Bergade v La Provence Developments Pty Ltd [1995] QSC 56

IN THE SUPREME COURT OF QUEENSLAND Brisbane No. 555 of 1993 Before the Hon. Justice White BETWEEN: AND: DANIEL BERGADE LA PROVENCE DEVELOPMENTS PTY LTD (ACN 011 028 729) JUDGMENT - WHITE J. Plaintiff Defendant Judgment delivered 07/04/1995 CATCHWORDS: Trustees and beneficiaries' costs - Re Buckton Counsel: Solicitors: Submission dates: Mr. L. Bowden for the applicants Mr. B. O'Donnell for the respondent trustees Mr. R. Perry for the respondents Bergade, Perrett and SCI Le Murex Solicitors for the Official Receiver of the Navarros 1 trustees Stephen Camino Caminos for the applicants McLaughlins for the respondent trustees Hopgood & Ganim for the respondents Bergade, Perrett and SCI Le Murex Flynn & Co for the Official Receiver of the Navarros 1 Estates 14 February 1995 -- 1 of 11 -- IN THE SUPREME COURT OF QUEENSLAND BETWEEN: DANIEL BERGADE LA PROVENCE DEVELOPMENTS PTY LTD (ACN 011 028 729) JUDGMENT - WHITE J. Judgment delivered 07/04/1995 No. 555 of 1993 Plaintiff Defendant The applicants, the Gras', brought a summons pursuant to s. 8 of The Trusts Act 1973 to review a number of decisions made by the trustees of the La Provence Unit Trust. Judgment dismissing the summons was handed down on 22 December 1994 and the parties were given leave to make written submissions as to how the costs of that application ought to be borne. Gras' Submissions The Gras' submit that their costs should be paid out of the trust fund and that there should be no order as to the costs of the Navarros' interest or the Bergade/Perrett interests. They make no submissions as to the costs of the trustees. They submit that the following are the reasons why such orders ought to be made: a) an application to review the decision of the trustees was inevitable given the history of the matter; -- 2 of 11 -- 2 b) the applicants behaved reasonably in applying for a review of the decisions of the trustees in the manner and at the time they did; c) the trustees themselves ought to have applied for directions; d) the application was of benefit to the trust in that it clarified the obligations of the trustees and permitted the trustees to proceed with the administration of the trust; e) the application was not brought solely for the benefit of the applicants in that on every issue more than one interest under the trust would have benefited had the application succeeded; f) the conduct of the trustees was equivocal and was, to a certain extent, the cause of the application to review. The applicants submit that they have done what the trustees had been minded to do, that is, to bring an application for directions from the Court, but did not do so because costs were thought to be a decisive factor. The Trustees' Submissions The trustees seek orders that the applicants pay the trustees' costs on a solicitor and own client basis, and to the extent that the trustees are not able to recover their costs from the Gras', the trustees have leave to recover their costs out of the trust moneys and in so doing have first resort to such moneys as are payable or may become payable to the Gras' on distribution. -- 3 of 11 -- 3 The Bergade/Perrett Interests' Submissions It is submitted on behalf of the Bergades, Perrett and SCI Le Murex that they were proper respondents to the application and were entitled to appear before the Court and make submissions independent of those made on behalf of the trustees because their interests were individually and directly affected by the application and, that whilst disagreeing with certain decisions made by the trustees did not seek to contest those decisions. The costs orders sought on their behalf is that the Gras' pay their costs of and incidental to the application and those of the trustees. The Navarros' Submissions Since the hearing of the summons the Navarros have been made bankrupt. The Official Receiver of their estates has made submissions arguing that it was proper for the Navarros to appear to defend the position which they had taken in respect of the trustees' decisions particularly with respect to the issue of the units in the unit trust to them. The Official Receiver submitted that each of the respondents be entitled to costs and that those costs be paid as a first charge on the amount otherwise to be distributed to the Gras' from the trust moneys. He concedes that the trustees' costs should receive priority of payment. It is submitted that the Court should take account of the particular position of the Trustee in Bankruptcy insofar as the Trustee represents the interests of a number of parties and that any secondary action in endeavouring to.cover costs from the Gras' would erode the limited funds available for distribution to the Trustee and creditors. Accordingly the Trustee seeks security -- 4 of 11 -- 4 for its costs by making the order for the payment in the first instance from the entitlements 0£ the Gras' out of their share of the trust moneys. The Costs Order The Gras' have submitted that their application was for the benefit of the trust and on the authority of Perkins v. Williams (1905) 22 W.N.(N.S.W) 107 ought to have their costs out of the trust fund. That was a case where the removal of trustees was sought successfully on allegations of grave breaches of trust. The costs were ordered to be paid in the first instance by the defaulting trustees, who were without means, ax:1d if not recovered from them to be paid from the fund although how the order would fall on the beneficiaries was left until the entitlement to distribution arose. This is a quite different case. Had the Gras' been successful with respect to the Navarro units issue there would have been some small benefit to the trust as a whole which I have dealt with in the judgment, but that benefit would hardly justify the costs of the application and indeed was one reason why the trustees did not choose to pursue the matter by way of directions sought from the Court. There were other considerations concerning the Michel Gras' involvement in the issu·e of units which I· have considered in the judgment which made a simple resolution far from likely. The other grounds of the application would not fall within the description of being for the benefit of the trust. The proper approach to costs in this type of matter is to be found in the judgment of Kekewich Jin Re Buckton [1907] 2 Ch. 406 at p. 414 where his Honour sought to enunciate rules for -- 5 of 11 -- 5 guidance on the question of trustees' costs particularly where litigation ensues. It is appropriate to set out the whole passage as that approach continues to be applied, see Underhil and Hayton Law of Trusts and Trustees 14th ed. 723 where the whole passage from the judgment is set forth: "In a large proportion of the summonses adjourned into Court for argument the applicants are trustees to a will or settlement who ask the Court to construe the instrument of trust for their guidance, and in order to ascertain the interests of the beneficiaries, or else ask to have some question determined which has arisen in the administration of the trusts. In cases of this character I regard the costs of all parties as necessarily incurred for the benefit of the estate, and direct them to be taxed as between solicitor and client and paid out of the estate. It is, of course, possible that trustees may come to the Court without due cause. A question of construction or of administration may be too clear for argument, or it may be the duty of trustees to inform a claimant that they must administer their trust on the footing that his claim is unfounded, and leave him to take whatever course he thinks fit. But, although I have thought it necessary sometimes to caution timid trustees against making applications which might with propriety be avoided, I act on the principle that trustees are entitled to the fullest possible protection which the Court can give them, and that I must give them credit for not applying to the Court except under advice which, though it may appear to me unsound, must not be readily treated as unwise. I cannot remember any case in which I have refused to deal with the costs of an application by trustees in the manner above mentioned. There is a second class of cases differing in form, but not in substance, from the first. In these cases it is admitted on all hands, or it is apparent from the proceedings, that although the application is made, not by trustees( who are respondents,), but by some of the beneficiaries, yet it is made by reason of some difficulty of construction, or administration, which would have justified an application by the trustees, and it is not made by them only because, for some reason or other, a different course has been deemed more convenient. To cases of this class I extend the operation of the same rule as is observed in cases of the first class. The application is necessary for the administration of the trust, and the costs of all parties are necessarily incurred for the benefit of the estate regarded as a whole. -- 6 of 11 -- 6 There is yet a third class of cases differing in form and substance from the first, and in substance, though not in form, from the second. In this class the application is made by a beneficiary who makes a claim adverse to other beneficiaries, and really takes advantage of the convenient procedure by originating summons to get a question determined which, but for this procedure,would be the subject of an action commenced by writ, and would strictly fall within the description of litigation. It is often difficult to discriminate between cases of the second and third classes, but when once convinced that I am determining rights between adverse litigants, I apply the rule which ought, I think, to be rigidly enforced in adverse litigation, and order the unsuccessful party to pay the costs. Whether he ought to be ordered to pay the costs of the trustees, who are, of course, respondents, or not, is sometimes open to question, but with this possible exception the unsuccessful party bears the costs of all whom he has brought before the. Court." Ford and Lee Principles of the Law of Trusts 2nd ed. whilst not citing Re: Buckton in effect summarise Kekewich J's third class at p. 639 as follows: "If a beneficiary who has taken out an originating summons is in substance pursuing a claim against other beneficiaries the question of his costs will be treated as if he had begun an action by writ and the costs will follow the event, only the costs of the trustees being payable out of the trust property." It seems to me that the application brought by the Gras' did not fall within the second class of case identified by Kekewich J, namely, that the application was necessary for the administration of the trust. The trustees had decided upon a course of action after extensive investigations which I have held in my judgment that they were entitled to do without having resort to the Court, the question of costs being a significant one. As I have mentioned the other beneficiaries accepted this exercise of the trustees' discretion although it was quite clear that each group of interests, apart from the Gras', disagreed with some aspects of the decisions that the trustees had reached -- 7 of 11 -- 7 but had concluded that it was in the interests of the trust as a whole that no further funds should be expended pursuing these matters. The Gras' disagreed with the trustees' decisions in respect of a large range of matters. Apart from the allegation of bias the focus of all the points argued in the application was a claim adverse to the other beneficiaries and to use the words of Kekewich J at p. 415: 11 really takes advantage of the convenient procedure by originating summons to get a question determined which, but for this procedure, would be the subject of an action commenced by writ, and would strictly fall within the description of litigation." As to the question of bias, where a beneficiary brings an administration action against a trustee for breach of trust and succeeds, the trustee who is held to have been in breach will normally be ordered to pay the costs, and the beneficiary who loses the action will in an ordinary case be ordered to pay the trustees I costs, Perkins v. Williams, supra at p. 1 08 and National Trustees Executors and Agency Co. of Australia Limited v. Barnes (1941) 64 C.L.R. 268. I have concluded in the judgment that notwithstanding the unwise early stance taken by the trustees to retain Hopgood & Ganim to act on the conveyancing matter, no bias could be discerned in their conduct as trustees. The trustees should have their costs on an indemnity basis and should be ordered to be paid by the Gras' in the first instance. If that order is not satisfied then it is appropriate that the trustees recover their costs from the trust fund and have resort first to trust moneys which on distribution would be payable to the Gras'. In National Trustees Executors and Agency -- 8 of 11 -- 8 Co. of Australia Limited v. Barnes, (supra), Williams J, with whom Rich ACJ, agreed held: "If a trustee is sued by beneficiaries who complain of some act or omission by the trustee, he is entitled to defend his conduct as an incident of such administration (In re Llewellin; Llewellin v. Williams (1887) 37 Ch.D. 317, at p. 327). Even if he fails in the suit, he may be allowed his costs out of the estate, but, if he succeeds, as in this case, he is clearly entitled thereto. At the same time the indemnity must be given effect to in such a way as to make the burden fall upon the beneficiaries equitably having regard to the circumstances under which the costs, charges and expenses were incurred. Here they were incurred as a result of the action of nine out of the thirty-seven beneficiaries, so that the shares of these beneficiaries should be exhausted before any part of the burden is placed on the shares of the twenty-eight." The Other Respondents' Costs Whilst the trustees appeared to defend their decisions it was not inappropriate for the other respondents/beneficiaries also to be heard. The Gras' sought to challenge many of the decisions made by the trustees which concerned payments made to the Bergades, Perrett and SCI Le Murex. They also challenged the entitlement of the Navarros to units in the unit trust. Whilst the trustees were concerned to defend and explain their decisions, nonetheless they had no interest in the maintenance of those decisions and indicated through their counsel that they would abide the order of the Court. Accordingly the respondents'/beneficiaries had an interest separate from that of the trustees in defending the decisions of the trustees with respect to, their particular interests and entitlements. As I have indicated, in effect the Gras' made use of the summons procedure to engage in adverse litigation against the Bergades, Perrett, SCI Le Murex and the Navarros. They have been -- 9 of 11 -- 9 unsuccessful and in that circumstance there is no reason why they ought not to pay the costs of the successful respondents. The order should be that the applicants pay the respondents'/beneficiaries' costs of and incidental to the application to be taxed and if those costs are unable to be recovered from them that they recover those costs from the assets of the trust out of the money which is payable to the Gras' and if that sum is exhausted then from the balance of the trust assets. There should be no different order for the Official Receiver of the Navarros' estates. The orders are as follows: 1. The applicants pay the costs of Ross Andrew Duus and Mark Trevor Manteit, as the trustees of the La Provence Unit Trust, in responding to the application including reserved costs to be taxed and paid on a solicitor and own client basis. 2. Insofar as the trustees are unable to recover from the applicants the costs ordered in para. 1 of this order, the. trustees may recover those costs from the assets of the trust in the following manner: • Out of such moneys as are payable or may become payable to the applicants, and • If those moneys are exhausted, out of the balance of the assets of the trust. 3. The applicants pay the costs of and incidental to the application including reserved costs of the respondents, Daniel and Viviane Bergade, Marc Perrett, ·SCI Le Murex and -- 10 of 11 -- 1 0 Francois and Jacqueline Navarro to be taxed on a party and party basis. 4. Insofar as those costs are unable to be recovered from the applicants pursuant to the order made in para. 3 of this order, those respondents may recover those costs from the assets of the trust in the following manner: • Out of such moneys as are payable or may become payable to the applicants; and • If those moneys are exhausted, out of the balance of the assets of the trust. 5. The trustees are to have their costs in priority to the respondents/beneficiaries out of the trust fund. -- 11 of 11 --