Wood v Inglis [2009] NSWSC 900 | Case summary

Declare that the purported resolutions of the first cross defendant Inglis Research Pty Limited as trustee of the Inglis Research Trust dated 19 and 20 November 2007 respectively were beyond power and void insofar as they purported to revoke irrevocable and absolute distributions previously made to Dr William Inglis. 2. Order that the first cross-defendant pay the Executors of the estate of Dr William Inglis $1,390,259.94. 3. Judgment for the cross-claimant against the first cross-defendant in the sum of $240,910.12. 2 Mrs Inglis was, therefore, the successful party. Ordinarily, costs following the event, she could anticipate a favourable costs order against her unsuccessful opponents. Directions were made for the provision of submissions by any party who sought a costs order different from that proposed on behalf of Mrs Inglis (namely that her costs of the hearing of the issues determined separately under the order made on 16 December 2008 be paid by the second, third and fourth cross-defendants), and - in order to inform the future conduct of the remainder of the proceedings - notification of what if any further relief was now sought by each party. Costs of separate questions 3 Each of the second cross-defendant Ms Kathryn Margaret Inglis-Clark, the third cross-defendant Mr Michael Inglis, and the fourth cross-defendant Mrs Pamela Wood has made submissions seeking a costs order different from that proposed on behalf of Mrs Inglis. As in the substantive judgment, for the sake of convenience and without intending any disrespect, I shall again refer to the parties by their first names. Michael proposes, primarily, that Helen's costs (as cross-claimant) and Mrs Wood's costs (as fourth cross-defendant) be paid out of the estate of Dr Inglis ("the Estate") on the indemnity basis, and that the costs of the Kate and Michael (as second and third cross-defendants respectively) be paid out of the Estate on the party-party basis; alternatively, that Helen's costs be paid out of the Estate on the indemnity basis, that Helen pay Kate's, Michael's and Pamela's costs of the "improper purpose, unconscionable conduct and oppression" issues - "including but not limited to issues arising out of prayers 1, 2 and 3" of the amended first cross-claim - and that the costs of Kate, Michael and Pamela otherwise be paid out of the Estate on the party-party basis. Kate supports Michael's position, but as a further alternative proposes that Helen's costs be paid from the estate and the costs of Kate, Michael and Pamela be paid by the first cross-defendant Inglis Research Pty Ltd ("the Company"), in its capacity as trustee of the Inglis Research Trust ("the Trust"). Pamela proposes that her costs of the separate questions be paid out of the Estate on the indemnity basis; alternatively, that her costs of the separate questions, insofar as she was acting as executor, be paid out of the Estate on an indemnity basis and to the extent that the Estate is unable to pay them by Helen personally, and that Helen pay Pamela's costs insofar as they relate to the allegations of "improper purpose" and prayers 1, 2 and 3 of the first cross-claim. Pamela further submits that if only one set of costs be allowed to the cross-defendants out of the Estate, they should be hers, as one of the executors. 4 These various contentions require consideration of a number of factors said to warrant departure from the prima facie rule pursuant to which a costs order would be made in favour of Helen against the unsuccessful cross-defendants:

· Proceedings brought by trustees who seek an answer from the court on an issue of construction, in which ordinarily costs will be a testamentary expense; · Proceedings brought by beneficiaries, by reason of some difficulty of construction or administration, which would have justified an application by the trustees. Being necessary for the administration of the trust, the costs of all parties are regarded as incurred for the benefit of the estate and payable out of the estate; · Proceedings brought by a beneficiary, adverse to other beneficiaries, involving the determination of rights between adverse litigants, in which the unsuccessful party will be ordered to pay the costs. 9 While it was submitted that the present proceedings were in the second class, in my view they were manifestly in the third class. The proceedings bore no resemblance to a construction suit. They were adversarial proceedings in which Helen, on behalf of the Estate and in her own interest as residuary beneficiary, sued to recover a debt due from the Trust, which Kate, Michael and Pamela resisted, in their own interests as beneficiaries of the Trust. The issues were not issues of construction or administration. Although the proceedings were brought by one of the co-executors, they were brought in her interest as residuary beneficiary, and in her interest as a creditor of the Trust in respect of her own loan account; the other executor opposed her claims. The question was not one of construction of the will or administration of the estate at all: it was whether there was an enforceable obligation owed by the Company as trustee of the Trust to the deceased in the amount alleged as at the date of his death, and, if so, whether any such obligation had been subsequently released or otherwise extinguished or modified. The question could not have been resolved in a construction suit, since it involved determination of the rights of the Estate, not as between beneficiaries, but against a stranger, namely the Company as trustee of the Trust. The circumstance that inter-vivos discretionary trusts are commonly used as an aspect of estate planning does not justify the extension of the concept of a construction suit in respect of a will to the resolution of issues between the executor of a testator's estate and the trustee of his inter-vivos discretionary trust. The interest of Kate, Michael and Pamela in the proceedings was not as executors or beneficiaries of the estate, but as beneficiaries of the inter-vivos trust. It would not have made the slightest difference to the issues on the separate questions had Helen transferred the shares in the Company to the Kate and Pamela and/or joined in payment of legacies to the legatees named in the will, save that the Company would have been the active cross-defendant. Moreover, Helen was acting in the interests of the Estate by not joining in such a transfer until the administration of the estate was complete, since otherwise the executors would lose their control over the trustee during the administration [see Wood v Inglis [2008] NSWSC 1427]. Helen did not create a relevant conflict between her interests as beneficiary and as executor: for the purpose of the present proceedings, her interest as residuary beneficiary coincided with the interest of the estate; if anyone it was Pamela whose interest as a beneficiary of the Trust was adverse to her duty as executor of the estate. The circumstance that parts of the residue have already been transmitted to Helen has no bearing on the necessity for determination of the separate questions. 10 It was argued that the proceedings were the fault of Dr Inglis, because he conducted his affairs "as the effective controller of the trustee" in such a way, and left them in such a state as to create confusion as to the true position, and lead to justifiable inquiry. At the outset, it is to be noted that the submission impugns the deceased's conduct as controller of the trust - not as testator; that would suggest, if anything, that the cost of resolving issues pertaining to the affairs of the Trust might be payable out of the Trust fund; it does not support an order for payment of such costs out of the Estate. Secondly, I do not accept that Dr Inglis left his affairs relevantly in a state of confusion. While I accept that he did not communicate his instructions with clarity to Mr Tierney or anyone else, the documentary position was plain enough: the accounts showed the amount of the distributions and loan accounts. Mrs Wood knew (in October 2005) that Dr Inglis thought that his loan account then stood at about $600,000, and Helen's at about $200,000 [see Principal Judgment, [28]]. I do not accept the submission that it is a necessary inference from the Memorandum of Wishes that the Trust was of such value that it was incongruous for it to contain only about $120,000 for each child. The litigation was not caused by the state in which Dr Inglis left the affairs of the Trust; it was caused by those who, after his death, in pursuit of their own interests, sought to have the accounts rewritten. 11 Moreover, the "rule" in question is one applicable in probate litigation, where admission of a will to probate is reasonably but unsuccessfully opposed. This was not such a case. While, in Chang v Tjiong [2009] NSWSC 122, Palmer J applied similar considerations where a claim for a declaration that a deceased had held property upon trust for the plaintiff (as executrix of her mother's estate) failed - the deceased having failed in his duty as trustee to record or otherwise make available to those interested the terms of the trust - that is far removed from the present case, in which the documentary position, and the testator's intention, was tolerably plain, until the cross-defendants sought to change it after Dr Inglis' death. 12 Accordingly, there is insufficient reason to depart from the ordinary rule applicable in adversarial litigation: subject to the conclusions that I reach in respect of the costs of particular issues on which it is said that Helen did not succeed, the cross-defendants who resisted her claim should pay her costs. 13 There is therefore no need to consider whether, if the cross-defendants were to have their costs out of the estate, they should be limited to one set only. However, had it been necessary to do so, I would have acceded to that submission. For the purposes of the separate questions, there was no difference in the interest of Kate, Michael and Pamela. There was no need for them to be separately represented. Although there was, properly and responsibly, a division between their lawyers of the responsibility for calling certain evidence and for cross-examination, nonetheless the involvement of three sets of counsel and solicitors unnecessarily increased the costs of the proceedings. Each of them was perfectly entitled to be separately represented, but at their own risk as to the additional costs thereby incurred [cf Milillo v Konnecke [2009] NSWCA 109, [116]-[117]]. 14 It was submitted, primarily on behalf of Kate, that any costs order should be against the Company on the basis that, as the trustee of the Trust, it was "the proper contradictor" and the other cross-defendants had become involved only because of Helen's conduct in creating a deadlock in the Company so that it was paralysed. However, deadlock was a potential outcome of the deceased's appointment of Helen and Pamela as his executors; the Company filed a submitting appearance; Helen incurred costs because Kate, Michael and Pamela chose to be active opponents. In so doing, they were not acting in any representative capacity, but in their own interests as beneficiaries of the Trust (to whom distributions had already purportedly been made). On ordinary principles, they should be responsible for the costs occasioned by their unsuccessful opposition. Costs of particular issues? 15 Kate, Michael and Pamela submitted that Helen should be deprived of, and/or should herself be ordered to pay, the costs of various issues in respect of which it was said that she was unsuccessful. 16 Prayers 1, 2 and 3. These were claims for relief were in respect of a resolution once supposed to have been adopted on 23 October 2007, of which there was a written minute, prepared by the accountant Mr Tierney and signed by Helen, bearing that date, purporting to record a directors' decision to adjust the deceased's loan account in the Trust, extract the unrealised capital gain, and report assets at historical cost. At first sight, this Minute evidenced formal assent by Helen to the revision of the loan account, and challenging it was a necessary part of her case. She abandoned those claims when it became apparent that all parties accepted that no such resolution had been adopted on 23 October; once that was accepted it was no longer necessary for her otherwise to establish its invalidity. But given that there was a written minute of that date, apparently adverse to her overall case, there was nothing inappropriate about her challenging it as part of her case; it added nothing to the evidence (as the events of 23 October had to be, and were, explored in any event), and the timely abandonment of those claims was a responsible step in relieving the court and the parties from the burden of agitating and deciding an issue which no longer needed decision - because it had already been practically conceded, in Helen's favour, that there was no effective resolution of that date. There is no warrant for making a special costs order on this account. 17 Improper purpose, unconscionability, and oppression. In her pleading, Helen contended that the impugned resolutions had been adopted for an improper purpose, that the affairs of the company were being conducted in a manner oppressive of her, and that her assent to the impugned resolutions had been procured by unconscionable conduct. In the substantive judgment I found it unnecessary to resolve these issues, because Helen was otherwise entitled to succeed. Kate, Michael and Helen - but particularly Michael - submitted that, in those circumstances, the case should be regarded as one in which Helen had brought and persisted in an unsubstantiated and unfounded charge of fraud [cf Parker v McKenna (1874) LR 10 Ch App 96, 122-3, 125, 127; Adey v Fisher (1914) 14 SR (NSW) 407, 415; Butcher v Lachlan Elder Realty [2002] NSWCA 237, (2002) 55 NSWLR 558, [90]]. 18 The allegations of "improper purpose" were, in substance, that the impugned resolutions had been adopted for a purpose foreign to the power given to the directors, namely to reduce the amount recognised as due from the Trust to the Estate, and thus the residuary estate distributable to Helen. The persons to whom "improper purpose" was attributed were implicitly the then directors who adopted the resolution - namely Helen and Kate - but I would accept also that Pamela was implicated, because it was alleged that it was at her request that the resolutions were signed. In response to a request for particulars, Helen's solicitor confirmed that no other allegation of improper purpose was made. 19 The submission made on behalf of Michael, whose position was supported by Kate, is encapsulated in the following extract: Seen in the light of the cross claimant's oral evidence, the allegations contained in both the pleadings and the affidavit evidence of the cross claimant amount to an allegation of fraud in that it alleges that the third cross defendant in making a statement he either knew to be false, or a statement he made with reckless disregard to whether it was true or not, used dishonest means in an attempt to imperil the rights and interests of the cross claimant and potentially benefit himself (see Peters v R 192 CLR 493). 20 Pamela made a similar, if less elaborate, submission. In my view, this contention was quite misconceived. At the outset, it should be pointed out that I did not reject the allegations of "improper purpose", unconscionability and oppression; it was unnecessary to address them. It should not be assumed that they would have failed, but it risked more harm than good to resolve them when to do so was unnecessary. Next, at no stage was it suggested that any statement made by Michael was other than honestly believed by him to be correct. There was no suggestion that any statement attributed to him was known by him to be false, or made recklessly. Indeed, Helen had sought Michael's consent to discontinue against him, and when that was refused unsuccessfully sought leave from the Court to do so - on the basis that he was not a necessary party - which he opposed. If, as is now submitted, Michael felt compelled to defend proceedings to which he might otherwise have submitted because of what was perceived to be an allegation of fraud against him, responsibility for such a misinterpretation of the case cannot reasonably be attributed to Helen. 21 Emphasis was placed, on behalf of Michael, on Helen's version of what was attributed to him at the 23 October meeting. It is true that she conceded that her affidavit evidence was in one respect incorrect (insofar as it suggested that Michael had already seen the Trust Deed). But I am completely unable to place on this the sinister character attributed to it on behalf of Michael. There was an abundance of evidence, including from other cross-defendants, as to Michael's role at the meeting; it is clear that some, though not all, of those present perceived that he adopted a forceful and robust position (he said, according to Mr Tierney, that the distribution of capital gains had "no basis", according to Mr Wood, that it was "inappropriate, if not unlawful", according to Fiona Inglis, that it was "incorrect legal practice"). It was unnecessary to resolve the competing versions for the purpose of the substantive judgment, but while - as Helen accepted - he could not on that occasion have asserted in terms that the accounting treatment adopted by Mr Tierney was "contrary to the Trust Deed", it is impossible to conclude that Helen was propounding a false allegation in that respect; what she attributed to Michael was "words to the effect of", and their effect, relevantly, was that the accounting treatment was wrong. 22 I do not consider that any costs should properly be regarded as attributable to Helen's maintenance of an unsubstantiated and unjustified issue. There is no basis for depriving her of costs of any such issue, let alone for ordering her to pay costs. 23 Accordingly, the costs order in respect of the separate questions will be, as sought by Helen, to the effect that her costs as cross-claimant of the proceedings on the issues determined separately under the order made on 16 December 2008 be paid by the second, third and fourth cross-defendants. Other issues 24 It remains to be considered how the remaining issues in the proceedings should be progressed. 25 Revocation of Probate. Helen seeks an order that the grant of Probate to herself and Pamela be revoked, and that there be instead a grant to her alone [Part A of her counsel's submissions]. Pamela and Michael oppose this; indeed Michael (apparently with the support of Kate) goes further and proposes that Helen be removed as executrix, leaving Pamela as sole executrix. 26 This issue has not been the subject of a hearing or evidence. The court does not lightly remove an executrix. It would be inappropriate to do so, over opposition, in the absence of a hearing of the issues. If it is to proceed, it will be necessary to make directions for the service of relevant evidence and the appointment of a hearing. 27 Rectification of corporate records. Helen also seeks a series of orders for rectification of corporate records to reflect the various judgments to date in these and related proceedings [Part B of Mr Thomson's submissions]. Pamela does not oppose those orders; however Michael, apparently supported by Kate, does, although his submissions do not explain why. In the absence of any apparent rational basis for opposing them, I am inclined to make the orders sought in Part B of Mr Thomson's submission, but I shall afford counsel an opportunity first to explain any basis for opposition. 28 Winding up of the Company. Helen further seeks an order that the Trustee Company be wound up in insolvency [Part C of Mr Thomson's submissions]. This is opposed by all three active cross-defendants. This issue has not been the subject of a hearing. It is not self-evident that the company is insolvent. If it is to be pursued, directions must be made to ready it for hearing. 29 Disposition of proceedings. Finally, Helen seeks orders disposing of the balance of the proceedings, and in respect of the costs of the proceedings generally [Part D of Mr Thomson's submissions]. Pamela opposes this on the basis that there are outstanding issues on the summons, including in particular the payment of legacies. It would be premature to dismiss the summons, or dispose of its costs generally, until the remaining issues, not determined under the order for separate determination, are resolved. 30 Payment of legacies. Pamela seeks orders that Helen as executor do all things necessary on her part to pay the legacies to the legatees, and appointing an officer of the court to do so in case of default. This issue has not been the subject of a hearing and it will be necessary, if it remains in dispute, to make directions for its determination. 31 Second Cross-claim. Pamela also seeks an order that the Second Cross-claim - brought by Kate, seeking a declaration that the shares in the Company have been validly transferred to Kate and Pamela, and alternatively an order that they be transferred, and a declaration that the distribution of $2,000,000 was validly made, or an order that that Helen and Pamela as executors pay $2,000,000 to the Trustee Company from the estate - be struck out or dismissed. It appears to assume the validity of the share transfers of 16 December 2007, but Barrett J has held to the contrary [Wood v Inglis [2008] NSWSC 1147. Just what is the cause or causes of action relied upon is unclear. Moreover it is not apparent on what basis Kate, who purports to sue as a director of the Company, has standing. Kate has indicated that she does not "at this stage" intend to prosecute her cross-claim, unless it is necessary to do so defensively. Although I will afford counsel an opportunity to be heard, I am inclined to accede to the application to dismiss the Second Cross-claim. 32 Third cross-claim. Pamela submits that the Third Cross-Claim, by which she seeks revocation of the grant of Probate and a grant in lieu to herself alone, should be dismissed, as there is no present basis for removing either executrix. However, as it seems that Helen may wish to pursue her application for revocation, and that the response may be to propound a grant to Pamela alone, I will not at this stage adopt that course. 33 Transfer of shares. Michael, apparently supported by Kate, submits that an order should be made that Helen execute and deliver transfers of the shares in the Trustee Company as to four to Helen and as to four to Kate. I have previously held that summary relief to this effect was premature [see Wood v Inglis [2008] NSWSC 1427]. The outcome of the separate questions reinforces that view. Conclusion and Orders 34 I make the following order:

Wood v Inglis

At a glance

Court

Decision date

Before

Source

Judgment (17 paragraphs)

Parties

Cases Cited (10)

Cited By (2)