Bain & Bain (Deceased) (Costs) [2017] FamCAFC 164; (16 August 2017)

Last Updated: 24 August 2017

FAMILY COURT OF AUSTRALIA

BAIN & BAIN (DECEASED) (COSTS)

[2017] FamCAFC 164

FAMILY LAW – APPEAL – COSTS – Costs of the proceedings at first instance – Where the appellant sought that the respondents pay his costs personally – Where the respondents were wholly unsuccessful – Consideration of whether costs should be paid from the estate – Where the costs of the litigation were not reasonably incurred – Where the estate is insolvent – Where the respondents did not seek judicial advice – Costs ordered against the respondents personally. FAMILY LAW – APPEAL – COSTS – Costs of the appeal – Where appeal upheld by reason of errors of law – Costs certificates ordered. FAMILY LAW – APPEAL – COSTS – Substitution of parties – Where the appellant is now bankrupt – Where the appellant’s Trustees in Bankruptcy have made an election to continue the application for costs – Whether the application for costs is property as defined in the Bankruptcy Act 1966 (Cth) – Where it is not necessary to determine the point conclusively – Trustees joined as parties in substitution of the appellant.

Bankruptcy Act 1966 (Cth) ss 5(1), 60, 58, 116 Family Law Act 1975 (Cth) ss 112AD, 112AP, 117 Federal Proceedings (Costs) Act 1981 (Cth) Trustees Act 1973 (Qld) ss 72, 96

Bain & Bain (Deceased) (2017) FLC 93-722
Cummings v Claremont Petroleum NL (1996) 185 CLR 124
In re Beddoe; Downes v Cottam [1893] 1 Ch 547
In re Jones; Christmas v Jones [1897] 2 Ch 190
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
May v O’Sullivan [1955] HCA 38; (1955) 92 CLR 654
National Trustees Executors and Agency Company of Australasia Ltd v Barnes [1941] HCA 3; (1941) 64 CLR 268
Nolan v Collie and Anor [2003] VSCA 39; 2003 7 VR 287


J D Heydon and M J Leeming, Jacob’s Law of Trusts, (LexisNexis Australia, 7^th ed, 2006) [240]

APPELLANT:

Mr Graham and Mr Clark as Trustees for the Bankrupt Estate of Mr Bain

RESPONDENT:

Ms Little and Ms Searle, the Legal Personal Representatives for Ms Bain (deceased)

FILE NUMBER:

BRC

2481

of

2010

APPEAL NUMBER:

NA

56

of

2016

DATE DELIVERED:

16 August 2017

PLACE DELIVERED:

Sydney

PLACE HEARD:

By written submissions in chambers

JUDGMENT OF:

Bryant CJ, Ainslie-Wallace and Rees JJ

HEARING DATE:

By written submissions filed 24 May 2017; 7 June 2017; 9 June 2017

LOWER COURT JURISDICTION:

Family Court of Australia

LOWER COURT JUDGMENT DATE:

4 February 2016 31 March 2016 25 May 2016 9 August 2016

LOWER COURT MNC:

[2016] FamCA 42 [2016] FamCA 602 [2016] FamCA 600 [2016] FamCA 662

REPRESENTATION

COUNSEL FOR THE APPELLANT:

Mr Richardson SC

SOLICITOR FOR THE APPELLANT:

Hopgood Ganim Lawyers

SOLICITOR FOR THE RESPONDENT:

Blair Anderson Solicitor

ORDERS

(1) That Mr Graham and Mr Clark be joined as parties to the proceedings in substitution for Mr Bain.
(2) That, without recourse to the estate of the late Ms Bain, Ms Little and Ms Searle pay the appellant’s costs of and incidental to the proceedings before Hogan J as and from 31 March 2016.
(3) That, in relation to the appeal against the orders of Hogan J made on 9 August 2016, there be no orders as to costs.
(4) The court grants to the appellant a costs certificate pursuant to the provisions of s 9 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the appellant in respect of the costs incurred by the appellant in relation to the appeal.
(5) The court grants the respondents a costs certificate pursuant to the provisions of s 6 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondents in respect of the costs incurred by the respondents in relation to the appeal.
(6) Pursuant to r 19.50 of the Family Law Rules 2004 (Cth) the Court certifies that this matter reasonably required the attendance of counsel, including Senior Counsel.

Note: The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Bain & Bain (Deceased) (Costs) has been approved by the Chief Justice pursuant to
s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY

Appeal Number: NA 56 of 2016
File Number: BRC 2481 of 2010

Mr Graham and Mr Clark as Trustees for the Bankrupt Estate of Mr Bain

Appellant

and

Ms Little and Ms Searle, the Legal Personal Representatives for Ms Bain (deceased)

Respondent

REASONS FOR JUDGMENT

1. By an application brought pursuant to s 112AP of the Family Law Act 1975 (Cth) (“the Act”), Mr Bain (“the appellant”) was found guilty of contempt of an undertaking accepted by the Court. The application was brought by the Legal Personal Representatives (“the respondents”) of the appellant’s deceased wife, Ms Bain (“the wife”). The respondents are the executors of the estate of the wife.
2. On 9 August 2016 the appellant was sentenced to a period of six months imprisonment. On 3 May 2017 an appeal against the orders was allowed and the Full Court re-exercised the discretion of the trial judge and the application for contempt was dismissed. The orders of the Full Court provided for the parties to file written submissions in relation to costs of the trial and the appeal.
3. In accordance with those orders the appellant seeks an order that the respondents personally pay his costs of the trial and the appeal. In the alternative to an order that the respondents pay the appellant’s costs of the appeal, the appellant seeks a costs certificate pursuant to the Federal Proceedings (Costs) Act 1981 (Cth). The appellant also sought that the Court certify that it was reasonable for him to engage senior counsel to appear on his behalf at both first instance and on appeal.
4. The respondents resist the applications for costs.

SUBSTITUTION OF THE TRUSTEES AS PARTIES

5. The appellant voluntarily entered bankruptcy in April 2017. The appellant seeks an order that his trustees in bankruptcy (“the Trustees”) be substituted for him as parties on the application for costs.
6. Section 60(2) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) relevantly provides:

An action commenced by a person who subsequently becomes a bankrupt is, upon his or her becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.

7. Pursuant to this section, by letter of 23 May 2017, the Trustees elected to continue the costs application on behalf of the appellant. The affidavit of the appellant and attached annexures demonstrate that he and the Trustees have reached an arrangement as to how any costs awarded in his favour are to be divided.
8. The respondents agree that it is appropriate for the Trustees to be joined as a party, so as to allow them to advance their “asserted interest”. We note however, that the respondents do not apparently agree that the Trustees should be joined as parties in substitution for the appellant.
9. The respondents’ submissions contend, uncontroversially as we see it, that the right to appeal against the trial judge’s finding of contempt and sentence was personal to the appellant and thus did not vest in the Trustees. The submissions thereafter contend that the right to seek costs of the appeal is a “contingent incident” to the appeal and thus the action for costs does not vest in the Trustees.
10. In submissions in reply the appellant contends that the respondents’ characterisation of the costs application is incorrect.
11. This then raises the question of whether the costs application is, in effect, a continuation of the appeal proceedings or a separate action for monetary reward and therefore falls within the very broad definition of “property” in s 5(1) of the Bankruptcy Act. Of course, any costs awarded to the appellant would be considered “after-acquired property” (as defined in s 58(6) and s 116) and vest in the Trustees pursuant to s 58(1)(b) of the Bankruptcy Act.
12. The respondents’ submissions continue and contend that if the Trustees’ election has not been properly made, “their application” should be dismissed and they and the solicitors for the appellant should pay any costs associated with the dismissal of the application. The submissions also argue that the appellant did not bring the application for costs of the appeal “within the time fixed by the Court”. While being far from clear, we think the thrust of the submission is that both the Trustees and the appellant should be parties to the costs application and, if it was determined that the Trustees’ election pursuant to s 60 of the Bankruptcy Act was not properly made then “the Trustees’ application” should be dismissed with costs. Further it seems to be argued that in that event, the appellant is not entitled to pursue an application for costs because he would be out of time to bring such an application. Thus the respondents’ submission appears to be that the costs issue would fall away.
13. Dealing with the second part of the submission, that is, the contention that the appellant’s application for costs was out of time, we observe that in the Amended Notice of Appeal filed by the appellant on 12 September 2016, order 4 sought that, in the event the appeal succeeded and the contempt application was dismissed, there be an order for costs of the proceedings at first instance. We do not understand how an argument could be mounted, if that is what is being said, that the appellant’s application was not brought within time.
14. Upon the appeal being allowed, the Full Court made orders which included, inter alia, orders for submissions about costs. Relevantly, Order 4 of the orders made on 3 May provided:

(4) In relation to the costs of the hearing at first instance:
(a) Within 21 days of these orders the appellant husband shall file and serve written submissions (not exceeding 10 pages) dealing with the issue of costs.
(b) Within 14 days of service of the submissions referred to in Order 4(a), the respondents shall file and serve written submissions in response (not exceeding 10 pages).
(c) Within seven days of service of the submissions referred to in Order 4(b), the appellant husband may file and serve submissions in reply (not exceeding five pages).

15. On 24 May 2017 the appellant husband filed his submissions. It appears that the submission that the appellant’s application for costs was out of time arises from the respondents’ written submissions at paragraph 5:

If the above is correct, the costs application by the bankruptcy is misconceived, for the application would be one for the husband to make. He has made no such application within the time fixed by the Court...

16. That statement of course is incorrect. As we have pointed out the husband sought costs in his Amended Notice of Appeal and Order 4 of the orders made by the Full Court quite clearly addressed that application.
17. As to whether the Trustees’ election was validly made, we are conscious that the Trustees have made no submissions on this point. However since they made the election pursuant to s 60(2) of the Bankruptcy Act, we assume they considered the costs application as property that would vest in them. This is supported by the letter of election from one of the Trustees dated 23 May 2017 annexed to the appellant’s affidavit which states “[i]t is my view, the claim is a divisible asset of the bankrupt estate”. That, of course, does not determine the issue but seems to us to be support for the contention that the costs application is property of the relevant kind.
18. In any event, we incline to the view that the application for costs consequent on the successful appeal is property as defined in s 5(1) of the Bankruptcy Act consistent with comments of the High Court in Cummings v Claremont Petroleum NL (1996) 185 CLR 124.
19. However, in the absence of argument from all parties and the Trustees, we do not propose to decide the point conclusively. The concession of the respondents that it was appropriate that the Trustees should be joined as parties is sufficient in our view to enable the Trustees to continue the costs application. While not directly conceded by the respondents, as we understand their submissions, we are nevertheless of the view that the Trustees should be joined as parties in substitution for the appellant, especially in circumstances where the appellant does not oppose this action.
20. We will order that the appellant’s Trustees in Bankruptcy, Mr Graham and Mr Clark be joined as parties to the application for costs in substitution for the appellant. Notwithstanding this, for convenience in reading the judgment, we propose to refer to “the appellant” as seeking costs in these reasons.

COSTS

21. The appellant seeks his costs of the trial from 31 March 2016 and that the respondents pay his costs of the appeal.
22. The appellant contends that, although the respondents were the executors of the wife’s estate, they should not be entitled to the protection usually afforded such persons because they did not act within their duties as executors.
23. Before we begin our consideration of this issue we note that although the orders made by the Full Court on 3 May 2017 only provided for submissions to be made as to the costs issue, both parties filed affidavits. The appellant filed an affidavit setting out the circumstances of his bankruptcy, and the election of the Trustees to continue the proceedings. The respondents filed two affidavits, one by their solicitor, and one by Ms Little, one of the executors.
24. In submissions in reply the appellant raised objections to both the affidavits filed on behalf of the respondents, asserting that the affidavit of the solicitor was irrelevant but for one paragraph, and the affidavit of Ms Little was irrelevant in its entirety.
25. We note these objections, and while being cognisant of the appellant’s objections to the relevance of the evidence, we propose to take parts of Ms Little’s affidavit into account in our consideration of this issue. We agree that there is little of relevance in the affidavit of the respondents’ solicitor.

COSTS OF THE PROCEEDINGS AT FIRST INSTANCE

26. The appellant seeks that the respondents personally pay his costs, on and from 31 March 2016, the date on which her Honour found a prima facie case established and the date that the appellant filed an affidavit setting out his defence to the contempt charge.
27. Before turning to the legal context and the arguments on this issue, and while these reasons should be read with an understanding of the reasons of the Full Court in the appeal delivered on 3 May 2017 (see Bain & Bain (Deceased) (2017) FLC 93-772), we set out some of the facts to the give context to the determination of costs.

Background

28. Relatively early in their marriage, the appellant and the wife took out life insurance policies, each insuring the life of the other. The agreed purpose was that if one of the parties to the marriage died, the funds paid under the insurance policy on that party’s life would be applied to joint debts.
29. After the parties separated, and at a time when the wife was gravely ill and unlikely to live, she applied for an order that the appellant transfer the life insurance policy that he held over her life to her for the purpose of her changing the beneficiaries under the policy from the appellant to the parties’ children. At this time property settlement proceedings were on foot between the parties.
30. The wife’s application was heard and dismissed; the Court accepting an undertaking, ostensibly given by the appellant, that he would not disburse the funds in the event of the wife’s death but hold them to be considered as part of the property settlement proceedings.
31. The wife died and the appellant received the funds under the insurance policy. He used those funds in payment of the joint debts of the parties which were then, and had been for some time, significantly in excess of the parties’ assets.
32. The respondents were appointed the Legal Personal Representatives of the wife for the purposes of continuing the property settlement proceedings in her stead. On discovering that the funds from the insurance policy had not been sequestered by the appellant, they brought two applications. One was brought pursuant to s 112AP of the Act (“the contempt application”) and it alleged that in disbursing the funds, the appellant had acted in flagrant challenge to the authority of the court. The other was an application pursuant to s 112AD of the Act (“the enforcement application”). This section offers recourse when it is alleged a person has breached an order of the court without reasonable excuse. As we observed in the appeal, the purpose of s 112AD is to secure compliance with the Court’s orders.
33. The respondents elected to proceed first with the contempt application, with the enforcement application to be considered later.
34. Relevant to this issue, on 8 March 2016, after the respondents had filed the material on which they relied in proof of the alleged contempt, the trial judge heard submissions on whether a prima facie case had been established. Her Honour reserved her decision and on 31 March 2016 the trial judge found that a prima facie case was established. At that time the appellant filed an affidavit in which he set out his account of the circumstances that led to the disbursement of the monies. He was cross examined by counsel then appearing for the respondents.
35. We set out here the appellant’s evidence as extracted in the appeal reasons:
    45. In his affidavit filed on 31 March 2016 the husband referred to his affidavit filed in opposition to the wife’s application heard on
        12 November 2013 and said, apropos paragraph 24 of that affidavit:
        13. 13. Whilst I do not recall if the suggestion for the offer of an undertaking was made by [Mr S] or by Mr Dick of Counsel I do recall instructing [Mr S] that I should indicate in the Affidavit a willingness to provide an undertaking to the Court to hold the proceeds of the life insurance policy, in the event that the Application was not dismissed.
    46. He further said:
        29. 29. At no time prior to dealing with the insurance proceeds had I seen a copy of the orders made that day or the reasons for judgment, nor was I informed by anyone that the order recorded a notation to the effect that orders were made on my undertaking.
        30. 30. I did not make any enquiry about the undertaking because my understanding was that the undertaking was only offered as an alternative, in the event the Wife’s application was not dismissed.
        31. As the application was dismissed, the events giving rise to my offer of the undertaking did not arise and I had no reason to expect that the Court would have taken a different course.

Should a costs order be made?

36. The determination of costs as between parties is governed by s 117(1) of the Act which says that, as a general rule, each party to proceedings under the Act shall bear his or her own costs. That general rule is subject to s 117(2), that is, where there are circumstances that justify making an order for costs against another party. Section 117(2A) then lists a number of matters to which the court shall have regard when determining what, if any, order should be made.
37. The main basis on which the appellant seeks costs is that the respondents were wholly unsuccessful in their pursuit of the contempt application (s 117(2A)(e)).
38. Turning then to the submissions made on behalf of the respondents, it is unfortunately necessary to observe that the submissions filed on behalf of the respondents are intemperate in tone, replete with pejorative assertion and in material respects, wrong as a matter of law. The respondents contend that the appellant, in seeking costs only from 31 March 2016, the date on which a prima facie case was found and on which he filed an affidavit outlining his defence, amounts to a concession by the appellant that “the respondents established, prima facie, that the husband was guilty of contempt of this Honourable Court.”
39. This submission fundamentally misunderstands the nature of a finding of a prima facie case which in no way demonstrates that the appellant was “guilty of contempt” (see May v O’Sullivan [1955] HCA 38; (1955) 92 CLR 654 per Dixon CJ, Webb, Fullagar, Kitto and Taylor JJ at 658).
40. As the appellant’s submissions make clear, the reasons why the claim for a costs order was limited as and from that date were two-fold. First, some of the costs incurred earlier were related to interlocutory applications brought by the appellant in relation to which the appellant had been unsuccessful. Secondly, and pertinently to this application, by the filing of his affidavit on 31 March 2016, the appellant laid bare his defence to the asserted contempt, namely that he did not know that an order had been made binding him to an undertaking. As the appellant’s submissions observe:

... the content of the affidavit put [the appellant’s] position with clarity and the Respondents were then unequivocally on notice of the difficulty they faced.

41. We pause here to note, as did the submissions of the appellant, that the respondents’ submissions said at paragraph 24, in relation to the appellant filing his affidavit on 31 March 2016:

... It was not until the respondents had closed their case and on the last day of the liability [sic] trial that the [appellant] forthwith filed and served his affidavit. Only then did he waive privilege in relation to his legal advisers’ conduct at the time when the undertaking was recorded in the order. It was too late then to seek to verify his account by reference to those advisers. Further, his absence of earlier candour deprived the respondents of an opportunity to take his claim into account in deciding whether to seek contempt as well as enforcement orders.

42. The reference to “absence of earlier candour” refers, we assume, to the appellant exercising his right to silence until the respondents had established a prima facie case. However, the solicitor’s frank misapprehension of the nature of the case brought by the respondents should not be allowed to cloud the point made by the appellant restricting the claim for costs to on and from 31 March 2016. That is, had the respondents not before appreciated the evidentiary hurdle to proof of contempt beyond reasonable doubt that they faced, on having the appellant’s evidence, that difficulty, the appellant argues, should have been glaringly apparent and caused them to withdraw the contempt application.
43. Both in the respondents’ submissions and in the evidence of Ms Little it was contended that on being presented with the appellant’s affidavit, it was then “too late” to consider and investigate its claims. We understand that this contention is advanced in defence of the respondents continuing the contempt application from that point.
44. First, we observe that at no time on 31 March 2016 did counsel acting for the respondents seek an adjournment to consider the contents of the affidavit. Indeed, counsel for the respondents cross-examined the appellant on the affidavit on that day.
45. Ms Little said:
    22. ... As it was, there was then no time to investigate that statement. I was quite sure that an adjournment for this purpose would have been opposed by [the appellant]. In absence of any ability to investigate and in the limited time then available, I considered that it was best to leave the matter in the hands of the Court to make a decision on the whole of the evidence.
46. Had such an application been made, whether or not the appellant opposed any adjournment, it was ultimately a matter for the trial judge’s determination. Not having sought it, the respondents cannot know whether an adjournment would have been granted.
47. We merely observe here that the trial judge’s decision on whether the respondents had proved the contempt was not delivered until May 2016, and, so far as we understand the evidence, no application was made to re-open the case to cross examine the appellant further.

Consideration of s 117(2A)

48. Turning then to s 117(2A), the respondents submit that the wife’s estate, while not yet fully administered, is insolvent; the point being that the estate has no funds from which a costs order could be met. As we will discuss later, that point is not necessarily a bar to making a costs order in the trial proceedings but relates to who will be ordered to pay them.
49. The respondents contend that the proceedings at first instance were necessitated by the appellant’s failure to comply with previous orders of the court; that is, in his failing to comply with the order binding him to an undertaking. It is beyond doubt that the appellant did not comply with the order binding him to an undertaking. The issue unaddressed in the respondents’ submissions is thus; which proceedings were necessitated by the failure to comply?
50. The respondents argue that although two applications were filed in response to the appellant’s receipt and dissipation of the insurance monies, both were in and around the administration of the wife’s estate. While we will return to this issue in more detail shortly, it was contended that:
    21. The respondents sought both an enforcement orders [sic] and orders relating to the alleged contempt in the original jurisdiction. The former served a private interest directly related to the getting in of the estate. The latter arose out of the getting in of the estate but served a public interest ...
51. The respondents may well have been entitled as executors to bring enforcement proceedings based on the appellant’s apparent failure to comply with the terms of the undertaking, in the hope, perhaps futile, that the appellant may have been ordered to make restitution of the fund.
52. It is also uncontentious that the respondents had standing to bring the application for contempt in their personal capacity.
53. The issue is whether that application was brought in their role, and consistent with their duties, as executors. As we will shortly explain, we do not accept the assertion that a defence of the administration of justice in bringing the contempt application is part of, or associated with, the duties of the executors; nor does it arise in or around the administration of the estate.
54. Finally, it was asserted that the respondents had not been “wholly unsuccessful” in their application, referring to the appellant’s failure to establish that the respondents had no standing to bring the contempt application. It was submitted:
    13. ... the [appellant] both in the original jurisdiction and on appeal sought orders that the contempt proceeding be dismissed, because the respondents lacked standing. Given the only practical manner in which breaches of undertakings or orders can be drawn to the Court’s attention, the obvious purpose of this baseless submission was to subvert the public interest and so as not to have to answer a case in which it would be conceded there was a case to answer.
55. And, at paragraph 34:

... The conduct of the [appellant] in raising and pursuing the baseless issue as to standing served only to delay proceedings.

56. The issue of who has standing to bring a contempt application is not, as our reasons illustrate, without its complexity. While this point was decided in favour of the respondents on the determination of the appeal, that the respondents pursued and were wholly unsuccessful on the contempt application, in our view, justifies a conclusion that they were “wholly unsuccessful” for the purposes of s 117(2A) of the Act.
57. This factor, of itself, satisfies us that it is appropriate to make an order that the respondents pay the appellant’s costs of the proceedings before the trial judge.

Costs of the appeal

58. Although the appellant sought an order that the respondents pay his costs of and incidental to the appeal, nothing was put which would otherwise warrant an order for costs being made against the respondents as parties to the appeal. Nothing done by or on their behalf in the conduct of the appeal could properly be regarded as invoking costs considerations. We would make no order for costs of the appeal inter partes. However, given the appeal was upheld by reason of errors of law, it is appropriate that both parties receive costs certificates for the appeal.
59. Having determined that a costs order should be made in favour of the appellant in relation to the costs of trial, we turn then to the consideration of the respondents as executors of the wife’s estate and whether, given that role, they should be visited with those costs.

THE POSITION OF EXECUTORS

60. Executors enjoy immunity from personally bearing the costs and charges incurred in the administration of the estate and have a right to have such expenses either paid by, or reimbursed from, the estate. So too costs incurred in litigation taken out on behalf of the estate or in response to an action concerning the estate become charges and expenses of the administration of the estate (see In re Beddoe; Downes v Cottam [1893] 1 Ch 547 (“re Beddoe”)).
61. As Starke J said in National Trustees Executors and Agency Company of Australasia Ltd v Barnes [1941] HCA 3; (1941) 64 CLR 268 (“National Trustees”) at 274:

“A trustee may reimburse himself or pay or discharge-out of the trust premises all expenses incurred in or about the execution of the trusts or powers” (Trustee Act 1928 of Victoria, sec. 30 (2)). And this provision applies to executors: See Act, sec. 3. But this enactment is but statutory recognition of the rule acted upon by the Court of Chancery that an executor or trustee is entitled as of right to be recouped everything that he has expended properly in his character as executor or trustee (In re Jones; In re Christmas v. Jones)...

62. Equally, Williams J (Rich ACJ agreeing) said at 277:

A trustee is entitled to be indemnified out of the trust estate against all his proper costs, charges and expenses incident to the execution of the trust.

(References omitted)

63. This position is reflected in the state legislation governing trustees (defined to include executors), in particular in Queensland in s 72 of the Trusts Act 1973 (Qld) (“the Trusts Act”).
64. The delineation then of what costs may be subject to reimbursement from the estate is whether they were “properly incurred”.
65. Whether expenses are properly incurred is to be determined having regard to the circumstances in which they were incurred. In Nolan v Collie and Anor [2003] VSCA 39; 2003 7 VR 287 Ormiston JA (Batt and Vincent JA agreeing) described the test of “properly incurred” thus:
    46. ... [it] is merely a convenient shorthand to describe those restraints applicable to trustees who would seek to look to trust funds for the payment of their expenses and other trust liabilities. It also has the advantage of succinctly expressing the notion of propriety as underpinning a trustee's relationship with the trust estate and the beneficiaries ...

Were the costs of the litigation properly incurred?

66. The answer to this question lies in two parts; whether the costs were incurred in and around the administration of the estate, and whether those litigation costs were properly incurred. An executor will enjoy no right of indemnification from the estate where, by the litigation, the executors were pursuing a personal interest.
67. As Kekewich J said in In re Jones; Christmas v Jones [1897] 2 Ch 190 at 198:

... And again, apart from dishonesty, the Court may, in my opinion, visit the executor with costs, or deprive him of his costs, where the claim is of a monstrous character, that is, one which no reasonable man could say ought to have been put forward. Even though the executor may have believed it, and a solicitor may have prepared the case and counsel may have argued it; in such a case the Court has quite sufficient power to deprive the executor of his costs, or even to make him pay the costs he has occasioned to the estate ...

What was being pursued in the contempt application?

68. It is uncontentious that executors are bound to certain actions in their roles which include to call in the “assets of the [estate], to pay debts, to pay the legacies given by the will and to distribute the assets” (J D Heydon and M J Leeming, Jacob’s Law of Trusts, (LexisNexis Australia, 7^th ed, 2006) [240]).
69. Since it is the respondents’ contention that the bringing of the contempt application was done in execution of their duties as executors, it is necessary to consider not only the application brought, but the evidence of Ms Little.

The evidence of Ms Little, executor

70. It seems that Ms Little and the deceased wife were close friends and it was by reason of that friendship that Ms Little agreed to act as an executor of her estate. It is clear from her affidavit that at the time the applications were brought in the Family Court, the wife’s estate was effectively insolvent.
71. As to the purpose of bringing the contempt application in the Family Court,
    Ms Little said:
    25. ... [i]t shocked me then and still does that, prima facie, [the appellant] had breached an undertaking to the Court.
72. After noting that the solicitor who commenced the proceedings offered to act for the executors for no cost, she continued:

... such was then (and remains) my belief in the importance of undertakings given to this court or any other court, especially when the person giving the undertaking is a solicitor and even though he is also a party to the proceedings, I felt that in the circumstances I had no responsible choice other than to institute the proceedings both for contempt and enforcement. In so doing, I was particularly conscious of my responsibilities as a member of the legal profession to the administration of justice and, as an executor, not just to the beneficiaries, but also to [the wife’s] creditors. I considered that, given the offer of legal assistance, if my co-executor and I waived an apparent contempt or took no enforcement action in respect of such a large sum of money while the property settlement proceeding was unresolved, we may well have been guilty of neglect of our duties as executors and thus personally liable to creditors and even beneficiaries ...

73. There is no doubt, given our findings as to the standing of the respondents to commence the contempt application, that they were entitled to act on Ms Little’s expressed responsibilities as a legal practitioner in protection of the administration of justice. The question is whether she was acting in and about the administration of the estate or in pursuit of a personal interest.
74. We are of the view that the bringing of the contempt application could not properly be seen as acting in the interests of the estate.

Was there any benefit to the estate?

75. It is not necessary to demonstrate a pecuniary advantage to the estate in the litigation in respect of which the executor seeks indemnity; an executor’s costs of litigation may be subject to indemnification where the action concerned, for example, the construction of the will (see National Trustees per Starke J at 275). However, in this case, the respondents assert that the purpose of the contempt application both “arose out of the getting in of the estate” and served a public interest. The submissions do not explain how the contempt application was concerned with the getting in of the estate nor do they speak to any benefit to the estate from that action.
76. In our view, this submission exemplifies the mistaken assumption that underpins the respondents’ case on costs, that it is an incident of the powers of an executor to pursue a public interest, and elides what we consider to be a strong difference between litigation such as the enforcement application which could be considered an action in protection of the estate assets from dissipation by the appellant, and the contempt application which was designed to punish the appellant (see [76] to [79] of the appeal reasons).
77. In finding that the Trustees were entitled to be indemnified as to their costs from the estate, Starke J said in National Trustees at 276:

... The action related and related only to the administration of the estate of the testatrix and was defended and successfully defended upon the ground that it had been properly and prudently administered ...

78. His Honour noted that these costs were “incurred in or about ... the will”.
79. Against those statements of principle, we are not persuaded that the contempt application could be described as being “... in or about ... the will”.

The views of the beneficiaries

80. In July 2015, the adult children of the appellant who are the beneficiaries of the wife’s estate, brought proceedings in the Supreme Court of Queensland seeking either the removal of the respondents as the Legal Personal Representatives of the wife for the purposes of the property settlement proceedings, or that the Family Court proceedings be discontinued.
81. In her affidavit, Ms Little noted that this action was an apparent consequence of the beneficiaries being notified of the respondents’ proposal to bring both contempt and enforcement applications in the Family Court. The beneficiaries’ litigation did not proceed and was ultimately withdrawn. However, Ms Little said:
    24. ... [the beneficiaries] brought the Queensland Supreme Court proceedings on the basis that they were concerned that the proposed Family Court proceedings were of no benefit to the estate of which they were the beneficiaries ...
82. The respondents’ submissions assert that the views of the beneficiaries were an irrelevant consideration because until the estate had been brought in and the creditors paid, they had no interest in the assets but merely a right to due administration of the estate.
83. Of course, while strictly correct, in considering costs incurred in litigation conducted by executors, the determination of reasonableness requires, inter alia, the balancing of the interests of the executor and those of the beneficiaries. One might readily conclude that in a case such as this where the estate of the wife was insolvent, the beneficiaries may well be concerned that there be no unnecessary diminution of what little remained.
84. In re Beddoe Bowen LJ said at 562:

If there be one consideration again more than another which ought to be present to the mind of a trustee, especially the trustees of a small and easily dissipated fund, it is that all litigation should be avoided, unless there is such a chance of success as to render it desirable in the interests of the estate that the necessary risk should be incurred ...

85. We are perplexed as to why the solicitor for the respondents, the author of the submissions said this, somewhat pejoratively of the beneficiaries’ apparent desire to halt the proceedings:
    20. The respondents made no issue of the subjective views of the adult children at trial, because in their view these were not relevant to whether or not the [appellant] had breached the undertaking. Given the background and as to costs, their views are not just without weight but devoid of insight or candour.
86. It is true that the beneficiaries’ views were not relevant to whether the appellant breached the undertaking. Clearly, however, their views and their concern to protect the estate were matters which should have sounded a warning bell as to whether the respondents’ pursuit of the contempt application was in fact being conducted as part of the administration of the estate.

Failure to seek advice of the Court

87. Potently in this matter, the respondents did not seek the advice of the court as to the prudence of bringing the contempt application.
88. In 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 at [69] and following, the plurality of the High Court discussed the entitlement of trustees to indemnification from the estate of their costs and expenses, and the ability of trustees to seek judicial advice about the contemplated litigation. They said:
    71. ... Obtaining judicial advice resolves doubt about whether it is proper for a trustee to incur the costs and expenses of prosecuting or defending litigation. No less importantly, however, resolving those doubts means that the interests of the trust will be protected; the interests of the trust will not be subordinated to the trustee’s fear of personal liability for costs.
89. In re Beddoe Lindley LJ said of the importance of seeking advice at 558:

But, considering the ease and comparatively small expense with which trustees can obtain the opinion of a Judge of the Chancery Division on the question whether an action should be brought or defended at the expense of the trust estate, I am of opinion [sic] that if a trustee brings or defends an action unsuccessfully and without leave, it is for him to shew that the costs so incurred were properly incurred ...

90. With the judicial advice comes certainty as to whether contemplated litigation will entitle the executors to an indemnity against the costs of the litigation.
91. So too by seeking judicial advice, the executors are rendered immune from claims that, by inaction, they failed in their duties as executors.
92. We are attracted to how Bowen LJ described the action of a trustee (in this case, the executor) who takes on litigation without first seeking judicial advice at 562 in re Beddoe:

To embark in a lawsuit at the risk of the fund without this salutary precaution might often be to speculate in law with money that belongs to other people ...

93. It is important to understand that at the time that the contempt application was commenced, the estate was effectively bankrupt. The respondents must have understood then that, save an action against the beneficiaries for recoupment of their costs, there was no capacity in the estate to meet any costs ordered against them, or indeed any costs incurred in bringing the application.
94. Thus, in this case, the respondents used their position as executors as a shield against any costs order against them personally in circumstances where they well knew any costs ordered against them could not be reimbursed to them by the estate. Given this circumstance, the executors must have understood that any costs awarded against them in favour of the appellant would necessarily have to be paid by them and this, if nothing else, should have encouraged them to seek judicial advice as is provided for in s 96 of the Trusts Act.
95. We conclude this part by quoting with earnest agreement the comments of Bowen LJ in re Beddoe at 561 to 562:

If the present appeal fails what, we are told, amounts to nearly a quarter of a tiny trust fund will have been wasted with impunity in an unsuccessful litigation of no profit whatever to the trust ... [The trustee] did not take out any summons for directions from the Court, as he might have done, and thereby have avoided litigation; but on his own responsibility he defended the action down to the trial at the assizes and was there defeated in the end. The vanquished trustee now seeks to impose the costs of this idle and fruitless litigation on the estate ...

CONCLUSION

96. We are of the view that the costs of the litigation were not reasonably incurred and, even if the estate were not insolvent, should not represent an impost on the estate.
97. We therefore will order that, without recourse to the estate, the respondents pay the appellant’s costs of and incidental to the hearing before the trial judge as and from 31 March 2016, such costs to be agreed or assessed.
98. Further, we are of the view that it was appropriate in the circumstances to engage senior counsel for both the hearing before the trial judge and the appeal, and we will certify to that effect.
99. Finally, we will order costs certificates for the parties in relation to the appeal.

I certify that the preceding ninety-nine (99) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Bryant CJ, AinslieWallace & Rees JJ) delivered on 16 August 2017.

Associate:

Date: 16 August 2017