Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Free Serbian Orthodox Church Diocese for Australia and New Zealand Property Trust v Bishop Irinej Dobrijevic (No 3) [2017] NSWCA 109 Hearing dates: On the papers Decision date: 25 May 2017 Before: Ward JA at [1]; Gleeson JA at [2]; Payne JA at [3]. Decision: (1) The Court orders under r 45.25(2) of the UCPR and s 59(4) of the Trustee Act that the Property Trust Company is not entitled to have any of its costs of the appeal paid from the trust property. The Property Trust Company is not entitled to indemnification from the trust fund in respect of its costs of appeal proceedings brought by it as trustee or in respect of any costs it is ordered to pay the respondents to the appeal; (2) The individual appellants pay the first and second respondents' costs of the appeal up to and including 12 April 2016; (3) The Property Trust Company pay, on an indemnity basis, the costs of the first and second respondents attributable to both the preparation of written submissions and the application to amend the notice of appeal (including the steps taken in relation to the aborted amendment proposal); (4) The Property Trust Company pay the first and second respondents' costs of all issues in the appeal not addressed by order (3) on a party-party basis. Catchwords: APPEAL – COSTS – whether trustee entitled to indemnification out of the trust property – where appellants did not seek judicial advice before embarking on the appeal COSTS – whether successful respondent on the appeal is entitled to costs on an indemnity basis – where appellants were refused leave to amend their notice of appeal Legislation Cited: Charitable Trusts Act 1993 (NSW) s 9 Civil Procedure Act 2005 (NSW) ss 56, 98 Supreme Court Rules 1970 (NSW) Part 52A r 42 Trustee Act 1925 (NSW) ss 59, 63 Uniform Civil Procedure Act 2005 (NSW) rr 1.5, 42.25 Cases Cited: Andrew v Andrew (No 3) [2013] NSWSC 286 Bovaird v Frost [2009] NSWSC 917 Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; [1993] FCA 801 Drummond v Drummond [1999] NSWSC 923 Free Serbian Orthodox Church Diocese for Australia and New Zealand Property Trust v Bishop Irinej Dobrijevic [2017] NSWCA 28 Free Serbian Orthodox Church Diocese for Australia and New Zealand Property Trust v Bishop Irinej Dobrijevic (No 2) [2017] NSWCA 42 House v The King (1936) 55 CLR 499 Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Dicoesean Bishop in Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42 Metropolitan Petar v Mitreski [2006] NSWSC 336 National Trustees Executors and Agency Company of Australasia Ltd v Barnes (1941) 64 CLR 268 Norbis v Norbis (1986) 161 CLR 513 Re Free Serbian Orthodox Church – Diocese for Australia and New Zealand Property Trust [2012] NSWSC 649 Rouse v IOOF Australia Trustees Ltd (No 3) [1999] SASC 208 State Trustees Ltd v Bedford (No 2) [2012] VSCA 319 Warton v Yeo [2015] NSWCA 115 Category: Costs Parties: Free Serbian Orthodox Church Diocese for Australia and New Zealand Property Trust (First Appellant) Branko Rupar (Second Appellant) Ratomir Nesic (Third Appellant) Ilija Cubrilo (Fourth Appellant) Petar Mandic (Fifth Appellant) Bishop Irinej Dobrijevic (First Respondent) Serbian Orthodox Church in Australia and New Zealand Properties Ltd (Second Respondent) Attorney General for the State of New South Wales (Third Respondent) Representation: Counsel: G O Blake SC (Appellants) S Glacken QC with P Herzfeld (First and Second Respondents) N L Sharp with A M Hochroth (Third Respondent) Solicitors: Hunt & Hunt (Appellants) Nicholas G Pappas & Company (First and Second Respondents) Crown Solicitor's Office (Third Respondent) File Number(s): 2016/14472 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Citation: [2015] NSWSC 637; [2015] NSWSC 1976 Date of Decision: 29 May 2015 Before: White J File Number(s): 2011/247393 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment 1. WARD JA: I agree with Payne JA. 2. GLEESON JA: I agree with Payne JA. 3. PAYNE JA: This is an application for costs and indemnification for those costs arising from proceedings involving a charitable trust. On 7 March 2017, this Court dismissed the appeal in this matter: [2017] NSWCA 28. In what follows, familiarity with this Court's principal decision is assumed. Brief Facts 1. The subject matter of these proceedings is a charitable trust which holds a monastery property at Wallaroo in NSW. The first appellant is the former registered proprietor of the trust property ("the Property Trust Company"), which was removed as registered proprietor of the trust property by a vesting order made by the primary judge in these proceedings. The second to fifth appellants are directors of the Property Trust Company ("the individual appellants"). The appellants are all associated with the Free Serbian Orthodox Church for Australia and New Zealand ("the Free ANZ Diocese"), a religious organisation that formed in 1964 after a split with the Serbian Orthodox Church. 2. The Metropolitanate of Australia and New Zealand of the Serbian Orthodox Church ("the SOC-ANZ Metropolitanate") was formed in 2010 when the majority of members of the Free ANZ Diocese reconciled with the Serbian Orthodox Church. In 2011, the Bishop of the SOC-ANZ Metropolitanate commenced proceedings in the Supreme Court regarding the control and operation of the monastery property under s 9 of the Charitable Trusts Act 1993 (NSW). He is the first respondent on the appeal. The second respondent is the company incorporated for the purpose of holding property in Australia for the SOC-ANZ Metropolitanate. 3. The primary judge found that under s 9 of the Charitable Trusts Act the original purposes of the trust had ceased to provide a suitable and effective method of using the trust property having regard to the spirit of the trust. The primary judge also adopted, with some modifications, a scheme under the Charitable Trusts Act jointly proposed by the first respondent and the Attorney General who appeared before the primary judge and on the appeal as protector of charitable trusts. 4. The appeal was concerned with whether the primary judge had properly applied s 9 of the Charitable Trusts Act. At the hearing, the appellants sought leave to file an amended notice of appeal. For the reasons outlined in the appeal judgment, that application was refused, on the basis that it would give rise to unfairness to the respondents: [2017] NSWCA 28 at [1], [14] and [155] –[172]. The Court found that the primary judge addressed each of the relevant issues that the parties presented to him, which were quite different to the issues sought to be agitated on appeal, and that the appellants had not demonstrated any error in his Honour's reasons. The application for costs and indemnification 1. In dismissing the appeal the Court ordered the parties to file submissions regarding the appropriate orders as to costs as follows: "(3) Within 14 days of the publication of this judgment the respondents to file and serve any submissions (of no more than 20 pages) they wish to make on the question of costs or indemnification of any party from the trust property; (4) Within 21 days of the publication of this judgment the appellants to file and serve any submissions (of no more than 20 pages) they wish to make on the question of costs or indemnification of any party from the trust property; (5) Within 28 days of the publication of this judgment the respondents to file and serve any submissions (of no more than 10 pages) in reply they wish to make on the question of costs or indemnification of any party from the trust property." 1. The following submissions were filed: 1. On 20 March 2017 the Attorney General filed submissions. The first and second respondents filed their submissions on 21 March 2017. 2. On 27 March 2017 the appellants filed their submissions in response. 3. On 3 April 2017 the first and second respondents filed their submissions in reply. The Attorney General filed reply submissions on 4 April 2017. Issues for determination 1. The Attorney General does not seek costs. The Property Trust Company accepted that it should be ordered to pay the first and second respondents costs on an ordinary basis. The issues for determination are therefore: 1. Should the Property Trust Company be indemnified from the trust property for its own costs or any costs it is ordered to pay? 2. Should the individual appellants pay the first and second respondents' costs of the appeal? 3. On what basis should any costs order be made? Are indemnity costs appropriate? Issue 1 ‑ Indemnification out of trust assets Appellants' submissions 1. The appellants submitted that a trustee may be entitled to an indemnity from the trust estate under the general law or pursuant to s 59(4) of the Trustee Act 1925 (NSW). The appellants submitted that r 42.25 of the Uniform Civil Procedure Rules 2005 (NSW) is inapplicable in this case because there is no "fund" held by the trustee. 2. It was submitted that under both the general law and s 59(4) the Court has a discretion, even where a trustee fails in litigation, to allow a trustee to recoup its costs from the trust assets, excluding costs arising from conduct demonstrating want of prudence or diligence (see Warton v Yeo [2015] NSWCA 115 at [5]-[6]). 3. It was submitted that it is normally the case that a trustee who commences or defends an action in that capacity is entitled to be indemnified out of the estate for the costs incurred in doing so, even if the litigation is unsuccessful, if the trustee's conduct is found to have been mistaken, and the other party in the litigation is held to be entitled to an order for costs. 4. It was accepted that this exception to the usual rule that costs follow the event is itself subject to some exceptions. These include impropriety, such as when a trustee takes or defends proceedings in breach of trust, or conducting the proceedings in such a way that the Court, on a general view of the case, regards the trustee's conduct as "not honestly brought forward" or "where the claim is of monstrous character, that is, one which no reasonable man could say ought to have been forwarded" and where costs are incurred by a trustee in furtherance of a personal interest: Drummond v Drummond [1999] NSWSC 923 at [43]-[47] per Austin J. 5. The appellants accepted that if a trustee, after taking the advice of the court at first instance, appeals against the court's determination, the trustee is ordinarily regarded as being in much the same position as any other appellant and so, if unsuccessful in the appeal, will be ordered to pay costs personally. The rule is subject to exceptions or, perhaps more accurately, is to be applied according to all the circumstances of the case. 6. It was submitted that, in the context of this appeal, the Court should be reluctant to deprive an unsuccessful trustee of an order that the trustee's costs be paid out of the trust fund, where the appeal is pursued in the performance of its duties as trustee. There is a sound policy reason as to why a trustee should be encouraged to use the resources of the court. Trustees act in a fiduciary role and have fiduciary responsibilities. They are looking to the interests of the relevant stakeholders to whom those responsibilities are owed in bringing the appeal. They should not be discouraged from pursuing litigation, where properly advised, by reason of a fear that the usual order might apply. 7. The appellants submitted that this Court should find that the Property Trust Company is entitled to an order that its costs of the appeal (other than the costs of theapplication for leave to amend the Notice of Appeal and the costs payable to the first and second respondents) be reimbursed out of the trust property for the following reasons: 1. the Property Trust Company was acting in its capacity as trustee, as the order for its removal as trustee had been stayed, and was seeking to uphold the purposes of the charitable trust upon which it held the monastery property in bringing the appeal; 2. there was sufficient uncertainty as to whether s 9 of the Charitable Trusts Act might be applied to vary the purposes of a charitable trust held for the purposes of one religious institution (the Free ANZ Diocese) to the purposes of another religious institution (the SOC-ANZ Metropolitanate) where the first religious institution has continued in existence. There had been no appellate consideration of s 9 and no previous application of s 9 to vary the purposes of a charitable trust for the advancement of religion where the religious institution for which the trust property is held has continued to exist; 3. there were arguable grounds of appeal which, in the interests of the Free ANZ Diocese, the Property Trust Company had a fiduciary responsibility to pursue; and 4. the conduct of the individual appellants in having acted in breach of trust was academic in relation to the application of s 9. 1. The appellants submitted that to the extent that the first and second respondents' objection to the Property Trust Company exercising its right of indemnity arises out of the appellants' conduct in seeking to amend the notice of appeal, the Property Trust Company does not seek any indemnity out of the trust property for these costs. First and second respondents' submissions 1. The first and second respondents did not seek indemnity for their costs from the trust property, save in the circumstance that an order was made allowing the Property Trust Company to have its costs reimbursed from the trust property, in which case they sought to be indemnified to the extent that the respondents' costs were not paid by the appellants. 2. It was submitted that while the order removing the Property Trustee Company as trustee was stayed pending determination of the appeal, this does not demonstrate that the appeal was brought by it in its capacity as trustee. 3. The first and second respondents pointed out that the Property Trust Company did not seek an order for indemnification in the notice of appeal. It was submitted that it was significant that if the Property Trust Company brought the appeal in its capacity as trustee it did not seek judicial advice concerning the conduct of the appeal. The failure of the Property Trust Company to seek judicial advice meant that the trust property ought not bear the costs of an unsuccessful party on appeal. The first and second respondents also relied on the fact that the Property Trust Company did not act properly or reasonably in the conduct of the appeal. 4. It was submitted that the trust property in the present case comprised land and church buildings. Charging the monastery with the costs of the litigation, and the consequent risk of sale to meet costs, should be avoided. In the judicial advice proceeding, the Property Trust Company had sought (but did not obtain) a direction that it be permitted to encumber the monastery to raise funds for its defence (Re Free Serbian Orthodox Church – Diocese for Australia and New Zealand Property Trust [2012] NSWSC 649 at [20]). 5. It was submitted that the conduct of the appeal by the Property Trust Company was wholly unsatisfactory and that, properly advised, the appeal should not have been pursued. Attorney General's submissions 1. The Attorney General sought the following orders: "1. The Court orders under r 45.25(2) of the UCPR that the Property Trust Company is not entitled to have its costs of the appeal (including the costs of the application for leave to amend the notice of appeal and application for a stay of orders) paid from the trust property. (In the event that the Property Trust Company is ordered to pay the costs of the Respondents: 2. The Court orders that the Property Trust Company is not entitled to an indemnity from the trust property in respect of the costs of the first and second respondents." 1. The Attorney General submitted that the ordinary rule is that a trustee is entitled to indemnification from the trust fund in respect of costs of proceedings brought or defended by it as trustee. This rule applies equally in the context of charitable trusts. The rule now finds expression in r 42.25 of the UCPR. Previously, this rule was stated in substantially the same form in Part 52A r 42 of the Supreme Court Rules 1970 (NSW). 2. It was submitted that the specific provision in r 42.25 of the UCPR is to be applied in preference to the general provision creating an implied indemnity in favour of a trustee set out in s 59(4) of the Trustee Act 1925 (NSW). That general provision does not refer specifically to costs in legal proceedings whereas r 42.45 does. In any case, r 1.5 of the UCPR has the effect that r 42.25 must apply to these proceedings. Unless a specific order is made by the Court under r 42.25(2) then it would follow from r 42.25(1) that the Property Trust Company was entitled to have recourse against the trust assets for its costs, although the rule does not, at least not expressly, extend to an indemnity for the costs of other parties which a trustee may be ordered to pay. 3. It was submitted that it was well established that a trustee may be deprived of his or her right of indemnity where he or she has acted on a basis that no other reasonable person would have. It was submitted that the conduct of the Property Trust Company on this appeal met that description. Consideration of issue 1 - indemnification 1. There are a number of potentially overlapping sources of power which need to be considered in addressing the application by the Property Trust Company to be indemnified from the trust property: 1. first, the general law principle that a trustee is entitled to an indemnity (or, where costs have been paid, reimbursement) from the estate for expenses incurred in the execution of the will and in the administration of any trusts; 2. secondly, the embodiment of that general law principle in the Trustee Act 1925 (NSW), s 59(4) which provides: 59 Implied indemnity … (4) A trustee may reimburse himself or herself, or pay or discharge out of the trust property all expenses incurred in or about execution of the trustee's trusts or powers. 1. thirdly, the Trustee Act further provides specifically with respect to litigation costs: 93 Costs … (2) The Court may order the costs charges and expenses of and incident to any application or any order under this Act to be paid or to be raised by sale or mortgage out of the property in respect whereof the same is made or out of the income thereof, or to be borne and paid in such manner and by such persons as to the Court may seem just. (3) In any proceedings with respect to the management or administration of any property subject to a trust or forming part of the estate of a testator or intestate, or with respect to the interpretation of the trust instrument, the Court may, if it thinks fit, order any costs to be paid out of such part of the property as in the opinion of the Court is the real subject matter of the proceedings. 1. fourthly, UCPR r 42.25 provides: 42.25 Costs of trustee or mortgagee (1) Subject to subrule (2), a person who is or has been a party to any proceedings in the capacity of trustee or mortgagee is entitled to be paid his or her costs in the proceedings, in so far as they are not paid by any other person, out of the fund held by the trustee or out of the mortgaged property, as the case may be. (2) The court may order that the person's costs not be so paid if: (a) the trustee or mortgagee has acted unreasonably, or (b) in the case of a trustee, the trustee has in substance acted for his or her own benefit rather than for the benefit of the fund. 1. In relation to the general law principle and s 59(4), as was noted by Starke J in National Trustees Executors and Agency Company of Australasia Ltd v Barnes (1941) 64 CLR 268 at 274 in relation to the equivalent Victorian provision: …"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". 1. As further explained in the course of that judgment, the concept of "proper expenditure" excludes conduct demonstrating want of prudence or diligence. 2. In the same case, Williams J said that where the trustee succeeds in litigation, there is a clear entitlement to the indemnity whereas, where the trustee fails, "he may be allowed his costs out of the estate", implying a discretion in the latter situation. Williams J also noted that "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." 3. Section 59(4) of the Trustee Act has statutory counterparts throughout Australia. In Rouse & Ors v IOOF Australia (No. 3) [1999] SASC 208 at [38] Lander J said of the exercise of discretion to award costs under s 35(2) of the Trustee Act (SA): "[38] Whether costs have been properly or not properly incurred is a matter of fact. In that determination regard will be had to whether the trustee could have sought advice and directions from the court; the legal advice which was taken; the circumstances in which the litigation arose; whether it was initiated or defended by the trustee; the real prospects of success of the litigation; the person or persons who would have benefited in a successful conclusion of the litigation; the conduct of the trustee in the litigation and the result of the litigation." 1. These remarks are equally apposite to the approach which should be applied in the present case under s 59(4) of the Trustee Act. 2. It is to be noted that at general law if a trustee, after taking the advice of the court at first instance, appeals the court's determination the trustee is ordinarily regarded as being in much the same position as any other appellant and, if unsuccessful in the appeal, will be ordered to pay costs personally: Australian Incentive Plan Pty Ltd v Attorney-General for Victoria (No 2) [2012] VSCA 251, per Nettle JA at [9]-[10]. It is appropriate to consider, as Neave JA did in State Trustees Ltd v Bedford (No 2) [2012] VSCA 319 at [25], in the context of a family provision claim, but equally applicable in the trust context, that: "If the costs of all parties are borne by the estate, there is a considerable risk that a person with a hopeless claim will appeal, because they will have little to lose if the appeal fails." 1. No party relied upon the power in s 93 of the Trustee Act in the present case. 2. So far as UCPR r 42.25 is concerned, it applies in this case (UCPR r 1.5) and clearly operates by way of an exception to UCPR r 42.1, pursuant to which costs follow the event, but which is subject to other provisions in Pt 42. Further, r 42.25 appears to extend the general law entitlement to apply even where the trustee has been unsuccessful, so long as the trustee has not "acted unreasonably". 3. Although unnecessary to decide here, there may be a question about the interaction of UCPR r 42.25 and s 93(2) of the Trustee Act. As Basten JA explained in Warton v Yeo [2015] NSWCA 115: "[8] The operation of these provisions in the context of general powers to make orders as to the costs of litigation under the Civil Procedure Act 2005 (NSW), s 98, and the Uniform Civil Procedure Rules 2005 (NSW) (the UCPR), Pt 42, were considered, but not resolved, by this Court in His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand v The Macedonian Orthodox Community Church St Petka Inc (No 2) ("Macedonian Orthodox Church"). That was a case involving an application for judicial advice brought pursuant to s 63 of the Trustee Act: that being an application "under this Act", s 93(2) was clearly engaged." 1. Basten JA held in Warton v Yeo at [13] that because s 93(2) was not engaged in that case, the difficulty perceived in Macedonian Orthodox Church did not arise. There was no inconsistency between s 93(3), which empowers the Court to order costs be paid out of such part of the property as is the real subject matter of the proceedings, and the general power to order costs. The same conclusion is appropriate here. 2. The construction of r 42.25 of the UCPR proposed by the appellants should be rejected. The word "fund" in r 42.25 should be read as referring generally to the property or assets of the trust, rather than to an identifiable cash asset. Rule 42.25 is not limited to trusts having cash assets. As Hamilton J said in Metropolitan Petar v Mitreski [2006] NSWSC 336 at [30], the predecessor rule to r 42.25 (Part 52A r 42 of the Supreme Court Rules 1970) was in relevantly identical language, but "fund" was separately defined to include any property held on trust for any purpose. When the rule was replaced by r 42.25 of the UCPR a definition of "fund" was not included. Hamilton J considered r 42.25 should nonetheless be understood in the same way as the predecessor rule. His Honour was correct to do so. 3. In Warton v Yeo, Ward JA (who agreed with the orders proposed by Basten JA in that case), emphasised that "unreasonableness" of the conduct of the trustee was the critical question to be decided. Her Honour said: "[72] Although there is no suggestion that the costs were incurred by the executor was in the furtherance in a personal interest or that there was impropriety (as to which see Miller v Cameron (1936) 54 CLR 572 at 578; Re Jones; Christmas v Jones [1897] 2 Ch 190 at 197), there was unreasonableness on the part of the executor in taking the partisan stance that he did. I refer in this regard to the authorities cited by Basten JA at [12] above. In those circumstances I agree with Basten JA that the appropriate order in relation to the first respondent's costs is that they be limited to the cost of a submitting appearance." (italics added) 1. A cautious approach is required to avoid the risk of trustees bringing unmeritorious appeals in circumstances where, as here, the trustee has chosen not to obtain judicial advice before appealing. In Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Dicoesean Bishop in Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42 it was held: "The legislative scheme, then, is that it is desirable that trustees in doubt as to a course of action should not proceed with it and seek relief under s 85 afterwards, but rather seek s 63 advice first. That is because one of the things which a trustee invoking s 85 requires to be excused from is failure to seek s 63 advice." 1. I accept as correct the statement of Brereton J in Bovaird v Frost [2009] NSWSC 917 at [32] that Macedonian Orthodox Community Church does not mean that a failure by a trustee to obtain judicial advice reverses the prima facie position established by UCPR, r 42.25. In my view, however, the absence of an application for such advice is a matter highly relevant to the question of whether the trustee has "acted unreasonably". 2. Whether the question of indemnification is approached at general law, under s 59(4) of the Trustee Act or under UCPR r 42.25, the result is the same in this case. The Property Trust Company in the present case acted unreasonably within the meaning of UCPR r 42.25 and for the purposes of exercising the discretion at general law or under s 59(4) for the following reasons: 1. The appeal was wholly unsuccessful and was rejected by the Court unanimously. The Property Trust Company, acting reasonably, must have had serious doubts about the merits of the appeal. The principal attack on the findings of the primary judge, framed on the appeal as an assault on the elements of the spirit of the trust, departed in fundamental ways from the case conducted by the Property Trust Company below (see Free Serbian Orthodox Church Diocese for Australia and New Zealand Property Trust v Bishop Irinej Dobrijevic [2017] NSWCA 28 at [3], [14], [163] – [167], [169]). In light of these matters, the failure of the Property Trust Company to seek judicial advice before embarking on the appeal was unreasonable. Had it done so, the very real problems with the way it proposed to conduct the case would no doubt have become apparent. For completeness, it is to be noted that no attempt was made by the Property Trust Company to seek leave to lead any evidence on this application to show that it was acting on legal advice in the appeal; 2. Despite clear notice for some months of fundamental defects in the notice of appeal, the appellants did not apply to amend the grounds until the first day of the hearing and then provided no explanation for the delay in bringing that application. The proposed amended notice of appeal was a complete replacement of the notice of appeal. The application was dismissed. The appellants essentially made no meaningful submissions in support of the proposed amendments. The provisions in Pt 6, Div 1 of the Civil Procedure Act identified as "guiding principles" with respect to civil proceedings generally are relevant here. Section 56(1) provides that the "overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings." The court is to give effect to that purpose when exercising any power under the Civil Procedure Act and the UCPR, including r 42.25. The failures of the Property Trust Company in relation to the notice of appeal were fundamental, in that they masked the real issues for determination. As noted above, on analysis, those issues were different, sometimes dramatically so, from the issues advanced before the primary judge. 3. The appellants' written and oral submissions bore little correspondence to the grounds of appeal. The written submissions did not address in any coherent way the issues raised in that notice of appeal. The appellants' procedural failures made the resolution of this appeal much more difficult than it should have been. While not raised in the notice of appeal, one of the appellants' core challenges on appeal was to the primary judge's findings regarding the purpose of this trust. 4. The appellants abandoned grounds 8 to 13 of the appeal, which related to the individual appellants; 5. The appellants, in effect, sought to agitate a new case on appeal that had not been pleaded or put in the Court below; 6. The appeal raised no principle of law but instead challenged numerous evaluative judgments of the primary judge without regard to the well-established principles in House v The King (1936) 55 CLR 499 and Norbis v Norbis (1986) 161 CLR 513, and without following the proper procedure in this Court when findings of fact are challenged on appeal. 1. It follows that the Property Trust Company is not entitled to indemnification from the trust property in respect of its costs of appeal proceedings brought by it as trustee or in respect of any costs it is ordered to pay the respondents to the appeal. Nor, and for more abundant caution in that no application of this kind was foreshadowed, to the extent that the question may arise, are any of the individual appellants entitled to call on the Property Trust Company to take steps to seek an indemnity from the trust in respect of costs the individual appellants may have incurred or may be ordered to pay. 2. Finally, I note that the first and second respondents accepted (assuming that an order for indemnification was not made in favour of the appellants) that they should not be entitled to be indemnified for any unrecoverable costs from the assets of the trust. It should thus be clear, in light of these conclusions, that no party is entitled to be indemnified for costs incurred or ordered to be paid in the appeal from the assets of the trust. Issues 2 and 3 - Costs of the first and second respondents Appellants' submissions 1. As earlier noted, the appellants accepted that the Property Trust Company should pay the costs of the first and second respondents. 2. It was submitted that the individual appellants should not be ordered to pay the costs of the first and second respondents for the following reasons: 1. the only ground of appeal which affected the individual appellants, namely to challenge the finding that they acted in breach of trust, was abandoned at an early stage - on 12 April 2016, when written submissions in chief were filed on their behalf, and again in correspondence on 21 July 2016, approximately 6 weeks before the dates fixed for hearing the appeal, when a proposed amended notice of appeal was sent to the respondents; and 2. the remaining grounds of appeal were pursued by the Property Trust Company in its capacity as trustee of the monastery property. First and second respondent's submissions 1. The first and second respondents submitted that there is no reason why costs should not follow the event in this case. It was submitted that the individual appellants did not seek to withdraw from the appeal after certain grounds of appeal were abandoned. Therefore, as the appeal was brought and prosecuted by the Property Trust Company and the individual appellants, the individual appellants should also be liable for costs. Attorney General's submissions 1. The Attorney General did not seek costs and made no submission about whether the individual appellants should be liable for costs. Consideration of issues 2 and 3 – costs of the first and second respondents. 1. As to the Property Trust Company, the appellants accepted that it should pay the costs of the first and second respondents. Such an order should be made. 2. As to the individual appellants, whilst it is true that the specific grounds of appeal relating to the individual appellants were said, in a footnote to the appellants' written submissions filed on 12 April 2016 not to be pressed, no steps were ultimately taken on behalf of the individual appellants to be removed as parties to the appeal. 3. Further, while the evidence is clear that the principal actors in the underlying events recounted in the judgment were the individual appellants, they were no longer necessary parties once the grounds of appeal addressed to the individual appellants' breaches of trust were not pressed. 4. In the ordinary course, costs of the unsuccessful appeal would follow the event. It should be accepted, however, that the individual appellants played no active role in the proceedings after 12 April 2016 when, at least in a footnote in their written submissions, the appellants indicated that the grounds of appeal specifically relating to the individual appellants would not be pressed. 5. In the circumstances the proper order is that that the individual appellants pay the first and second respondents' costs of the appeal up to and including 12 April 2016. Issue 4 - Costs on an indemnity basis First and second respondents' submissions 1. The first and second respondents submitted that in this case the notice of appeal did not identify any House v The King type error, the appellants abandoned grounds of appeal, proceeded in wilful disregard of unchallenged findings of fact fundamentally inconsistent with the case on appeal, tried to present a case not run below, failed to comply with basic procedural requirements, presented submissions not referenced to the grounds of appeal in any meaningful way, made complaints outside of the grounds of appeal, and no single ground (or sub-ground) was found to be reasonably arguable. 2. It was submitted that the appellants proceeded in wilful disregard of the facts that stood in the way of the appeal. Further, the first and second respondents submitted that the appeal ought not to have been pursued and this Court should mark its disapproval of the procedural conduct of the appeal. 3. In the alternative, the first and second respondents submitted that at least the costs of the applications for leave to amend the notice of appeal and for a stay of orders ought to be paid on an indemnity basis. The application to amend involved an egregious delay and the application for a stay was made without material and without instructions that an application for special leave would be made. Appellants' Submissions 1. The appellants submitted that the costs of the first and second respondents should not be awarded on an indemnity basis for the following reasons: 1. while rejecting the appellants' remaining grounds of appeal, the Court made no specific finding that any of these grounds were not reasonably arguable and had no prospects of success; 2. there was no basis for an inference that the appellants in instituting and maintaining the appeal had no legitimate object in mind; 3. there was no misconduct in seeking a stay to consider whether an application to seek leave to appeal should be made; 4. The application for leave to amend the Notice of Appeal did not result in the undue prolongation of the appeal. Attorney General's submissions 1. The Attorney General did not make any submissions about whether the appellants should pay costs on an indemnity basis. Consideration of ground 4 – indemnity costs 1. The principles applicable to an award of indemnity costs, now under the Civil Procedure Act s 98, are well known. In Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, Sheppard J said at 230-234: "In consequence of the settled practice which exists, the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the Court in departing from the usual course. That has been the view of all judges dealing with applications for payment of costs on the indemnity or some other basis whether here or in England. The tests have been variously put. The Court of Appeal in Andrews v. Barnes (39 Ch D at 141) said the Court had a general and discretionary power to award costs as between solicitor and client "as and when the justice of the case might so require." Woodward J in Fountain Selected Meats appears to have adopted what was said by Brandon LJ (as he was) in Preston v. Preston ((1982) 1 All ER at 58) namely, there should be some special or unusual feature in the case to justify the Court in departing from the ordinary practice. Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said (at 8) in Tetijo, "The categories in which the discretion may be exercised are not closed". Davies J expressed (at 6) similar views in Ragata. Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v. Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v. Hutchinson (1987) 10 NSWLR 525, Maitland Hospital v. Fisher (No. 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal), Crisp v. Keng (Supreme Court of New South Wales, 27 September 1993, unreported, Court of Appeal) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis. It remains to say that the existence of particular facts and circumstances capable of warranting the making of an order for payment of costs, for instance, on the indemnity basis, does not mean that judges are necessarily obliged to exercise their discretion to make such an order. The costs are always in the discretion of the trial judge. Provided that discretion is exercised having regard to the applicable principles and the particular circumstances of the instant case its exercise will not be found to have miscarried unless it appears that the order which has been made involves a manifest error or injustice." 1. Whilst there is force in the first and second respondents' submissions seeking indemnity costs for the entire appeal proceedings, the discretion is exercised on different grounds to that arising when considering the rights of a trustee to indemnification from a trust. The appellants are correct to submit that the Court did not make a specific finding that any of the grounds of appeal had no prospects of success. It is also correct to conclude that, however misguided the directors of the Property Trust Company may have been, there is no basis to conclude that the appellants were acting for an ulterior purpose. It is not appropriate to characterise the application for a stay which was made (Free Serbian Orthodox Church Diocese for Australia and New Zealand Property Trust v Bishop Irinej Dobrijevic (No 2) [2017] NSWCA 42) as being one which should not have been made. 2. On the particular facts and circumstances of this case, an order for payment of costs of the whole appeal, other than on a party and party basis, is not warranted. 3. The late application for leave to amend the notice of appeal, however, falls into a different category. This had important consequences not only for the hearing of the appeal but also for the use which could be made of the parties written submissions. As noted above, the appellants' written and submissions bore little or no correspondence to the grounds of appeal. The written submissions did not address in any coherent way the issues raised in that notice of appeal. The appellants' procedural failures made the resolution of this appeal much more difficult than it should have been. While not raised in the notice of appeal, one of the appellants' core challenges on appeal was to the primary judge's findings regarding the purpose of this trust. 4. The lack of correspondence between the appellant's written submissions and the grounds of appeal was specifically drawn to the attention of the appellants by the Attorney General. The principal judgment described the evidence thus: "[152] Counsel for the Attorney General tendered a bundle of correspondence between the parties prior to the hearing that concerned the grounds of appeal and submissions relied upon by the appellants. This became Exhibit A on the appeal. That evidence demonstrated: (1) on 12 April 2016, almost five months prior to the date fixed for the hearing of the appeal, at the time of filing their written submissions in chief, the appellants noted that they would seek to file an amended notice of appeal which better reflected the issues the appellants still pressed. The reference to an amended notice of appeal, in context, was plainly intended to be understood as referring to the abandonment of grounds 8-13 of the notice of appeal; (2) on 14 June 2016, the Attorney General's written submissions expressly noted that the submissions of the appellants departed in important respects from the grounds in the notice of appeal; (3) on 21 July 2016, approximately six weeks before the dates fixed for the hearing of the appeal, the solicitors for the appellants wrote to the respondents, enclosing a proposed amended notice of appeal apparently in the form of the document now proffered, enquiring whether the respondents would consent to the amendments. On 1 August and 2 August 2016 respectively, the Attorney General and the first and second respondents declined to consent to the proposed amendments, each noting a number of concerns arising from the document; (4) the Attorney General pointed out that it was entirely unclear the extent to which the proposed amended notice of appeal raised issues outside the existing notice and written submissions. The Attorney General stated that the issue of leave to file the amended notice of appeal could not be left to the hearing and pointed out that an appropriate notice of motion and supporting affidavit in support of any application to amend the notice of appeal should be filed forthwith; (5) the first and second respondents made clear that the draft amended notice of appeal sought to raise matters which were not raised before the primary judge and had they been raised evidence would have been led on the issues; in particular grounds 1 and 2 (dealing with the original purposes of the trust), grounds 3(b) (dealing with an aspect of the spirit of the trust), 4(c) (dealing with an aspect of the spirit of the trust in the context of the application of s 9 of the Charitable Trusts Act), 4(e) (dealing with an aspect of the spirit of the trust in the context of the application of s 9 of the Charitable Trusts Act) and 4(g) (dealing with an aspect of the spirit of the trust in the context of the application of s 9 of the Charitable Trusts Act); (6) the first and second respondents also pointed out that the proposed amended notice of appeal contained, including sub-grounds, approximately 120 separate contentions. This was not in accordance with UCPR r 51.18(1)(e) which requires the notice of appeal to state briefly but specifically the grounds relied upon in support of the appeal; (7) the appellants did not reply to either of these letters; (8) on 15 August 2016, the Attorney General again wrote to the appellants noting that it would be completely inappropriate in the present case for the issue of the content of the notice of appeal to be left in the state it was in to be dealt with at the hearing of the appeal; and (9) on 30 August 2016, the appellants wrote to the respondents confirming that they would proceed at the hearing only on grounds 1-7 of the existing notice of appeal and that they no longer intended to seek leave to amend their notice of appeal. 1. The respondents were thus put to the trouble and expense of seeking to address written submissions made which bore no relationship to the notice of appeal and which, on analysis, addressed a case different to that advanced before the primary judge in important respects. This is conduct which should be deprecated. 2. To mark the disapproval of the Court it is appropriate that the Property Trust Company be ordered to pay the costs of the preparation of the written submissions on all issues, together with the costs of the application to amend the notice of appeal (including the steps taken in relation to the aborted amendment proposal referred to above) on an indemnity basis. Conclusion and orders 1. I propose the following orders: 1. The Court orders under r 45.25(2) of the UCPR and s 59(4) of the Trustee Act that the Property Trust Company is not entitled to have any of its costs of the appeal paid from the trust property. The Property Trust Company is not entitled to indemnification from the trust fund in respect of its costs of appeal proceedings brought by it as trustee or in respect of any costs it is ordered to pay the respondents to the appeal; 2. The individual appellants pay the first and second respondents' costs of the appeal up to and including 12 April 2016; 3. The Property Trust Company pay, on an indemnity basis, the costs of the first and second respondents attributable to both the preparation of written submissions and the application to amend the notice of appeal (including the steps taken in relation to the aborted amendment proposal); 4. The Property Trust Company pay the first and second respondents' costs of all issues in the appeal not addressed by order (3) on a party-party basis. ********** Amendments 26 May 2017 - Typographical corrections to [39], [41] and [60]. 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: 26 May 2017