AvSuper Pty Limited v Commonwealth Managed Investments Limited (No. 2) [2011] NSWSC 427

Supreme Court New South Wales

Medium Neutral Citation: AvSuper Pty Limited v Commonwealth Managed Investments Limited (No. 2) [2011] NSWSC 427 Decision date: 25 May 2011 Jurisdiction: Equity Division Before: White J Decision: Order that the plaintiffs' interlocutory process filed on 31 January 2011 be dismissed with costs. Catchwords: PROCEDURE - costs - application to vary costs order - trust dispute - whether costs should be paid out of trust fund - where trust a vehicle for commercial investment and litigation commercial dispute - no reason that costs should not follow the event - application to vary costs order dismissed Cases Cited: Sons of Gwalia Limited (subject to deed of company arrangement) v Margaretic & Anor [2006] FCAFC 92; (2006) 232 ALR 119 Re Buckton [1907] 2 Ch 406 Category: Costs Parties: AvSuper Pty Limited (Plaintiff) Commonwealth Managed Investments Limited (Defendant) Representation: Greenfields Financial Services Lawyers (Plaintiff) Freehills (Defendant) File Number(s):

2010/92470

Judgment 1HIS HONOUR : On 22 December 2010 I ordered that the plaintiffs' amended originating process be dismissed. I said that I would hear the parties on costs. The solicitor who appeared for the plaintiff sought an adjournment to deal with the question of costs. I pressed her to make any submissions that the plaintiffs might wish to make. I indicated that I could see no reason that the plaintiffs should not pay the defendants' costs. No argument about costs was put and I ordered that the plaintiffs pay the defendants' costs. By interlocutory process filed on 31 January 2011 the plaintiffs seek an order that the order made on 22 December 2010 that the plaintiffs pay the defendants' costs be replaced by an order that all parties' costs be paid out of the Commonwealth Property Hotel Fund on a solicitor-client basis. 2It appears that the parties have agreed that they would ask to have the proceedings stood over to a date to be fixed to argue questions of costs. However, the parties have no right to control the procedures of the court. Both the plaintiffs and the defendants ought to have been in a position to deal with questions of costs when judgment was delivered. There are real questions as to whether there is power to reopen the order for costs or if so whether such power should be exercised. However, I will deal with the plaintiffs' application on its merits as if no costs order had been made. 3The plaintiffs argued that the application is properly classified as a "trust dispute". They sought a declaration as to the proper interpretation of the constitution of the Fund. They relied upon the decision of Finkelstein J in Sons of Gwalia Limited (subject to deed of company arrangement) v Margaretic & Anor [2006] FCAFC 92; (2006) 232 ALR 119 at [5]-[8]. His Honour said: " [5] The best place to begin is with some basic rules. Re Buckton; Buckton v Buckton [1907] 2 Ch 406 contains a classic statement of the principles upon which costs are awarded in cases involving trustees. There Kekewich J (who was a master of Chancery procedure) said that, broadly speaking, there are three kinds of disputes involving trustees. The first is an action brought by trustees relating to the construction of the trust instrument or some other question arising in the course of an administration. In Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220, 1223, Lightman J broadened this category by including within it '[every] dispute as to the trusts upon which [the trustees] hold the subject matter of the settlement.' For convenience he labelled these cases as 'trust disputes'. [6] When a ' trust dispute ' has come about because there is a dispute between two beneficiaries concerning the construction of the trust instrument or their respective rights in the trust estate, the duty of the trustee as the trustee for all beneficiaries is to treat the beneficiaries impartially and remain neutral: Australia and New Zealand Banking Group Limited v National Mutual Life Nominees Limited [1977] HCA 42; (1977) 137 CLR 252, 264-265 and 270; Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220, 1225; Re Patton (1971) 19 DLR (3d) 497; Jones v Heritage Pullman Bank Co , 518 NE 2d 178, 182-184 (1988); Northern Trust Co v Heuer , 560 NE 2d 961, 964 (1990). Thus, unless the trust instrument itself provides otherwise, the trustees should bring the dispute into court for resolution but in the proceeding they are not entitled to favour one party over another by advocating a party's cause: Re Hughes' Will , 5 NW 2d 791 (1942); In re James' Estate , 86 NYS 2d 78, 89 (1948); In re Duke, 702 A 2d 1008 (1995); Scott on Trusts (4th ed, 1987) 183; Restatement (Second) of Trusts 183. To do otherwise would be a breach of the trustees' duty to deal impartially with all beneficiaries and to protect their interests. Of course, if the case is not properly presented by the beneficiaries the trustees may, indeed probably should, provide the court with their views. [7] In a trust dispute the costs of all parties are treated as necessarily incurred for the benefit of the estate and are ordered to be paid out of the fund either on a solicitor and client or indemnity basis: Daniell's Chancery Practice (7th ed, 1901) vol 1, 953, 955-957, 987; In re Buckton [1907] 2 Ch 406, 414; McDonald v Horn [1995] 1 All ER 961, 970-971. One possible exception is the case of a 'timid trustee' who unnecessarily approaches the court for advice when the answer to the problem raised by the dispute is sufficiently clear. Even then the trustee usually gets his (or her) costs. Another exception is where the trustees breach their duty to act impartially, even if the breach is technical in nature, done in good faith, and causes no harm: Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220, 1225; James v Heritage Pullman Bank Co , 518 NE 2d 178 (1988); Northern Bank Trust Co v Heuer , 560 NE 2d 961 (1990). At best the trustees will be entitled to the costs incurred in submitting to the court's direction. That may include the costs of a defence, discovery and an appearance: Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220, 1225. Interestingly, while it is proper and sometimes obligatory for trustees to bring a trust dispute to court, in the United States it is said that a trustee who is a party to a trust dispute has no standing to appeal from the judgment, except in limited circumstances: Scott on Trusts (4th ed, 1987) 183. [8] The second kind of dispute is a trust dispute in which the application is made by someone other than the trustee (usually a beneficiary) but raises the same kind of issue as in the first class and would have justified an application by the trustees. Here the same rule in relation to costs applies because, as in the first class, the application is for the benefit of the estate. " 4The plaintiffs submitted that their application seeking declarations as to the proper interpretation of the constitution of the Fund was brought for the benefit of the trust estate and therefore the costs of all parties should be paid from the estate. Their application if successful would have borne on the rights of all special unit holders. 5In my view the defendant is correct in its submission that the present application was the third kind of dispute described in Re Buckton [1907] 2 Ch 406, namely where the beneficiary's claim is adverse to the interests of other beneficiaries and was not brought for the general benefit of the trust estate. In Re Buckton , Kekewich J said (at 414-415): " In a large proportion of the summonses adjourned into Court for argument the applicants are trustees of 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 ... There is a second class of cases differing in form, but not in substance, from the first. In these cases ... 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. ... 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 one is 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. ... " 6The present case falls within the third class of cases. The plaintiffs' claim was adverse to those of other beneficiaries. This was most clearly seen in its contentions as to the price said to be payable on the redemption of its units. Had the plaintiffs' argument succeeded, the amount available for distribution to other unit holders would have been materially reduced. 7Whilst the present case concerns a trust, it is not the trust in a settlement or will. The trust is a vehicle for commercial investment. The litigation was a commercial dispute. In my view there is no reason that costs should not follow the event (Uniform Civil Procedure Rules, r 42.1). 8Had the matter been argued when I handed down judgment, I would have made the same order as was made on 22 December 2010. 9For these reasons I order that the plaintiffs' interlocutory process filed on 31 January 2011 be dismissed with costs. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 25 May 2011