National Trustees Executors & Agency Company of Australasia Ltd v Barnes [1941] HCA 3; (1941) 64 CLR 268 (12 March 1941)

National Trustees Executors and Agency Company of Australasia Limited and Another Plaintiffs, Appellants; and Barnes and Others Defendants, Respondents.

I have had the advantage of reading the judgment of my brother Williams. As I agree with his reasons and the order proposed by him, I cannot usefully add anything to what he has said.

"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[1]). My brother Dudley Williams has collected many cases to the same effect, and I would add another which illustrates the application of the rule— In re Whiteley; Whiteley v. Learoyd[2]. There the trustees were charged with making unauthorized or improper investments, and the claim was that the trusts of the will relating to the sums invested should be carried into execution under the direction of the court and that the trustees might be ordered to invest the sums or so much thereof as were not properly invested upon the securities mentioned in the will. The imprudent investment of one sum of £3,000 was established, but as to another of £2,000 no want of prudence or of diligence was established. There was no order as to costs so far as the £3,000 was concerned, but as to the £2,000 the trustees were given their costs out of the trust estate or out of the £3,000, for which they were liable to account (In re Whiteley; Whiteley v. Learoyd[3]).

In the present case, executors were charged with a breach of their duty in not getting in certain purchase money when it fell due, forgoing interest, and with some subsidiary acts and defaults connected with the main charge. The plaintiffs, who were nine out of some thirty-seven residuary legatees, claimed, inter alia, a declaration that the executors had been guilty of breaches of their duties as such executors, and administration of the estate of the testator with all necessary or incidental inquiries and accounts, including accounts upon the footing of wilful default, and an order for removal of the defendants as executors and the appointment of new executors, which last-mentioned claim was based apparently upon the Administration and Probate Act 1928, sec. 29. When the case was before this court on appeal[4], attention was called to the fact that only nine out of thirty-seven residuary legatees had been made parties to the action, but the litigants were content so to proceed and relied apparently upon rules of the Supreme Court corresponding with Order 16, rules 33 and 40, of the English Judicature Rules. A majority of this court held that the executors had not been guilty of any breach of duty and dismissed the action with costs "to be paid by the said respondents" (the plaintiffs in the action) "to the appellants" (the executors). The executors did not apply for their costs out of the estate, and the court did not so order, but there is no order depriving or purporting to deprive them of such costs: See In re Hodgkinson; Hodgkinson v. Hodgkinson[5].

The costs awarded to the executors under the judgment already mentioned are not, it seems, likely to be paid in full owing to the want of means of the plaintiffs in the action. So the executors sought by originating summons issued out of the Supreme Court the determination of the questions whether they were entitled to be reimbursed out of the estate of the testatrix their costs as between solicitor and client of the action already mentioned and of the appeal upon which they were successful, and whether they were entitled to certain other small sums which need not be detailed. All the questions were determined in the negative, upon the ground that the executors' defence of the action could and did not result in any benefit to the estate of the testatrix and that the executors were not therefore entitled to their costs out of the estate.

Benefit to the estate, however, does not, I apprehend, mean pecuniary benefit, for it is a commonplace that costs out of the estate are given in cases relating to the construction of wills and the administration of trust estates. Some cases, however, were referred to in support of the decision already mentioned, the strongest of which is In re Dunn; Brinklow v. Singleton[6]. But that case lays down no general rule; the ground of the decision was "that a receiver cannot be entitled to indemnity in respect of the costs of an action brought against him, if it is a purely personal action against him and not having relation to the estate, except so far as the acts complained of were acts done by him while acting as an officer of the court"[7]. In that case, the receiver had been discharged, his accounts passed, and his remuneration and costs paid. The matters charged against him were conspiring to bring about unnecessary litigation and personal fraud and negligence in the management of an estate both as an administrator pendente lite and as a receiver, and damages were claimed. The case bears but little resemblance to the present case, in which an administration order was claimed, and it was sought to make the executors accountable for a breach of their duty in administering the estate of the testatrix and to remove them from office. No doubt a successful defence of the action would relieve the executors of any personal liability, but, as was said in Walters v. Woodbridge[8], that would be "merely an incident" of the successful defence. 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. In my opinion, costs thus incurred were incurred in or about the execution of the trusts or powers of the will of the testatrix. In re Whiteley; Whiteley v. Learoyd[9] clearly supports the view, but other cases to the same effect might be cited: See Morgan and Wurtzburg on Costs, 2nd ed., pp. 180, 181. But the executors should exhaust their remedies against the plaintiffs already mentioned before resorting to the estate of the testatrix: Cf. Williams v. Jones[10].

The executors' right to retain their costs out of the estate will take priority over the claims of any assignee from a beneficiary in the estate of the testatrix (In re Knapman; Knapman v. Wreford[11]).

The questions in the originating summons directed to the small sums already mentioned should be answered, as to number 2, in the negative. The question relates to some costs in interlocutory matters in the action brought against the executors, which they were ordered to pay, but there is nothing before the court which warrants the conclusion that they were reasonably and properly incurred. The third question of the originating summons should be answered in the affirmative. It relates to sums expended in and about the executors' defence of the action. The fourth question of the originating summons seeks a direction how the costs of all parties to the summons should be borne. Shortly, I agree with the order proposed as to these costs and also as to the costs of this appeal.

The appellants are the executors and trustees of the will of Winifred Dunn, deceased. She died on 13th October 1926. One of the assets in her estate was the balance of purchase money, namely, £4,380 owing by one J. K. Walsh under a contract of sale of land which became payable on 1st May 1930. He was unable to meet this debt on the due date, and the appellants gave him certain extensions of time to pay.

Under the trusts of the will thirty-seven nephews and nieces were entitled to the estate. Nine of these beneficiaries became dissatisfied with the trustees' administration of this asset and commenced a suit in the Supreme Court of Victoria which came on appeal to this court. The result of the appeal was that the suit was dismissed and the plaintiffs were ordered to pay the defendants' costs. The material facts will be found set out in the report of National Trustees Executors and Agency Co. of Australasia Ltd. v. Dwyer[12].

The statement of claim charged the defendants with breaches of trust and prayed, inter alia, for an order for administration and the removal of the trustees. The foundation of the suit was a charge that the trustees had committed a breach of duty in failing to get in the balance of purchase money on its due date. The court held that the charge was not sustained and that the trustees had administered this asset properly. No attack was made against the honesty or integrity of the individual trustee or against any officer of the trustee company.

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: See Selby v. Bowie[13]; Cotterell v. Stratton[14]; Turner v. Hancock[15]; In re Love[16]; In re Beddoe; Downes v. Cottam[17]; In re Maddock; Butt v. Wright[18]. In Dawson v. Clarke[19] Lord Eldon L.C. said: "This court infuses such a clause into every will though not directed." This right received statutory recognition in England when the Law of Property and Trustees Relief Amendment Act 1859, sec. 31, provided that every trust instrument should be deemed to contain a clause to the effect that it should be lawful for the trustees to reimburse themselves or pay or discharge out of the trust premises all expenses incurred in or about the execution of the trusts or powers of the deed, will or other instrument. This provision, omitting any reference to the trust instrument, was included in the Victorian Statute of Trusts 1864 and repeated in the Trusts Act 1890, sec. 76, the Trusts Act 1915, sec. 36, and the Trustee Act 1928, sec. 30 (2). The authorities already cited show that this right of indemnification includes costs, charges and expenses properly incurred in litigation relating to the trust estate.

Where trustees are charged with breach of trust all the beneficiaries should be made parties to the suit. In the present case the suit was heard and determined without twenty-eight of the residuary beneficiaries being joined. If the suit had been properly constituted, it would have been possible for the trustees to have asked at the hearing that their costs as between solicitor and client, so far as not recoverable from the plaintiffs, should be paid out of the estate. The absence of the twenty-eight beneficiaries made it impossible to ask for such an order in the suit. If an application to add these beneficiaries as parties would have put an end to the suit, the failure of the trustees to insist on their being joined might have amounted to improper conduct on their part which would have disentitled them to the indemnity. It appears, however, that the suit would have gone on in any event, so that the only result of the failure to join the absent beneficiaries has been that the appellants have been forced to incur the extra expense of taking out the present originating summons in order to ask for their costs out of the estate.

The main contention has been whether these costs are recoverable under the indemnity. The learned Chief Justice of the Supreme Court of Victoria decided that they were not because they were incurred by the trustees in defending themselves against a personal liability and therefore on their own behalf and not for the benefit of the trust. He considered the principle to be that the costs of trustees of defending such a suit are chargeable against the estate in all cases in which the defence is for the benefit of the estate. He referred to Walters v. Woodbridge[20]. In that case the court had approved of a certain compromise by the trustees. Subsequently, infant beneficiaries by their next friend commenced a suit to have the compromise set aside on the ground that the court had been misled into giving its approval by the fraud of Teesdale, one of the trustees. In view of this charge his co-trustees insisted on severing their defence. He applied to the court for leave to defend the suit and for an order that his costs of so doing might be allowed out of the estate. The Master of the Rolls held that, as the bill contained charges of misconduct against him, no order could be made until the result of the cause was known, and he accordingly directed the summons to stand over in the meantime. The other trustees do not appear to have actively defended the suit, but Teesdale did so, and it was dismissed with costs. The next friend of the plaintiff was unable to pay the costs, so Teesdale renewed his application for the payment of his costs as between solicitor and client out of the estate, and the Court of Appeal held that he was entitled to the order. It was pointed out in the judgments that, while he had incidentally succeeded in clearing his own reputation, he had also shown that the making of the compromise was proper and an act of administration which was beneficial to the estate. His defence had therefore been for the benefit of the estate, and so he was entitled to have his costs paid thereout. The present case is a stronger one in favour of the trustees than Walters v. Woodbridge[21], as there was no severance by the trustees, no attack was made on their probity, and the only question was whether they had acted properly or improperly in their administration of an asset in the estate. It is to be noted that, in the judgments in Walters v. Woodbridge[22], and in the subsequent case of In re Dunn; Brinklow v. Singleton[23], where the personal integrity of the receiver was attacked and he was charged with gross personal fraud, there are suggestions that it may be necessary for the trustees to show some benefit to the trust estate before they are to be reimbursed for their costs thereout, although in the latter case Byrne J. was careful to point out that he was not attempting to lay down any such general rule. If it is necessary to show such a benefit, then the fact the trustees establish that they have administered properly would be sufficient, but I am satisfied that it is not necessary to do so. Such expressions as acting "for the benefit of" "with reference to" or "on behalf of" the trust estate or in the discharge of his duty as a trustee are used indiscriminately in the judgments, but they all mean the same thing, namely, that the question is whether the costs, charges and expenses are properly incurred by the trustee as an incident of his administration of the estate. 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[24]). 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. It was stated during the argument that one of the nine is a farmer and that by reason of the Farmers Protection Act 1940 the trustee cannot issue execution against him or the other eight who are jointly and severally liable with him under the existing order for costs. Assuming that this is so, the protection of the Act will presumably not continue indefinitely and the order will become enforceable some day. The order should therefore provide that the trustees should recover as much as their costs as possible under this order in the first instance, and that, in so far as they are not recovered thereunder, the trustees should be authorized to retain them as between solicitor and client, first out of the shares of the nine beneficiaries and, after these shares have been exhausted, out of those of the twenty-eight. If authority is needed to show that the court can adjust the burden of the costs in this way between the beneficiaries, it will be found in the cases referred to in Halsbury, 2nd ed., vol. 33, p. 275, notes h and i, and In re Allen[25].

There are three different amounts of costs, charges and expenses referred to in the three questions asked in the summons. On the hearing of the appeal Mr. Ham did not press for the second of these amounts, while the respondents did not deny that the appellants were entitled to the third amount if they succeeded with respect to the first. The order which I have already mentioned will therefore cover the first and third amounts.

After the suit had been commenced the nine plaintiffs assigned their shares by way of mortgage to the respondents Walter Kemp and William Charles Linott Townsend, but the right of these assignees is subject to the trustees' rights under their indemnity (In re Knapman; Knapman v. Wreford[26]; In re Jones; Christmas v. Jones[27]; In re Pain; Gustavson v. Haviland[28]; Cock v. Aitken[29]; Halsbury, 2nd ed., vol. 33, p. 270). The full amount, therefore, of these nine shares, and not merely the equity of redemption therein, will be available to satisfy the appellants' indemnity.

The appellants' costs of the summons in the court below should not be thrown on the estate, because, if the suit had been properly constituted, the order now asked for could have been obtained at the hearing thereof. It is plain that any costs of the summons or of this appeal that are allowed out of the estate will have to be paid out of the shares of the twenty-eight beneficiaries. The costs of the respondents Kemp and Townsend of the hearing in the court below or this appeal should not be thrown on these shares.

Appeal allowed. Order of the Supreme Court discharged. In lieu thereof order that the costs, charges and expenses referred to in questions 1 and 3 of the summons so far as they are not recoverable from the plaintiffs in suit No. 258 of 1938 under the order for costs made therein may be retained out of the estate of the testatrix Winifred Dunn in the following manner:—First out of the shares therein of the said plaintiffs and when these shares have been exhausted out of the balance of the estate. The costs as between solicitor and client of the appellants and of the respondent A. M. Barnes of this appeal and the costs as between solicitor and client of the said respondent of this summons to be paid out of the said estate.

[1] (1897) 2 Ch., at p 197.

[2] [1887] UKHL 1; (1886) 32 Ch. D. 196; 33 Ch. D. 347 (C.A.); (1887) 12 App. Cas. 727.

[3] (1886) 32 Ch. D., at p. 206.

[4] [1940] HCA 5; (1940) 63 C.L.R. 1

[5] (1895) 2 Ch. 190, at pp. 194-196.

[6] (1904) 1 Ch. 648.

[7] (1904) 1 Ch., at p. 657.

[8] (1878) 7 Ch. D., at p. 509.

[9] [1887] UKHL 1; (1886) 32 Ch. D. 196; 33 Ch. D. 347; (1887) 12 App. Cas. 727.

[10] (1886) 34 Ch. D., at p. 123.

[11] (1881) 18 Ch. D. 300.

[12] [1940] HCA 5; (1940) 63 C L.R. 1.

[13] [1863] EngR 302; (1863) 4 Giff. 300 [66 E.R. 720].

[14] (1872) 8 Ch. App. 295, at p. 302.

[15] (1882) 20 Ch. D. 303, at p. 305.

[16] (1885) 29 Ch. D., at p. 350.

[17] (1893) 1 Ch. 547.

[18] (1899) 2 Ch. 588.

[19] (1811) 18 Ves. 247, at p. 254 [1811] EngR 511; [34 E.R. 311, at p. 313].

[20] (1878) 7 Ch. D. 504.

[21] (1878) 7 Ch. D. 504.

[22] (1878) 7 Ch. D. 504.

[23] (1904) 1 Ch. 648.

[24] (1887) 37 Ch. D. 317, at p. 327.

[25] (1889) W.N. 132.

[26] (1881) 18 Ch. D. 300.

[27] (1897) 2 Ch. 190.

[28] (1919) 1 Ch. 38.

[29] [1912] HCA 70; (1912) 15 C.L.R. 373, at p. 384.

High Court of Australia

National Trustees Executors & Agency Company of Australasia Ltd v Barnes [1941] HCA 3; (1941) 64 CLR 268 (12 March 1941)

HIGH COURT OF AUSTRALIA