sake, as well as for its consequences because 'the experience of the common law [is] that, out of fair and lawful procedures, fair and lawful outcomes will more commonly emerge'. The concern is with the fairness of the procedure adopted rather than the fairness of the outcome; with the decision-making process not the decision. The true legal issue 'is not only, whether the person adversely affected by a decision has had his or her legitimate expectations disappointed. That may be a consequence of the departure from the legal standard; but it is not the invalidating cause'.[43]

74 To obtain relief, a party need only show the possibility of a different outcome. Conversely, relief will only be refused in two circumstances, which Redlich JA, by reference to Stead v State Government Insurance Commissioner,[44] described this way:

It will be refused if upon analysis of the basis for the decision there is an incontrovertible fact or point of law which provides a discrete basis for the decision which cannot be affected by the procedural unfairness. It will then be concluded that the applicant could not possibly have obtained a different outcome. Second, even where the subject of the procedural unfairness touched upon an issue in dispute that was material to the decision, relief may be refused if the respondent can demonstrate that it would be futile to hold a further trial because the result would inevitably be the same.[45]

75 Counsel for the appellants submitted that the judge had evidently taken observations made in Re Beddoe and Macedonian to mean that it was necessarily improper to contest the removal proceeding without first taking the Court's advice. That, counsel submitted, involved a misunderstanding, of which the judge would have been disabused had her Honour revealed to the parties the potential significance, as she perceived it, of the appellants not seeking such advice.

76 Counsel further submitted, inter alia, that had the judge raised the matter, submissions would have been made for the appellants as to the utility of such an application by contrast with their preferred course; the likelihood that the parties in such an application would have been the same parties as in the Order 54 proceeding; the fact that, if the Court had advised the appellants to contest the removal application, costs would have been enlarged (and some of them, at least, would have been borne by the trust funds); and the fact that - if the Court had advised the appellants to accede to being removed as trustees - essentially the same amount of costs would have been incurred, but would have been borne by the trust funds.

77 Counsel for the P&RW submitted that the judge had not relevantly misunderstood Re Beddoe or Macedonian. Nothing would have been gained had appellants' counsel been able to address on the matter.

• What her Honour had really decided was that the appellants' failure to accede to their removal, plus their failure to seek the advice of the Court in circumstances of a very obvious conflict, together showed that they should personally bear the costs. There could be no complaint about that reasoning.
• Had the appellants sought advice, the Court would surely have advised them to accede to their removal. Thus, there would have been no increase in the overall costs burden.
• Indeed, the overall costs burden would have been less had advice been sought in a non-partisan way. Conceding that the parties on an advice application would probably have been the same as in the Order 54 proceeding and in the removal application, nonetheless an advice application would have been determined on the papers, or after a short hearing.
• The costs burden would only have been so large if, on an advice application, the appellants had adopted the partisan stance which they took in defending the removal application. They should have taken a non-partisan approach on an advice application, but they may not have done so. Had the appellants taken a partisan stance, they may have been denied access to trust funds to recoup their costs (including any costs ordered in favour of P&RW).

79 JW submitted that the operative consideration for the judge's costs order was not simply the appellants' failure to seek advice before contesting the removal application. The judge found that such failure, 'in the circumstances' rendered it improper for them to contest the removal application. '[T]he circumstances' meant all the matters referred to by the judge at [113] in the principal reasons.

80 In my opinion, the possibility of a different outcome, had the judge put the parties on notice of her perception of the potential relevance of the appellants' failure to seek the Court's advice before contesting the removal application, certainly existed. Neither of the circumstances in which an error will not have a vitiating effect was present.

81 I consider that the judge would have been assisted by submissions concerning the two authorities to which she particularly referred - Re Beddoe and Macedonian.

82 Despite the strong statement by Lindley LJ cited by her Honour at [19] in her costs reasons, the trustee in that case was in fact allowed part of the costs out of trust funds after acting on counsel's advice in resisting a particular application. He was allowed so much as would have been incurred - this was a matter of arbitrary assessment - had he applied to the court for advice.

83 In Macedonian, the trustee was sued for breach of trust. It did seek advice whether it would be justified in defending the proceeding - and, if so, whether it would be entitled to recoup its costs out of trust assets. A judge answered both questions in the affirmative. On appeal, the decision was reversed on the basis, inter alia, that it was generally inappropriate for a court to give advice in respect of adversarial proceedings. The trustee's appeal in the High Court succeeded.

84 The matter turned, substantially, on s 63(1) of the Trustee Act 1925 (NSW). That section was said to serve a similar function to Pt 54 of the Uniform Civil Procedure Rules 2005 (NSW), which is expressed in similar language to Order 54 of Chapter 1 of the Rules.

85 In the course of their joint judgment, Gummow A-CJ, Kirby, Hayne and Heydon JJ made the observations noted by the judge at [20] in her costs reasons. They were not crucial to the determination of the appeal, because the trustees had in fact sought the Court's advice. But they were, no doubt, considered dicta.

86 It is, however, the fact that their Honours made other observations in less prescriptive language. So, in the passage immediately preceding the second passage cited by the judge, their Honours said that an application under s 63 by a trustee sued for breach of trust should be seen as a standard instance to which s 63 'can in appropriate cases apply.'[46] Further, in the second passage cited by the judge, their Honours stated that 'a trustee who is sued should take no step ... without first obtaining judicial advice'.[47] Earlier on, their Honours had stated that the legislative scheme 'is that it is desirable that trustees in doubt as to a course of action ... should seek s 63 advice first';[48] and that it was understandable that the legislature should enact provisions enabling trustees to take advice before embarking on a course which might carry a risk of incurring costs outside the indemnity.[49]

87 What the judge would have derived from submissions respecting Re Beddoe and Macedonian is that failure to seek advice is likely to be most weighty in a case where breach of trust is alleged. That was the situation in Macedonian. Further, the judge would have observed that the apparent rigour of the obligation to seek advice was modified in its application where a trustee had acted on legal advice. Those two matters would have assisted to put into perspective the significance of the appellants' failure to seek advice whether to contest the removal application.

88 I do not conclude, in light of her Honour's observation at [27] of the costs reasons - viz, that the appellants' resistance to the removal application 'without seeking directions ... was ... not justified in the circumstances'[50] - that her Honour mistakenly thought that failure to seek advice was fatal to indemnification. But there is a question of perspective, and in my view it is certainly possible that submissions addressing Re Beddoe and Macedonian would have led to a different outcome.

89 The same conclusion flows from other matters canvassed by counsel, which I have earlier noted. There were circumstances to be argued for and against indemnification if the issue of the appellants' failure to take advice had been raised by the judge with the parties. There was certainly a case for at least partial indemnification. A credible analysis was that, had the trustees sought advice, which would have been a desirable course, they would have been advised to accede to their removal, that they would have been indemnified for the costs of the advice application, that the costs incurred in that application would have been somewhat less than the costs of the removal application[51] and that the trustees, in the event, should have part indemnification but otherwise pay the costs of the first and second respondents and their own costs.

90 There being, in my opinion, vitiating error, the costs orders should be set aside. In conformity with the position adopted by the parties, this Court should make orders in lieu.

91 In my view, what I described at [89] above as a 'credible analysis' provides the framework for such orders. It is impossible to be precise about the extent of the costs which would have been saved had the appellants sought advice whether to contest the removal application. It is a matter of impression. Doing the best I can, I estimate the potential saving as being 50 per cent of the costs actually expended in the preparation and hearing of the removal application. That is, on an application for advice whether to contest the removal application, the costs would have been only 50 per cent of what was actually expended.

92 Then there is the question of the bases upon which costs should be calculated. That question is effectively opened up because of the substantial changes which must otherwise be made to the costs disposition.

93 In my opinion, referable to both the appellants and the first and second respondents, costs should be taxed as between solicitor and client up to 31 March 2013, and thereafter on the standard basis.

94 The standard basis, applicable from 1 April 2013, embraces the old solicitor and client basis. Although it is open to the Court to award costs on a lesser basis, I see no justification for doing so in the case of any of the represented parties.

95 So far as the period up to 31 March 2013 is concerned, it is appropriate that the costs of the appellants, as trustees, be assessed on a solicitor and client basis. There is an argument that the costs of the first and second respondents should be awarded on the old party and party basis. But I am not persuaded to that view. There is a symmetry about an award of solicitor and client costs up to 31 March 2013, and thereafter costs on the standard basis. In any event, the difference between calculation of party and party and solicitor and client costs, for the first and second respondents, for that period, would likely be small. The bulk of the costs no doubt were incurred in the period on and after 1 April 2013.

(1) Grant leave to the appellants, so far as leave may be required, to appeal against the orders made on 14 February 2014;

• the appellants' be indemnified out of the trust funds as to 50 per cent of their costs respecting the removal application, and that otherwise they pay their own costs.

• the appellants pay the costs of the first and second respondents referable to that application, and be indemnified as to 50 per cent of those costs out of the trust funds.

• the costs of the appellants and of the first and second respondents be taxed on a solicitor and client basis up to and including 31 March 2013, and thereafter on the standard basis.

• if the total amounts expended out of trust funds by the appellants in defending the application exceed 50 per cent of their costs actually incurred, they must refund the excess beyond 50 per cent to the trusts.

97 The appellants have succeeded in their appeal, but their success has been less than complete. Subject to hearing the parties, I would be disposed to order that the first and second respondents pay two-thirds of the costs of the appeal. If those respondents sought a certificate under s 4 of the Appeal Costs Act 1998, I would grant it.

98 I have had the considerable benefit of reading in draft the reasons of Ashley JA. I agree with the reasons and the orders proposed.

[1] The President has determined, pursuant to s 11(1A) of the Supreme Court Act 1986, that two judges constitute and may exercise all the jurisdiction and powers of the Court of Appeal.

[2] By which I refer to the funds of all four trusts; I will not constantly repeat it.

[3] Wales v Wales [2013] VSC 569.

[4] That is, only three days after the date of counsel's opinion.

[5] Defendants' Written Submissions dated 3 May 2013, [17]-[18].

[6] [1999] SASC 337; (1999) 74 SASR 78, 88.

[7] [2002] NSWSC 287 (12 April 2002) [18].

[9] As was the case in Hill v Fry [2008] VSC 13 (7 February 2008).

[10] Young v Murphy [1996] 1 VR 279.

[11] Monty Financial Services Ltd v Delmo [1996] VicRp 7; [1996] 1 VR 65, 83.

[12] Wales v Wales (No 2) [2014] VSC 33, [22].

[19] Ibid [26]. By that, I think, her Honour harked back to her earlier observation that 'the unpaid income entitlement issue was vehemently opposed'.

[21] [1893] 1 CH 547, 557.

[22] [2008] HCA 42; (2008) 237 CLR 66, 87 and 93-94.

[23] Remembering, though, that it was advice given before the removal application was commenced.

[24] [1893] 1 Ch 547, 554-555.

[25] (1882) 20 Ch D 303, 304, 305 (Jessel MR), 306 (Cotton LJ).

[26] See Niemann v Electronic Industries Ltd [1978] VicRp 44; [1978] VR 431.

[27] [2007] VSCA 181; (2007) 17 VR 492.

[28] (2011) 32 VR 255.

[29] [2007] HCA 22; (2007) 230 CLR 89.

[30] Wales v Wales (No 2) [2014] VSC 33.

[31] Although he would not be the beneficiary of a costs order, possibly the judge heard him because, if costs were payable out of trust funds, his entitlement would be the less.

[32] Ucar v Nylex Industrial Products Pty Ltd [2007] VSCA 181; (2007) 17 VR 492, 505-506 [33]-[35].

[36] Ibid 149 [132] (citation omitted).

[37] [2009] VSCA 100; (2009) 22 VR 343.

[39] [2000] HCA 57; (2000) 204 CLR 82.

[40] [2004] HCA 62; (2004) 221 CLR 1.

[41] [2008] VSCA 126.

[42] Government Insurance Office of New South Wales v Bailey (1992) 27 NSWLR 304, 310 (Kirby P, citing Jacobs J in Jobst v Inglis (1986) 41 SASR 399, 402-403).

[43] Ucar v Nylex Industrial Products Pty Ltd [2007] VSCA 181; (2007) 17 VR 492, 512 [57] (citations omitted; emphasis in original).

[44] [1986] HCA 54; (1986) 161 CLR 141.

[45] Ucar v Nylex Industrial Products Pty Ltd [2007] VSCA 181; (2007) 17 VR 492, 519 [75] (citation omitted).

[46] Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66, 93 [70] (emphasis added).

[51] The costs of preparation of documents being no different, but court time being considerably less.