Monthly Archives: November 2012

Trusting legal costs are covered…

Is a trustee able to be indemnified from trust assets for legal costs spent fighting an application to remove him or her as trustee?

A trust is not a separate legal entity, and so at first instance its debts and liabilities need to paid by its trustee: Octavo Investments v Knight (1979) 144 CLR 360.  Generally the trustee then has a right of indemnity which arises in equity as a first charge on trust assets for all costs and expenses properly incurred;  see too S36(2) of the Trustee Act 1958 (Vic). In other words, he is not left holding the baby for the costs and expenses he has incurred as trustee of the trust (for the benefit of the beneficiaries.)  Obvious exceptions are where the trustee has acted in violation of his duties, is grossly negligent or has engaged in misconduct.  Mere mistakes (with honest intentions) will not remove the right for indemnity.

But what about when a beneficiary sues for the removal of the trustee? Can the trustee then be indemnified for legal costs of defending such a claim?  At this point, the position becomes murkier.  Depending on the findings eventually made by the Court, the trustee could be found to have been representing and acting in his own interests in defending the action, rather than advancing the interests of the trust estate.  He could then be liable for costs of the action: Miller v Cameron (1936) 54 CLR 572; Drummond V Drummond [1999] NSWSC 923.

In Tomasevic & Anor. v Jovetic & Ors (No. 3) [2012] VSC 558, decision handed down last Friday,  Justice Sifris of the Victorian Supreme Court referred to the principle in Miller.  He commented that ‘a lack of success in a proceeding does not automatically deny the trustee reimbursement from the trust fund’, and he referred to Order 63.26 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) which provide that unless the Court provides otherwise, a party who sues or is sued as trustee is entitled to the costs of the proceeding out of the funds held by the trustee, in so far as the costs are not paid by any other person.

Although Justice Sifris ordered the removal of one trustee, he did not do so for misconduct, but in order to remove an impasse in management of the trust between two trustees acting in good faith with conflicting views.  He found that the trustee who he ordered removed had not refused to be removed unreasonably, or due to obstinancy, and he was not plainly unsuitable to remain as trustee.  Rather, the trustee’s refusal to resign was found to have arisen ‘from his desire to protect the trust’, and he was justified in resisting the plaintiff’s allegations.

Ultimately His Honour ordered that part of that trustee’s costs be paid from trust assets (taking into account other matters including the trust’s financial position, and that the opposing parties as trustees ‘each did the wrong thing and the right thing’).

Please, please – get your pleadings right

We all know that the pleadings filed in a case are crucial to how the case is run: what evidence is called, what law is relied on.  Often, though, for tactical reasons and to keep the case moving without running up costs, strike out applications and demands for further particulars are not made even though one side is left guessing a little at another side’s case.  A recent decision of the Victorian Supreme Court has highlighted the risks of not carefully revisiting your own side’s pleadings as a case comes closer to trial, to be sure that the evidence you want to lead and the way you want to argue your case is in line with your pleadings: see the judgement of Davies, J in ICM Investments Pty. Ltd. v San Miguel Corporation [2012] VSC 509.  Her Honour referred in the case to what Harper J had said in Downer Connect Pty Ltd v McConnell Dowell Constructors (Aust)Pty Ltd:

[1] Litigation is sometimes conducted to judgment with barely a glance at the pleadings.  It remains generally true that good pleadings are an important, and often crucial, element in the civil justice system.  When well drawn, as they always should be, they form the touchstone by which the uses are identified and the relevance of the evidence assessed.  

[2] Consistently with this, one of their primary purposes is to reveal to the opposite party how the party pleading puts its case.  On reading a well-drawn statement of claim, the defendant to whom it is directed will be able to say: “These are the material facts that will be the subject of the plaintiff’s evidence.  They tell a coherent, comprehensible story; and, to the extent that any additional evidence is to be called that might cause me to be taken by surprise, here is that evidence outlined in the particulars”.  

[3] A complaint that the pleadings do not achieve this is often met with the response that the opposite party knows very well, from documents and perhaps other sources, what the case against it is.  This no answer at all, at least unless the relevant documents are properly incorporated into the pleading.  It is, as a general proposition, true to say that each pleading should be sufficient in itself.  And although an element in an adversarial process, pleadings are themselves intended to be the opposite of adversarial, at least to the extent that they must, if they are to perform one of their proper functions, inform the opposite party of the case that party will have to meet at trial.

In the case before Davies, J the cost of getting it wrong (albeit inadvertently: Young QC’s statement that he had believed  his client’s pleading did show the case to be answered was of course accepted by the Court) was an adjournment of the trial, with costs of the adjournment to be paid by the party whose pleadings did not comply with the case that was opened for it.

An interview – and an ‘aha’ moment

 

Today I was interviewed about what it is like to be a barrister.  I realised I had a smile on my face for my whole answer.  After twenty three years I still love the excitement of opening a new brief, coming to grips with a new set of issues, thinking about the best way to solve a client’s problems, working out to convince a judge of my client’s case, and – of course – appearing in court and arguing matters.  Every day is different as I move from  conferences to researching law to drafting advices to negotiating settlements and – of course again – to going to court and doing my best to win my case.  How many people have that smile on their face after 23 years in the one job?   Aha, indeed!  I am in the right place.