FEDERAL COURT OF AUSTRALIA

McDonald v Young [2012] FCAFC 137

THE COURT ORDERS THAT:

1.    The Trustee bring in short minutes of proposed orders to give effect to the reasons of the Court.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

REASONS FOR JUDGMENT

INTRODUCTION

1    This appeal arises out of the administration in bankruptcy of the estate of the late Mr Christopher Macryannis (the Deceased), who died on 17 June 2006. On 6 October 2006, the respondent, Mrs Kathryn Young (Mrs Young), who is the Deceased’s sister, filed a petition for administration of the estate of the Deceased in bankruptcy (the Petition) and, on that day, a judge of the Court ordered that the estate of the Deceased be administered under Part XI of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). His Honour ordered that the appellant, Mr Geoffrey McDonald (the Trustee), be appointed as trustee of the estate. Although Mrs Young was named in a will of the Deceased as one of his executors, the Petition was filed in her capacity as a creditor of the Deceased. There has been no grant of representation in respect of the estate of the Deceased.

2    The administration of the estate by the Trustee engendered a good deal of antagonism between Mrs Young and her solicitor, Mr Stephen Rockliff, on the one hand, and the Trustee, on the other. Their dispute centred on property of the Deceased that was not divisible amongst creditors of the Deceased (the Exempt Assets) and the Trustee’s claims for remuneration for work said to have been undertaken, and expenses said to have been incurred, in dealing with the Exempt Assets.

3    On 3 December 2009, the Trustee filed an interim application in the Petition proceeding (the Trustee’s Application). The only other party to the Trustee’s Application was Mrs Young. By the Trustee’s Application, the Trustee sought orders that:

    his remuneration for the care, preservation and realisation and the distribution of the Exempt Assets be fixed and be paid out of the Exempt Assets;

    he be granted a lien over the proceeds of the realisation of the Exempt Assets for his remuneration and expenses;

    he pay into Court or, in the alternative, to specified beneficiaries, the balance of the proceeds of realisation of the Exempt Assets, after deduction of his remuneration and expenses and costs; and

    his costs of the Trustee’s Application be paid out of the Exempt Assets.

4    On 18 June 2010, Mrs Young filed a notice of motion in the Petition proceeding (Mrs Young’s Application). The Trustee was the only other party to Mrs Young’s Application. By Mrs Young’s Application, Mrs Young claimed an order that her costs of the Petition be paid out of the bankrupt estate of the Deceased. Mrs Young also sought orders that:

    the Trustee be restrained from withdrawing funds held by him in trust, other than moneys to be paid to Mrs Young under the following order;

    the Trustee pay to Mrs Young such sum as the Court may determine by way of interim distribution of the Exempt Assets; and

    pursuant to s 179 of the Bankruptcy Act, the Court enquire into the conduct of the Trustee in relation to the administration of the estate of the Deceased with respect to a number of specified matters.

5    The matters specified in Mrs Young’s Application for enquiry under s 179 included:

    the amount of reasonable remuneration to be paid to the Trustee for the care, preservation, realisation and the distribution of the Exempt Assets;

    whether the Trustee had been paid or received any part of such remuneration; and

    whether the Trustee had wrongly failed to comply with the directions of the Insolvency and Trustee Service Australia (ITSA), which is responsible for the administration and regulation of personal insolvency, to pay the proceeds of realisation of the Exempt Assets into Court or to pay the proceeds to Mrs Young and to make available the Trustee’s books and records for inspection by Mrs Young.

6    On 8 November 2011, a judge of the Court (the primary judge), relevantly for present purposes, made orders and declarations as follows:

    an order that Mrs Young’s Application be dismissed (order 2);

    an order that the Trustee pay to Mrs Young the total amount of the Exempt Assets recovered by him, including interest, and without deduction for costs, expenses or remuneration, whether or not previously deducted (order 4);

    an order that the Trustee’s Application be dismissed (order 5);

    a declaration that the remuneration of the Trustee in relation to dealing with the Exempt Assets be assessed in accordance with the provisions of the Bankruptcy Act and the Bankruptcy Regulations 1996 (Cth) (the Regulations) (order 7); and

    a declaration that any payment to the Trustee of costs incurred and remuneration in respect of dealing with the Exempt Assets be paid only out of the divisible assets of the estate of the Deceased (order 8).

7    On 2 March 2012, the primary judge also ordered that there be no order as to the costs of either the Trustee’s Application or Mrs Young’s Application. Her Honour indicated that the intention of that order was that the Trustee and Mrs Young should each bear his or her own costs of both applications.

8    On 29 November 2011, the Trustee filed a notice of appeal and, on 9 March 2012, he filed an amended notice of appeal. In the original notice of appeal, the Trustee appealed from orders 4 and 5 and declaration 8 made on 8 November 2011. He also purported to appeal from several findings made by the primary judge in the course of her Honour’s reasons for making those orders. In the amended notice of appeal, the Trustee also appealed from order 1 made on 2 March 2012. In addition, he purported to appeal from several findings made by the primary judge in the course of her reasons of 2 March 2012. No appeal lies from findings made or from reasons. An appeal only lies from an order. The notice of appeal and the amended notice of appeal involved misconceptions in so far as the Trustee purports to appeal from her Honour’s reasons.

9    While Mrs Young filed a notice of contention on 23 December 2011, she did not file any notice of cross-appeal from any of the orders made by the primary judge. It is not clear, either from written submissions filed on behalf of Mrs Young or from oral submissions made on her behalf, how the errors asserted in the notice of contention constitute alternative grounds for making the orders from which the Trustee appeals. The errors on the part of the primary judge that are asserted in the notice of contention are addressed below. In any event, since there is no appeal from the declaration in order 7, that the remuneration of the Trustee be assessed in accordance with the Bankruptcy Act and the Regulations, or from the declaration in order 8, that the Trustee be paid remuneration and costs out of the divisible assets, the only question is as to the fund from which the remuneration and costs are to be paid.

10    The Trustee’s amended notice of appeal advanced grounds of appeal in respect of three matters. The first matter concerned the question of whether the Trustee was entitled to any payment, out of the proceeds of the realisation of the Exempt Assets, in respect of remuneration, expenses and costs. The second matter concerned the primary judge’s decision that there be no order as to the costs of the two applications, including the Trustee’s costs of a notice of motion to set aside subpoenas and a notice to produce issued by Mrs Young. The third matter concerned an alleged denial of procedural fairness by the primary judge. That third matter was not pressed on the hearing of the appeal.

11    The substance of the appeal is concerned with the entitlement of the Trustee to be paid remuneration, and to be reimbursed for expenses and costs, out of the proceeds of the realisation of the Exempt Assets. However, the Trustee contends that, even if the other orders of the primary judge are undisturbed, the Full Court should interfere with the exercise of discretion by the primary judge in relation to the costs of the Trustee’s Application and Mrs Young’s Application.

12    Before dealing with the questions raised by the appeal, it is desirable to say something about the relevant statutory provisions. That involves a consideration of provisions of the Bankruptcy Act and the Wills, Probate and Administration Act 1898 (NSW) (the WPA Act). It will then be appropriate to say something about the administration of the estate of the Deceased and the decision of the primary judge, before addressing the questions raised in the appeal.

THE RELEVANT LEGISLATIVE PROVISIONS

13    As at the death of the Deceased, s 44 of the WPA Act provided that, upon the grant of probate of the will, or administration of the estate, of any person, all real and personal estate which any such person dies seised or possessed of, or entitled to, passes to and becomes vested in the executor to whom probate has been granted or in the administrator. However, under s 61 of the WPA Act, from and after the death of any person, and until probate or administration is granted in respect of the deceased person’s estate, the real and personal estate of such deceased person is deemed to be vested in the NSW Trustee and Guardian constituted under the NSW Trustee and Guardian Act 2009 (NSW), formerly known as the Public Trustee (the NSW Trustee).

14    Section 46C of the WPA Act relevantly provides that, subject to the provisions of the Bankruptcy Act, where the estate of a deceased person is insolvent, the deceased person’s real and personal estate is to be administered in accordance with the rules set out in Part 1 of the Third Schedule to the WPA Act. Under s 46C, an estate is insolvent where it is insufficient for the payment in full of the debts and liabilities of the deceased person. Part 1 of the Third Schedule provides that the funeral, testamentary and administration expenses have priority. Subject to that provision, the same rules are to prevail and be observed as to the respective rights of secured and unsecured creditors, and as to debts and liabilities provable and as to the priorities of debts and liabilities, as are in force at the death of the deceased person under the law of bankruptcy with respect to the assets of persons adjudged bankrupt. In that regard, the date of the death of the deceased person is to be substituted for the date of the sequestration order.

15    Section 244(1) of the Bankruptcy Act relevantly provides that, subject to certain prerequisites being satisfied, a creditor to whom a debt of not less than $5,000 was owing by a deceased person at the time of death may present a petition for an order for the administration of the estate of the deceased person under Part XI of the Bankruptcy Act. Section 244(11) provides that, on the hearing of a petition by a creditor under s 244(1), if the Court is satisfied with the proof of the matters stated in the petition, the service of the petition and the fact that the debt to which the petition relates is still owing, the Court may make an order that the estate of the deceased person be administered under Part XI.

16    Under s 249(1) of the Bankruptcy Act, where an order is made for the administration of the estate of a deceased person, the divisible property of the estate, not being after-acquired property, vests forthwith in the trustee of the estate. In addition, after-acquired property of the estate vests in the trustee, as soon as it is acquired by, or devolves on, the estate. Section 249(1) is equivalent to s 58(1) in relation to a living person who becomes bankrupt. Under s 58(1), where a person becomes bankrupt, the property of the bankrupt, not being after-acquired property, vests forthwith in the trustee of the estate of the bankrupt and after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the trustee of the estate of the bankrupt.

17    The divisible property and after-acquired property are divisible amongst the creditors of the deceased person in accordance with the Bankruptcy Act. Under s 249(7)(a), the divisible property of the estate of a deceased person does not include, relevantly:

    property that would not have been divisible amongst the person’s creditors under Part VI, had a sequestration order been made in respect of the person’s estate before death; or

    so much of the proceeds of a policy of life assurance or endowment assurance, a payment from a regulated superannuation fund (as defined), or an approved deposit fund (as defined), or a payment from an exempt public sector superannuation scheme (as defined) as would not have been divisible amongst the creditors of the person under Part VI.

18    Section 116(1) of the Bankruptcy Act, which is in Part VI, relevantly provides that all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge, is property divisible amongst the creditors of the bankrupt. However, under s 116(2), that provision does not extend to, relevantly, property held by the bankrupt in trust for another person, policies of life assurance or endowment assurance in respect of the life of the bankrupt or of the spouse or de facto partner of the bankrupt, the proceeds of such policies received on or after the date of the bankruptcy, or the interest of the bankrupt in certain superannuation funds.

19    Section 109(1)(a) of the Bankruptcy Act provides that proceeds of the divisible property are to be paid, first, in the order prescribed by the Regulations, in payment of the taxed costs of the petitioning creditor and the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee. By the operation of s 248(1), s 109 applies in relation to the administration of a deceased estate under Part XI.

20    Regulation 6.01 provides that the order of payment referred to in s 109(1)(a) is as set out in schedule 3 to the Regulations. Items 2, 3, 5 and 6 in Schedule 3 are as follows:

2    Expenses reasonably incurred by or on behalf of the trustee in protecting all parts of the bankrupt’s assets, in carrying on a business of the bankrupt or by way of an advance made to the trustee of the bankrupt’s estate for payment of properly incurred expenses of the estate;

3    Other fees, costs, charges and expenses payable by the trustee in administering the bankrupt’s estate;

5    The taxed costs of the petitioning creditor, the administrator of the estate of a deceased person or the applicant under Part X of the Bankruptcy Act, for a sequestration order; and

6    The trustee’s lawful remuneration.

21    Under s 176 of the Bankruptcy Act, the Court may, if it is satisfied that a registered trustee, who is or has been a trustee of a bankrupt’s estate, has been guilty of breach of duty in relation to the bankrupt’s estate or affairs, make an order directing the person to make good any loss that the bankrupt’s estate has sustained because of the breach of duty, make an order directing the Inspector-General to cancel the person’s registration as a trustee, or make any other order that the Court considers just and equitable in the circumstances. Under s 179(1), the Court may, on the application of the Inspector-General, a creditor or the bankrupt, inquire into the conduct of a trustee in relation to a bankruptcy and may either remove the trustee from office or make such order as it thinks proper, or do both of those things. Under s 179(2), the Inspector-General or a creditor may, at any time, require a trustee to answer an inquiry in relation to the bankrupt’s estate or affairs.

22    Under s 12(1)(b) of the Bankruptcy Act, the Inspector-General may make appropriate enquiries and investigations with respect to the administration of, or conduct of, a trustee in relation to a bankruptcy. In addition, the Inspector-General has power, under s 155H(1)(f), to ask a registered trustee to give a written explanation why he or she should continue to be registered, if the Inspector-General believes, relevantly, that the trustee has failed to exercise powers of a registered trustee properly or has failed to carry out the duties of a registered trustee properly. If the Inspector-General is not satisfied by the explanation, the Inspector-General must convene a committee to consider whether the trustee should continue to be registered.

THE ESTATE OF THE DECEASED

23    At the date of his death, the Deceased held a life assurance policy with MLC Limited (the MLC Policy) and a life assurance policy with ING Life Limited (the ING Policy). In addition, the Deceased had a superannuation fund portfolio account (the Superannuation Account). In accordance with s 249(7), the MLC Policy, the ING Policy and the Superannuation Account were not divisible amongst the creditors of the Deceased and, accordingly, were part of the Exempt Assets.

24    At the beginning of 2006, the Deceased had set up the CMA Investment Trust, with himself as the trustee. Two hundred units in the CMA Investment Trust were issued to the Deceased, as trustee of the Chris Macryannis Family Trust. The funds that were raised by the issue of units in the CMA Investment Trust were banked into an account in the name of the Deceased with BWA Managed Investments Limited (BWA). At the death of the Deceased, there were funds totalling $74,037 with BWA, which were held on the terms of the Chris Macryannis Family Trust. In accordance with s 249(7) of the Bankruptcy Act, those funds were not divisible amongst the creditors of the Deceased, but were also part of the Exempt Assets.

25    The Trustee’s Application was made on the assumption that the proceeds of the MLC Policy, the ING Policy and the Superannuation Account, as well as the proceeds of the BWA account, were non-divisible property. There was no dispute as to the correctness of that assumption.

26    In support of her petition for the estate of the Deceased to be administered under Part XI of the Bankruptcy Act, Mrs Young swore an affidavit to which she annexed a copy of a signed, but undated and unwitnessed, will of the Deceased (the Copy Will). Also annexed to the affidavit was a letter to the Deceased of 11 February 2005, from Messrs Rockliffs, solicitors. That letter said that copies of the will and a power of attorney granted by the Deceased in favour of Mrs Young were enclosed. The letter said that the original will and power of attorney had been retained by the solicitors for safe-keeping, pending the instructions of the Deceased. Mrs Young said that, notwithstanding that letter, no original will of the deceased had been found.

27    The Copy Will appointed Mrs Young and Mrs Nicole Rockliff, solicitor, as executors and trustees. It provided that, after payment of all debts and duties, 25 per cent of the estate was to be given to the step-daughter of the Deceased and the remaining 75 per cent was to be retained in a fund for the benefit of the children of the Deceased. The Copy Will set out the powers of the trustees in relation to that fund.

28    By letter of 6 October 2006, Mrs Rockliff renounced her role as executor under the will. Mrs Young did not apply for probate but, as indicated above, took steps to have the estate of the Deceased administered in bankruptcy under Part XI of the Bankruptcy Act. It would have been open to Mrs Young to apply for probate of the will of the Deceased. The Exempt Assets would have vested in her, had she obtained a grant of probate. She has not done so.

29    When an order is made under s 244 of the Bankruptcy Act, for an estate to be administered under Part XI, the trustee appointed by the Court does not have any powers or duties in relation to property other than divisible property. The powers and duties of a trustee appointed under Part XI are no more extensive than those of a trustee appointed under Part IV in relation to a living bankrupt. While the making of the order under s 244 had the effect of vesting the divisible property of the Deceased in the Trustee, the order under s 244 did not have any effect on property that was not divisible property, namely, all of the Exempt Property. Accordingly, none of the Exempt Assets vested in the Trustee. Rather, in accordance with s 61 of the WPA Act, the Exempt Assets vested in the NSW Trustee on the death of the Deceased. They remained vested in the NSW Trustee, notwithstanding the appointment of the Trustee. Upon the grant of probate or administration, the Exempt Assets would have vested in the executor or administrator.

30    At the date of the death of the Deceased, s 18A of the WPA Act provided that a document purporting to embody the testamentary intentions of a deceased person, even though it has not been executed in accordance with the formal requirements of the WPA Act, constitutes a will of the deceased person if the Court is satisfied that the deceased person intended the document to constitute the person’s will. While Mrs Young did not apply for probate of any will of the Deceased, she applied to the Supreme Court of New South Wales for an order under s 18A in respect of the Copy Will referred to above.

31    On 1 November 2010, the Supreme Court made a declaration under s 18A of the WPA Act that the Copy Will constitutes the will of the Deceased. In addition, the Supreme Court made declarations that:

    under the Copy Will, Mrs Young was appointed trustee of the fund created pursuant to the Copy Will, the beneficiaries thereof being the three children of the Deceased in equal shares; and

    Mrs Young had validly appointed replacement trustees of the Chris Macryannis Family Trust, pursuant to a deed of appointment dated 27 July 2010.

32    Of course, unless and until Mrs Young applied for and was granted probate, she had no obligations or standing in relation to the Exempt Assets. She still has not obtained a grant of probate. Apparently the view was taken that, once an order had been made under Part XI of the Bankruptcy Act, it was not possible for a grant of probate to be made. That view must be erroneous. While the making of an order under Part XI would deprive an executor or administrator of any control over the divisible property of a deceased person, it would not affect property that was not divisible property. The standing of Mrs Young and the want of joinder of the persons entitled to the Exempt Assets are adverted to below.

33    Notwithstanding that the Exempt Assets were nominally vested in the NSW Trustee, the Trustee took steps to realise the Exempt Assets. The primary judge considered that, in circumstances where the proceeds of realisation of the Exempt Assets had been paid into a bank account in the name of the Trustee, the Trustee had legal title to the proceeds. It is against that background that the action of the Trustee in relation to the Exempt Assets must be considered.

ADMINISTRATION OF THE ESTATE IN BANKRUPTCY

34    The Trustee was appointed on 6 October 2006. On 7 December 2006, his solicitors, Parry Carroll, advised him that the proceeds of the MLC Policy were not divisible amongst the creditors of the Deceased, but that a small refund of premium in respect of the MLC Policy was so divisible. They advised that, after deduction of any costs and disbursements incurred by him, the Trustee should remit the balance of the proceeds of the realisation of the MLC Policy to the executors of the Deceased. They advised that the executors could then apply for probate of the will of the Deceased. The primary judge expressed the view that the advice that the Trustee was entitled to deduct costs and disbursements from the proceeds of the MLC Policy was not correct. That is the principal question in the appeal. However, in so far as the advice recommended payment to the executors before a grant of probate, the advice was almost certainly incorrect.

35    The solicitors’ advice of 7 December 2006 also addressed the deficiencies in the formalities of the will of the Deceased and advised the Trustee as to the provisions of s 18A of the WPA Act. They said that it would be necessary for the executors to file a summons in the Supreme Court seeking relief under s 18A and concluded with a broad outline of what would be involved. They expressed the opinion that such an application would be likely to be successful. As indicated above, that is the course that was adopted by Mrs Young some years later.

36    The Trustee subsequently sought advice from his solicitors, Parry Carroll, as to his entitlement to draw remuneration, costs and expenses from two pools of funds, namely, the divisible property and the non-divisible property, and as to apportionment between the two pools. In a letter of advice of 2 February 2007, Parry Carroll concluded that a strict reading of the provisions of the Bankruptcy Act suggested that, subject to approval of remuneration by the creditors, the Trustee was entitled to withdraw the whole or any part of his remuneration, once approved by the creditors, from either of those two pools. However, the letter of advice recommended that, in the light of the uncertainty expressed in it, the Trustee obtain the approval of the creditors and the approval of the executors of the Deceased. Parry Carroll recommended also that attendances relevant to the MLC Policy be charged to the non-divisible property and all other attendances to the divisible property. Finally, they recommended that the Trustee obtain the consent of the executors of the Deceased to the deduction of his fees from the proceeds of the MLC Policy. Since at that time Mrs Young had not obtained a grant of probate, and therefore was not able to give a good discharge for a payment by the Trustee or for payment of his remuneration out of the Exempt Assets, that advice was incorrect, as the primary judge held.

37    On 15 June 2007, the Trustee sent a report to the creditors of the Deceased (the Report). The Report said that, on 23 November 2006, with the assistance of Mrs Young, the Trustee had been able to finalise a claim under the MLC Policy and had received a cheque in the sum of $315,326.02. In addition, a refund of premium of $724 had been paid to the Trustee. The Report referred to investigations by the Trustee that had revealed that the Deceased held the ING Policy and said that, on 14 May 2007, the Trustee had received the sum of $62,792 as the proceeds of the ING Policy. The Report also stated that, on 11 January 2007, the Trustee had received a cheque in the sum of $36,832.44 in respect of the Superannuation Account. The Report stated that it was likely that those proceeds would be classified as non-divisible property that would not be available for the benefit of creditors of the Deceased. The Report also stated that the Trustee had received funds totalling $74,037 from BWA and that it appeared that those funds belonged to the Chris Macryannis Family Trust. The Report referred to legal advice obtained by the Trustee as to his entitlement to be paid his costs and disbursements from the proceeds of the MLC Policy and the ING Policy, in light of s 116(2) of the Bankruptcy Act. The reference to s 116 appears to be misconceived. The relevant provision is s 249.

38    On 27 September 2007, the Trustee met with Mrs Young and Mr Rockliff. At the meeting, the Trustee said that he would send a cheque for $506,000, made out to Mr Rockliff’s trust account, representing the proceeds of the realisation of the Exempt Assets. Mrs Young gave instructions to Mr Rockliff for investment of such funds when they were received and undertook to engage an accountant to prepare tax returns and set up trusts in accordance with the will of the Deceased.

39    On 4 October 2007, Mr Rockliff wrote to the Trustee, confirming the arrangement that the Trustee would forward a cheque to Rockliffs representing the proceeds of the Exempt Assets, together with interest earned on the investment of those funds, and a statement of account. The Trustee responded by letter of 10 October 2007, which, for the first time, raised concerns about the position of Mrs Young. In his letter, the Trustee referred to the meeting that had taken place on 27 September 2007 and said that he would proceed to transfer to Mrs Young funds that were not available to him as the trustee of the bankrupt estate of the Deceased. The Trustee said that the Exempt Assets would pass to the executors of the Deceased’s will, to be distributed in accordance with the will.

40    However, the letter went on to say that the Trustee understood that there was some contention about whether or not Mrs Young was in fact an executor of the will of the Deceased or had merely acted as executor of the estate. The Trustee said that he did not need to resolve that issue, but wished to pay the funds to the trust account of Mrs Young’s solicitors, to be held in trust on behalf of Mrs Young, who could then determine whether or not she could or should undertake the role of executor. The letter said that the funds would be paid to Mrs Young’s solicitors without any need for her to admit that she was, or had been, the executor of the Deceased’s estate. That was a somewhat foolhardy stance to take, since Mrs Young had no standing at that stage. Having failed to apply for a grant of probate, she could not have given a good receipt on behalf of the Deceased’s estate for any payment that the Trustee might make to her.

41    After referring to the possible duties and obligations of Mrs Young in relation to tax returns and the payment of income tax, the Trustee set out the amount of funds that were available as follows:

Funds from the MLC Policy                $315,326.02

Funds from the ING Policy                 $62,792.60

Funds from the Superannuation Account         $36,832.44

Interest earned and allocated to 19 October 2007     $11,861.05

Total                            $426,812.11

Less Trustee’s fees applicable to the above matters      $16,000.00

Less legal fees                      $3,903.00

Balance Payable                    $406,909.11

42    The Trustee said in his letter that he proposed to deduct an amount of $19,903 for the payment of legal fees and his own fees applicable to dealing with the Exempt Assets. A copy of legal advice in that regard was provided, presumably the advice of 7 December 2006. The Trustee also said that, if Mrs Young had any objection to those fees, she should state so immediately, otherwise the amount specified would be drawn and the Trustee’s role in respect of that aspect to the Deceased’s estate would be brought to a close.

43    On 15 October 2007, Mr Rockliff wrote to the Trustee, taking issue with the balance that the Trustee said was payable. Mr Rockliff referred to the fact that, at the meeting on 27 September 2007, the Trustee had said that he had a cheque available for approximately $506,000. Mr Rockliff said that Mrs Young had justifiable concerns relating to the contents of the Report and the Trustee’s inability to provide relevant information at the meeting on 27 September 2007. According to the Trustee, the discrepancy between the amount mentioned at the meeting and the amount mentioned in the letter of 6 October 2007 was caused by his deciding not to include the sum received from BWA until he could resolve the uncertainty as to whether those funds constituted divisible property.

44    On 22 November 2007, the Trustee wrote to Mr Rockliff again, providing a more comprehensive response to the matters raised. He referred to the monies received in respect of the MLC Policy, the ING Policy and the Superannuation Account, the proceeds of which he said had been retained in the Hall Chadwick Trust Account, an interest-bearing account that complied with s 169 of the Bankruptcy Act. The Trustee was a partner of Hall Chadwick, a firm of accountants. Curiously, the letter said that Mrs Young had been paid the sum of $315,326.02 in her capacity as Executrix of the estate of the Deceased. That statement was inconsistent with other comments made in the letter and was clearly erroneous. It is common ground that no such payment had been made. The letter said that a cheque representing the balance of the funds would be drawn by the Trustee once he had received approval of his letter of 10 October 2007, presumably referring to his claim for remuneration of $16,000 and fees payable to Parry Carroll of $3,903.

45    The Trustee wrote to Rockliffs again on 21 January 2008, referring to his letter of 10 October 2007 and requesting approval of his fees. The letter requested that, as a matter of urgency, Rockliffs provide the approval of Mrs Young for the amount of $16,000 to be paid on account of fees and said that, after such approval had been received, arrangements would be made for a cheque to be drawn and forwarded to Rockliffs immediately.

46    However, it appears that neither the Trustee nor Mrs Young did anything to resolve the issue until September 2009, when Mrs Young made a complaint to ITSA. As a consequence of the complaint, Mr Mark Findlay, who is NSW Business Manager of the regulatory unit of ITSA, inspected the Trustee’s files in relation to the administration of the estate of the Deceased.

47    On 2 November 2009, Mr Findlay wrote to Mr Rockliff, informing him of the results of his inspection of the Trustee’s files. He said that the main reason for the delay in dispersing the proceeds of realisation of the Exempt Assets was that Mrs Young had not approved the deduction of the Trustee’s remuneration. Mr Findlay also indicated that there was no evidence that Mrs Young’s costs of obtaining the order under Part XI, or her costs of proper funeral and testamentary expenses, had been reimbursed. Mr Findlay said that the Trustee should have addressed that matter and should have invited Mrs Young to have her costs taxed.

48    Mr Findlay ended his letter by saying that he would be writing to the Trustee within a week, requiring him to remit funds that were clearly non-divisible property within 28 days or alternatively, if the status of the funds was in doubt, to pay the funds into Court within 28 days. Mr Findlay said that he understood that the Trustee had already instructed Parry Carroll to make an application to pay the funds into Court and to seek approval for his remuneration and costs. That appears to have been a reference to the Trustee’s Application, which was filed subsequently, on 3 December 2009.

THE DECISION OF THE PRIMARY JUDGE

49    The primary judge considered that the history briefly outlined showed a high degree of confusion on both sides, as well as inadequate legal advice and unwarranted delay. Her Honour observed that, had the declarations in relation to the will of the Deceased been sought by Mrs Young earlier, much of the delay might have been avoided. More importantly, her Honour said, the Trustee did not act with the initiative and diligence that it was reasonable to expect. Given that the Trustee was unable to resolve the confusion in relation to the Exempt Assets, her Honour considered that he should have sought the intervention of the Court at an earlier stage. Had there been no uncertainty surrounding the ability of Mrs Young to give a good discharge, the Trustee could have made a partial distribution of the proceeds of realisation of the Exempt Assets. Since he had a genuine belief that he was entitled to be paid remuneration out of the proceeds of the realisation of the Exempt Assets, he could have retained a reasonable sum to cover his costs and remuneration. Her Honour considered that the delay in resolving that issue kept the legitimate beneficiaries out of the funds to which they were entitled for much longer than was necessary.

50    On the other hand, the primary judge accepted that the Trustee acted on recommendations made by Mr Findlay. There has been no complaint about the Trustee’s dealing with the creditors of the Deceased, other than Mrs Young in relation to Exempt Assets, or about his dealing with the property of the Deceased that was divisible amongst creditors. For that reason, her Honour concluded that an inquiry under s 179 in respect of the Trustee’s delay in dealing with the proceeds of realisation of the Exempt Assets would not be of any benefit to Mrs Young, or to the beneficiaries under the will of the Deceased, but would only prolong further the winding-up of the estate. Her Honour considered that the Trustee’s clear duty was to distribute the proceeds of realisation of the Exempt Assets in accordance with the will of the Deceased. However, her Honour considered that no amount in respect of the Trustee’s costs and remuneration could be taken out of those proceeds.

51    Mrs Young contended before the primary judge that there should be an enquiry into whether some fees in respect of the administration of the estate of the Deceased claimed by the Trustee had in fact been incurred by Hall Chadwick and written off by that firm. Her Honour said that the basis of the allegation was a conversation that Mr Findlay said he had in October 2009 with Ms Louise Thomson, a manager at Hall Chadwick. According to Mr Findlay, Ms Thomson told him that any remuneration owing to Hall Chadwick had been written off. Her Honour found that Mr Findlay did not attach much importance to the comment. Her Honour considered that, in the absence of any evidence as to context and the way in which remuneration within Hall Chadwick was structured at the time when the Trustee was a partner, little weight could be given to Ms Thomson’s comment. In her Honour’s view, the limited evidence put forward on the point did not warrant an enquiry.

52    The primary judge concluded that the allegations made by Mrs Young concerning misuse of the proceeds of the realisation of the Exempt Assets had not been sustained and that there was insufficient substance to warrant further inquiry. However, her Honour considered that the evidence indicated that the Trustee was lax about his record-keeping and that he was less than helpful in responding to legitimate enquiries made by Mrs Young. As a creditor, Mrs Young was entitled to make enquiries in her own right, irrespective of any doubts the Trustee may have had about her status under the will. Her Honour considered that, at the very least, it was unprofessional of the Trustee to ignore the legitimate concerns that Mrs Young had about the interests of the children of the Deceased. Her Honour considered that the Trustee had not made the accounts and records of his administration as readily available as Mrs Young was entitled to expect and that the accounts and records did not meet the standard required. Her Honour considered that, however irritating the requests of Mrs Young may have been, the Trustee’s professional obligation was to make the accounts and records readily available. Her Honour considered that, had the Trustee done so, it was likely that the other complaints about his conduct would not have materialised.

53    While the primary judge concluded that an enquiry under s 179 was not appropriate, despite serious reservations about some aspects of the discharge of his obligations by the Trustee, her Honour considered, nevertheless, that there was an issue to be explored concerning the Trustee’s suitability to continue to be registered as a trustee under the Bankruptcy Act. Her Honour considered that it was appropriate to direct the Registrar of the Court to forward to the Inspector-General a copy of her Honour’s reasons, drawing attention to her comments about the conduct of the Trustee.

54    That is the source of the Trustee’s original complaint that he was denied procedural fairness. Thus, he said, the primary judge embarked on a hearing as to whether or not there should be an enquiry under s 179 and made findings that were critical of the Trustee, without actually undertaking an enquiry. However, there can be no suggestion that the Trustee did not have ample opportunity to respond to the criticisms levelled by Mrs Young as to his conduct in the administration of the Exempt Assets.

55    In dealing with the Trustee’s Application, the primary judge recorded that the Trustee pressed his claims only in so far as they gave rise to the following three issues:

    whether, in relation to the work done in getting in and preserving the Exempt Assets, the Trustee is entitled to remuneration and reimbursement of his costs and expenses;

    if the Trustee is entitled to remuneration and reimbursement, how such entitlement is to be measured; and

    whether any remuneration to which the Trustee is entitled should be paid out of the proceeds of realisation of the Exempt Assets.

56    The primary judge considered that an order for administration under Part XI of the Bankruptcy Act is for the administration of the whole of the estate of the deceased person, including non-divisible property. Her Honour considered that it is the duty of a trustee appointed under Part XI to administer the whole of the estate, including non-divisible property, and that the trustee of a deceased estate to be administered under Part XI may have the same obligations as an executor or administrator of a solvent deceased estate, but must have regard to the requirements of the Bankruptcy Act, including the distinction between divisible and non-divisible property as provided in s 249.

57    The primary judge considered that, in so far as the duties imposed by the Bankruptcy Act on a trustee appointed under Part XI required the Trustee to deal with non-divisible property, the costs and expenses incurred in doing so, and the remuneration to which the Trustee may be entitled, are as much costs of the administration as are the costs and expenses incurred and entitlement to remuneration in respect of dealing with divisible property. Nevertheless, her Honour considered, it was only divisible property that was available to meet the costs of administration and to remunerate the Trustee.

58    The primary judge considered that a reference to the bankrupt’s assets and to the bankrupt’s estate in items of schedule 3 to the Regulations should be read as a reference to the whole of the property of the deceased person, including non-divisible property. That was because the phrase property of the bankrupt, as used in the general bankruptcy provisions applicable to the administration of deceased estates by virtue of s 248(1), is defined by s 248(3)(c) to mean only the divisible property of the bankrupt. As a result, her Honour considered that reference to the bankrupt’s assets and to the bankrupt’s estate in schedule 3 were to be read more broadly, so as to encompass both divisible and non-divisible property. Her Honour considered that it was incorrect to assume that costs incurred in dealing with non-divisible property must be paid out of the non-divisible property. Her Honour also considered that it was incorrect to assume that remuneration in respect of dealing with non-divisible property may be paid out of the non-divisible property. Her Honour considered that costs incurred in dealing with non-divisible property and remuneration in respect of dealing with non-divisible property could be paid only from the fund constituted by the divisible property. Her Honour concluded, therefore, that all expenses and remuneration in respect of the administration of the estate of the Deceased, including the Exempt Assets, could be paid only from the divisible property of estate of the Deceased.

59    The primary judge concluded that a trustee who is charged with the administration of a deceased estate under Part XI incurs duties in respect of non-divisible property, as well as divisible property. Her Honour considered that, as those duties are included in the administration of the estate, the trustee is entitled, in accordance with the provisions of the Bankruptcy Act and Regulations, to remuneration in respect of the discharge of those duties. A trustee in bankruptcy is governed by the general law relating to trustees, except in so far as the position of the trustee is modified by the Bankruptcy Act, or the rules and regulations made under the Bankruptcy Act. The Bankruptcy Act confers no right on a trustee to be reimbursed in respect of the costs, charges or expenses incurred in the administration. Rather, the trustee’s right to indemnity is provided under the general law. Under the general law, a trustee is entitled, as of right, to a full indemnity from the trust estate against all costs, charges and expenses properly incurred by the trustee. That right to be reimbursed is recognised under the Bankruptcy Act in s 109(1)(a).

60    The primary judge considered that, while the process by which a trustee may claim remuneration has changed over the years, the principle that a trustee in bankruptcy, who has not undertaken the work gratuitously or as a salaried officer, is entitled to remuneration is well-established. Her Honour considered that a trustee’s right to remuneration is recognised in the current provisions of the Bankruptcy Act. Thus, s 162 provides for the trustee’s remuneration to be fixed by resolution of the creditors or, if the creditors so resolve, by the committee of inspection. Section 162(4), as presently in force, provides that, if the trustee’s remuneration is not fixed by the creditors or the committee of inspection, the trustee may, in certain circumstances, apply to the Inspector-General for the Inspector-General to decide the trustee’s remuneration.

61    The primary judge concluded that, in circumstances where a trustee’s remuneration is not fixed by the creditors or a committee of inspection, the trustee may prepare a bill of costs calculating the remuneration payable in accordance with reg 8.08 and advise the creditors accordingly. The obligation to advise the creditors follows from s 162(6A) and reg 8.12. Regulation 8.12(c) requires the trustee to advise the creditors of their right to request that the trustee’s claim for remuneration be taxed. Once the trustee’s remuneration has been settled by taxation, or the statutory period for requesting the taxation has passed, the trustee is entitled to retain, from the divisible property of the bankrupt estate, the amount of remuneration, in accordance with the statutory priority accorded in schedule 3.

62    For the reasons set out below, the conclusions of the primary judge appear to involve a misapprehension. They overlook the operation of s 44 and s 61 of the WPA Act. That is to say, just as a living bankrupt is in a position to look after the non-divisible property of the bankrupt, so the NSW Trustee or the legal personal representative of a deceased person is in a position to look after the non-divisible property of that deceased person. There is no material difference between the position of a trustee in bankruptcy appointed under s 156A(3) and the position of a trustee appointed under s 249.

PARTIES

63    The capacity in which Mrs Young was joined as a party to the Trustee’s Application is by no means clear. Indeed, the capacity in which Mrs Young’s Application was brought is also unclear. Mrs Young was the petitioning creditor for an order under s 244 of the Bankruptcy Act. One of the prayers for relief in Mrs Young’s Application was for an order for the payment of her costs as petitioning creditor. Mrs Young clearly had standing to claim her costs of the Petition. That question was not disputed. She also had standing to complain about the conduct of the Trustee in relation to the property of the Deceased that was divisible amongst his creditors. However, there was no complaint about the Trustee’s conduct in that regard.

64    The real issue that was litigated concerned the Exempt Assets. Mrs Young had no direct interest in the Exempt Assets. Her only interest depended upon her position as an executor named in the Deceased’s will. Had a grant of probate been made, she would clearly have had standing in relation to the Exempt Assets, which would have vested in her under s 44 of the WPA Act, upon the grant of probate. It may be that she became an executor de son tort, by reason of her having intermeddled in the estate of the Deceased, although that possibility does not appear to have been explored. In the absence of a grant, however, she had no interest in the Exempt Assets and no standing to look after the interests of the persons entitled to the Exempt Assets.

65    The persons who were entitled under the will of the Deceased and the beneficiaries of the Chris Macryannis Family Trust were the persons who had a relevant interest in the Exempt Assets. However, none of those persons was joined as a party to the Trustee’s Application or to Mrs Young’s Application. The question of their joinder does not appear to have been considered by the Trustee or Mrs Young. On the other hand, it is clear that Mrs Young has been a vigorous contradictor of the Trustee’s contentions in relation to his claim for remuneration and reimbursement of expenses out of the Exempt Assets. In the circumstances, the Court will deal with the issues raised on the appeal on the basis that Mrs Young represented all persons interested in the Exempt Assets.

THE APPEAL

66    The substantive question in the appeal is whether the primary judge erred in concluding that the costs incurred by the Trustee in, and the Trustee’s remuneration in relation to, the care, preservation and realisation of, and the distribution of the proceeds of the realisation of, the Exempt Assets cannot be paid out of those proceeds. The second question is whether her Honour’s discretion miscarried in dealing with the costs of the two applications. It is convenient to deal with those questions separately.

The Trustee’s Remuneration and Expenses

67    A trustee has a right under the general law for reasonable reimbursement of costs and expenses and reasonable remuneration arising from his role as a trustee (see Wilson v Official Trustee in Bankruptcy [2000] FCA 1251 and Adsett v Berlouis (1992) 37 FCR 201 at 210). Under the general law, a trustee would also have a right to a lien over the trust assets to secure the payment of remuneration reasonably incurred in their preservation and realisation. Those taking the benefit of the administration of trust assets should not escape bearing the burden of the proper cost of the administration (see Shirlaw v Taylor (1991) 31 FCR 222 at 230).

68    Such a general equitable right of a trustee is not excluded by any provision of the Bankruptcy Act. Indeed, the principle underlying the general right is recognised by s 109(1)(a) of the Bankruptcy Act, which gives priority to the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee.

69    In principle, therefore, the Trustee has a general equitable right to be paid, out of the proceeds of the realisation of the Exempt Assets, reasonable remuneration and reimbursement of costs and expenses incurred in connection with that realisation. Further, as a matter of principle, the creditors of the estate of the Deceased should not be disadvantaged by having the costs and remuneration of the Trustee’s dealings with the Exempt Assets paid out of the divisible property.

70    Mrs Young contends that it is necessary for the Court to consider the Trustee’s conduct and, in the light of that conduct, to make findings as to whether the amounts claimed as expenses were properly incurred and whether to exercise the equitable jurisdiction to grant remuneration to the Trustee. Mrs Young contends that the following factors militate against the exercise of the Court’s discretion to grant equitable relief to the Trustee in the form of remuneration:

    the delay in bringing the Trustee’s Application;

    the fact that the Trustee did not pay to Mrs Young the balance of the proceeds of the MLC Policy, notwithstanding that he was advised to do so by his lawyer on 7 December 2006;

    the fact that, as at 10 October 2007, the Trustee had retained substantial sums representing the proceeds of realisation of the Exempt Assets;

    the fact that the Trustee sought, improperly, to leverage Mrs Young’s approval to his claimed remuneration of $16,000 and legal costs of $3,903;

    the fact that the legal costs were in fact $1,903 rather than $3,903;

    the fact that those legal costs were not payable out of the Exempt Assets;

    the failure of the Trustee to pay the undisputed amount into Court;

    the fact that, without any order of the Court, the Trustee improperly used Exempt Assets to pay at least $30,964 to his solicitor for legal costs in relation to the Trustee’s Application;

    the fact that the total of amounts shown in the Trustee’s timesheets for work allegedly carried out in respect of the non-divisible assets for the period 1 September 2006 to 30 April 2007 was only $3,567;

    the fact that the Trustee’s remuneration for the period 6 October 2006 to 30 September 2007, calculated in accordance with regulation 8.08, would be $1,969;

    the fact that the Trustee commenced unnecessary and elaborate proceedings in which he claimed to have earned remuneration from 1 September 2009 to 15 December 2009 of $31,836;

    the fact that in the proceeding before the primary judge, the Trustee conceded that there could not be a claim for remuneration for the period 1 May 2007 to 31 August 2009, yet now claims remuneration for that period;

    the fact that the Trustee has been paid $4,000 in respect of his claim for payment of $16,000 for remuneration; and

    the fact that, generally, a trustee is not entitled to remuneration and that the equitable jurisdiction to allow remuneration is exercised sparingly and in exceptional cases only.

71    In her notice of contention, Mrs Young asserted that the primary judge erred in a number of findings made in the course of her Honour’s reasons for the orders of 8 November 2011. The errors asserted in the notice of contention are as follows:

    finding that a cause of the delay in the proper administration of the estate of the Deceased was uncertainty as to the ability of Mrs Young to give a good discharge to the Trustee;

    finding that the evidence of Hall Chadwick writing off the fees of the Trustee in relation to the estate of the Deceased was limited to the evidence of Mr Mark Findlay;

    finding that the evidence in relation to the writing off of the fees of the Trustee was not sufficient to warrant an enquiry;

    failing to take into consideration the Trustee’s conduct towards the beneficiaries under the will of the Deceased when determining whether an enquiry under s 179 should be ordered;

    not finding that the Trustee had an obligation to pay the proceeds of the realisation of the Exempt Assets into the Supreme Court of New South Wales and not finding that the Trustee’s failure to do so constituted misconduct;

    finding that the Trustee acted reasonably in applying to the Federal Court for a determination as to the nature of the Exempt Assets and that the Trustee acted reasonably in applying to the Federal Court for a determination as to his costs, expenses and remuneration in relation to the Exempt Assets;

    finding that the Trustee, in all the circumstances, had any entitlement to costs, expenses and remuneration in relation to the Exempt Assets beyond the day when the Exempt Assets were realised by the Trustee; and

    finding that it was not appropriate, in all the circumstances, to determine the Trustee’s costs, expenses and remuneration in relation to the realisation of the Exempt Assets.

72    Mrs Young asserts that, if the Trustee’s remuneration for the work carried out for the period from 6 October 2006 to 10 October 2007 were to be calculated in accordance with reg 8.08, the amount of the remuneration would be $3,810.77. However, Mrs Young says, the claim for that period included work that was not related to the Exempt Assets. She says that, if the Trustee’s remuneration were to be calculated in accordance with reg 8.08, for the work allegedly carried out from 6 October 2006 to 10 October 2007 in relation to the Exempt Assets, the amount of remuneration would be $1,969.11. Mrs Young says that the Trustee should not have required her to pay to him any more than that amount when he wrote on 10 October 2007. She says that the fact that an excessive claim was made is a relevant consideration in deciding whether to exercise the Court’s equitable jurisdiction to allow remuneration to the Trustee.

73    In relation to the work carried out from July 2009, Mrs Young contends that the Trustee must establish that the making of the Trustee’s Application, and its prosecution, were necessary, in circumstances where the appropriate result could have been, and should have been, achieved by a much simpler and less expensive procedure. Mrs Young contends that, since the Trustee held the Exempt Assets as a trustee, he had an obligation to distribute the proceeds to the persons entitled to them. If he had any doubt about who was entitled, he could have, and should have, obtained advice from the Supreme Court of New South Wales under s 63 of the Trustee Act 1925 (NSW). If he was unable to reach agreement with Mrs Young as to his fees and legal costs, he should have retained that amount and paid the balance into the Supreme Court pursuant to s 95 of the Trustee Act, or into the Federal Court pursuant to a direction sought under s 134 of the Bankruptcy Act.

74    Mrs Young says that there was no need for the Trustee to involve himself in any work in relation to any of the Exempt Assets, other than making such an application to the Supreme Court or the Federal Court to pay the money into Court. She asserts that, during the hearing before the primary judge, the Trustee conceded that he should have remitted the funds to the Supreme Court, that there was inordinate delay by him and that he should simply have retained the sum of $19,903, and paid the rest to Mrs Young. She says that, if the Trustee had simply retained the sum of $19,903 and paid the balance to Mrs Young or alternatively into Court, no further work would have been necessary, unless there had been a challenge to his retention of the sum of $19,903.

75    Mrs Young contends that the Court should have particular regard to the Trustee’s conduct from the time of his appointment on 6 October 2006 until the end of the hearing before the primary judge of the interim application. She places considerable emphasis on the letter of 10 October 2007, in which the Trustee claimed to be entitled to deduct legal fees of $3,903. The legal fees were apparently charged to the Trustee by Parry Carroll for advice as to whether the proceeds of the MLC Policy were divisible amongst the creditors of the Deceased. That is to say, the Trustee sought legal advice as to whether he could pay the proceeds of the MLC Policy to the creditors. Mrs Young says that, in those circumstances, those legal fees were not payable from the non-divisible property. In any event, she says, the fees were actually only $1,903.

76    In her written submissions to the primary judge of 7 December 2010, Mrs Young asserted that the Trustee was continuing to hold the Exempt Assets “to leverage [her] approval of his claimed remuneration”. She asserted that, rather than paying the proceeds of the realisation of the Exempt Assets to her, or into Court, and having his remuneration claim determined by the Court, so as to bring his involvement to an end, the Trustee maintained his control over the Exempt Assets. The proceeds of the realisation of the Exempt Assets were only paid by the Trustee to Mrs Young following an order of the Court made on 14 December 2011 by another judge of the Court.

77    The obligations of the Trustee under the Bankruptcy Act extended only to the property of the Deceased that was divisible amongst his creditors. The non-divisible property of the Deceased did not come under the control of the Trustee, but should have been under the control of an executor or administrator, which would have been the case had a grant of probate or letters of administration been made. Since no grant had been made, the Trustee, in effect, undertook obligations that may have resided in the NSW Trustee. In those circumstances, the principles of the general law applied to his dealing with the Exempt Assets.

78    To the extent that the actions of the Trustee conferred a benefit on the beneficiaries of the Exempt Assets, he would, under the general law, be entitled to reimbursement of reasonable costs and expenses in doing so. In so far as some benefit was conferred on the beneficiaries, he may also be entitled to some reasonable remuneration for the work done by him in the care, preservation and realisation of the Exempt Assets and in the distribution of the proceeds of that realisation. Further, to the extent that the Trustee can demonstrate that work was done and costs were incurred in that regard, he may be entitled to a lien on the proceeds of that realisation for any expenses reasonably incurred and reasonable remuneration for the work done.

79    The Trustee also performed work and incurred expenses in relation to the property of the Chris Macryannis Family Trust. That was work that should have been undertaken by the legal personal representatives of the Deceased, had there been any. It is by no means clear when and how that work would have been performed if the Trustee had not undertaken it. To the extent that the beneficiaries of the Chris Macryannis Family Trust have derived a benefit from the work performed by and the expenses incurred by the Trustee, he would have the same rights in relation to that property.

80    It is clear from the Report that, by 15 June 2007, all of the Exempt Assets had been realised and the proceeds were held in an account in the name of the Trustee in the trust account of Hall Chadwick. The terms of the letter of 10 October 2007 make it clear that no further work was necessary after that time in relation to the care, preservation or realisation of the Exempt Assets, including the BWA Account. Accordingly, the Full Court indicated, in the course of the hearing of the appeal, that it was satisfied that no further work or expense was required in relation to the care, preservation or realisation of the Exempt Assets after 10 October 2007.

81    The Trustee is entitled to reimbursement of reasonable expenses reasonably incurred in the realisation of the Exempt Assets and is entitled to reasonable remuneration for the work done in connection with that realisation. The Bankruptcy Act would provide guidance as to the manner of determination of the remuneration that would be payable, or the reasonable costs and expenses that would be reimbursable, out of the proceeds of the realisation of the Exempt Assets. In relation to remuneration, the rates of remuneration contemplated under the Bankruptcy Act and the Regulations would be appropriate.

82    The further question is what, if any, further work was required in order to determine who was entitled to the proceeds of the realisation of the Exempt Assets. In the course of the hearing of the appeal, it became apparent that the submissions prepared on behalf of the parties did not adequately address the extent to which the remuneration and expenses and costs claimed by the Trustee could fairly be said to be related to the distribution of the Exempt Assets, as distinct from the care, preservation and realisation of the Exempt Assets. The Trustee was therefore directed to file further submissions setting out in detail, with appropriate references to the relevant parts of the appeal book, the basis upon which he contends that he is entitled to remuneration and indemnification in respect of work done and expenses incurred that are referrable to the distribution of the Exempt Assets.

83    The Court subsequently received further submissions from the Trustee and Mrs Young, as well as submissions in reply from the Trustee and submissions by way of rejoinder from Mrs Young. The further written submissions go well beyond what was contemplated by the direction. The direction was limited to work done and expenses incurred that are referrable to the distribution of the Exempt Assets. The only question was whether any further work was needed in order to determine to whom the proceeds of the realisation of the Exempt Assets should be distributed. The further submissions, however, deal in considerable detail with the work allegedly performed by the Trustee in identifying, receiving, maintaining and administering the Exempt Assets. The parties indicated that they were content for the Court to decide the appeal without any further oral submissions.

84    In his further written submissions, the Trustee identified the following types of conduct and tasks as conduct and tasks for which he claims he should be remunerated out of the Exempt Assets:

    Identifying, contacting and dealing with the parties holding the Exempt Assets.

    Receiving funds from the realisation of the Exempt Assets and banking the funds.

    Administering the bank account holding those funds and investing the funds.

    Administering Exempt Assets that were non-cash assets, being books and records of the business of the Deceased.

    Accounting for any income from these funds and preparing tax returns of that income.

    Dealing with Mrs Young and any other party claiming an interest in the Exempt Assets or in respect of the disbursement of any part of the Exempt Assets.

    Preparing, making and pursuing the Trustee’s Application, to the extent that it related to the investigation and determination of the status of any Exempt Assets, the entitlement to the Exempt Assets, and remuneration of the Trustee.

85    The Trustee claims that, for the period 6 October 2006 to 30 April 2007, the cost of the work involved in the care, preservation and realisation of the Exempt Assets was $6,948 and that the cost of that work from 1 May 2007 to 31 August 2009 was $8,648.25. It is unclear how those amounts are to be reconciled with the claim for $19,903 made in the letter of 10 October 2007. In addition, the Trustee claims that the cost of the work from 6 September 2009 to 9 December 2009 was $31,836. The majority of the time charged for that last period related to the preparation of the Trustee’s Application. Thus, the total amount now claimed by the Trustee is $47,432 made up as follows:

6 October 2006 to 30 April 2007             $6,948

1 May 2007 to 31 August 2009             $8,648

1 September 2009 to 9 December 2009        $31,836

Total                            $47,432

86    The Trustee’s timesheets, which recorded all the work allegedly done by him and his staff in relation to the non-divisible assets, amounted to $6,948 for the period 6 October 2006 to 30 April 2007. During the course of oral submissions to the primary judge, counsel for the Trustee said that he made no claim for remuneration for the period 1 May 2007 to 31 August 2009, since no relevant work had been carried out during that period. In circumstances where the Trustee claims the sum of $6,948 for the work involved in the realisation and getting in of the Exempt Assets up to 30 April 2007, it is difficult to see what justification there was for costs totalling $19,903 up to 10 October 2007. While some work may have been done after 30 April 2007 up to 10 October 2007, it is not possible from the material before the Court to conclude that any work was actually attributable to realising the Exempt Assets.

87    In the light of the Trustee’s letter of 10 October 2007, it is puzzling why the Trustee thought that further steps needed to be taken in order to determine to whom the proceeds of the realisation of the Exempt Assets should be paid. Certainly, at that stage, no order had been made by the Supreme Court as was subsequently made on 1 November 2010. However, the Trustee, in his letter of 10 October 2007, indicated that he was prepared to pay the proceeds to Mrs Young, subject to deduction of the sum of $19,903 for his costs and remuneration. It is not clear whether, at that stage, the Trustee had seen the Copy Will that was the subject of the orders of the Supreme Court of 1 November 2010.

88    On the other hand, it would have been somewhat foolhardy for the Trustee to part with the proceeds of realisation of the Exempt Assets without some formal determination as to the entitlement of the recipient. There had at that stage been no grant of probate to Mrs Young. She was, at that time, not entitled to receive the proceeds. Indeed, the primary judge found that the Trustee was justified in commencing a proceeding to determine the persons entitled to the proceeds of the realisation of the Exempt Assets. Further, the considerations to which Mrs Young adverts are not such as to deprive the trustee of any right to remuneration or reimbursement of expenses to which he would otherwise be entitled.

89    In the circumstances, the Trustee is entitled to be paid, out of the proceeds of the realisation of the Exempt Assets, his reasonable costs and expenses in relation to the Trustee’s Application, in so far as it claimed determination of the question as to the persons entitled to distribution of the proceeds, but not otherwise. He is also entitled to reasonable remuneration for the work done by him in that regard. The rates of remuneration contemplated under the Bankruptcy Act and the Regulations would be appropriate.

Costs of the Two Applications

90    In her reasons for making the order on 2 March 2012, the primary judge observed that, although there were two separate applications, being the Trustee’s Application and Mrs Young’s Application, they were closely connected. Her Honour considered that it would be artificial to award costs in respect of the separate applications and, for that reason, proposed to treat them as one, for the purpose of determining costs. Her Honour said that, in her earlier reasons, she had made clear that, while she had serious reservations about some aspects of the Trustee’s discharge of his obligations as Trustee, she did not think that an enquiry under s 179 of the Bankruptcy Act would be of utility or that it would be in the interests of the orderly administration of the Deceased’s estate. While her Honour observed, in her earlier reasons, that there remained little to do to finalise the administration, that conclusion did not reflect a rejection of all of the complaints by Mrs Young about the Trustee.

91    The primary judge said that she did not doubt that, had the Trustee behaved in a professional manner, the litigation might well have been avoided or considerably shortened. Her Honour therefore considered that it was appropriate that the Trustee’s conduct be taken into account in considering the question of costs. On the other hand, her Honour observed that that was not to deny that Mrs Young also had some responsibility “for the debacle” surrounding the administration of the estate of the Deceased. Her Honour confirmed that her earlier reasons explained why the issue could have been dealt with more simply and with more expedition by following the statutory procedure that was outlined in the earlier reasons.

92    The primary judge considered that there was some merit in the cases of both the Trustee and Mrs Young. Her Honour said that it was clear from her earlier reasons that there was fault, delay and confusion on each side although, in her view, the greater fault lay with the Trustee, despite his having, perhaps, greater success in the two proceedings. She observed that, while it is rare for a successful litigant to be denied costs, it is not unprecedented, and concluded that the just result was that the Court make no order as to the costs, the intent being that each of the Trustee and Mrs Young bear his or her own costs.

93    The Trustee had filed an application to set aside subpoenas and a notice to produce issued by Mrs Young in connection with the Trustee’s Application. The primary judge heard the application and the Trustee was apparently totally successful. The Trustee says that, in the circumstances, the primary judge should have ordered costs of that application in favour of the Trustee. The primary judge does not appear to have given any reasons for not making an order for the costs of the application. Indeed, there is nothing to suggest that the Trustee asked for an order for costs. In those circumstances, it is not possible to find that there was any error on the part of the part of the primary judge.

94    The Trustee contends that Mrs Young should have been ordered to pay the costs of Mrs Young’s Application, because the parts of that proceeding that were contested were unsuccessful. He contends that Mrs Young’s Application and the remuneration component of the Trustee’s Application were separate, and should not have been treated as one application for the purpose of costs. The two applications were filed nearly 6 months apart and were heard over different days and involved different evidence.

95    The Trustee also contends that the Trustee’s Application is one that would ordinarily result in an order that the costs be paid from the fund to which the application relates, unless the application is one that should not have been brought. He says that, having regard to the observations made by the primary judge, that the Trustee’s Application was justified, he should not be left personally responsible for those costs. Her Honour observed in her reasons of 8 November 2011 that, in so far as it is suggested that the Trustee should have paid the proceeds of realisation of the Exempt Assets into Court, the basis on which the Court was requested to receive and hold funds and the terms on which it would do so must be established. Her Honour said that the correct approach was for a party such as the Trustee to apply to the Court for an appropriate order and that that is what the Trustee had done by the Trustee’s Application. Her Honour said that the fact that the Trustee also applied for orders in respect of his remuneration did not detract from that.

96    The Trustee complains specifically about the following parts of the reasons of the primary judge:

    the declaration that Mrs Young was successful in her application concerning payment of the exempt assets;

    the finding that the Trustee’s behaviour was unprofessional, which extended beyond his dealings with Mrs Young to his relations to the children of the Deceased and Mr Findlay; and

    the finding that the greater fault lay with the Trustee.

97    The determination on costs made by the primary judge effectively penalises the unsecured creditors of the Deceased, since the costs associated with realising the Exempt Assets and making the Trustee’s Application in respect of Exempt Assets will be borne by the unsecured creditors. The Trustee also contends that, as he is liable for the costs, the determination penalises him personally, in circumstances where:

    he made the application to the Court in order to comply with a direction of ITSA to pay monies into Court;

    the application was necessary in all the circumstances because there was no properly signed will of the Deceased, there had been no grant of probate or letters of administration and there was no trustee of the Chris Macryannis Family Trust;

    when the Trustee attempted to reach a settlement for the Court’s approval, the Court was not prepared to do so because of Mrs Young’s failure to regularise matters; and

    Mrs Young did not obtain declarations in relation to the will until 1 November 2010 and did not notify the Trustee until 3 November 2010.

98    Mrs Young contends that, by reason of the Trustee’s conduct, he should not be awarded costs of her Application and should not be entitled to any indemnity, in respect of his costs, from the proceeds of the realisation of the Exempt Assets. Mrs Young says that, having regard to the issues concerning delay and the genuineness of the Trustee’s actions, his conduct effectively disentitles him even to the extent that he was successful.

99    In any event, Mrs Young says, she was not totally unsuccessful. The primary judge made adverse findings against the Trustee. Her Honour did not find that an enquiry was unwarranted but that it would be of little utility in the circumstances, where alternative means existed for investigation. Her Honour’s conclusion that further enquiry was warranted was of utility in furthering the relevant enquiries and ensuring that the Inspector-General fully investigates the Trustee’s conduct. One of the orders made by her Honour on 8 November 2011 was that the Registrar forward to the Inspector-General in bankruptcy a copy of her Honour’s reasons, drawing attention to her comments that there was an issue to be explored concerning the Trustee’s suitability to continue to be registered as a trustee under the Bankruptcy Act.

100    Mrs Young supports the conclusion by the primary judge that the Trustee’s Application and Mrs Young’s Application were not totally distinguishable and that there was a significant portion of common evidence. In relation to Mrs Young’s Application, Mrs Young achieved a measure of success, notwithstanding that the primary judge did not order an enquiry under s 179 of the Bankruptcy Act. In the circumstances, there was no error on the part of her Honour in the exercise of the discretion as to the costs of Mrs Young’s Application.

101    The Trustee is entitled to some remuneration and reimbursement of some costs and expenses out of the proceeds of the realisation of the Exempt Assets. In that regard, the primary judge erred in concluding that the Trustee is not entitled to remuneration or reimbursement out of the Exempt Assets. That, however, is a different question from the question as to whether Mrs Young should be ordered to pay the Trustee’s costs of the Trustee’s Application.

102    Mrs Young has failed to obtain a grant of probate of the will of the Deceased, so as to have standing to deal with the Exempt Assets. Accordingly, if Mrs Young were ordered to pay the Trustee’s costs, further questions could arise as to whether she would be entitled to an indemnity from the Exempt Assets in respect of the costs ordered against her. In the circumstances, the decision of the primary judge, that there be no order as to the costs of the Trustee’s Application, should not be disturbed.

CONCLUSION

103    The appeal should be upheld in part. Orders 4, 5 and 8 made on 8 November 2011 should be varied as follows:

    In order 4, the words “and without deduction for costs, expenses or remuneration whether or not previously deducted” should be deleted and replaced with the words “after deducting costs and expenses and remuneration determined in accordance with order 7”.

    In order 5, the word “otherwise” should be inserted before the word “dismissed”.

    In order 8, the words “only out of the divisible assets of the bankrupt estate of the late Christopher John Macryannis” should be deleted and replaced with the words “out of the Exempt Assets”.

The assets of the Chris Macryannis Family Trust should be treated as Exempt Assets for the purpose of those orders. In addition, there should be a declaration that the costs incurred by the Trustee and remuneration payable to the Trustee in relation to the Exempt Assets include remuneration and costs in relation to the Trustee’s Application, in so far as the Trustee’s Application related to determining the persons entitled to distribution of the proceeds of the realisation of the Exempt Assets, but not otherwise. No question has been raised as to the Trustee’s entitlement to be reimbursed his costs of the appeal from the Exempt Assets.

104    The Trustee has been partially successful in the appeal. An appropriate order would be for Mrs Young to pay 50 per cent of his costs of the appeal. The costs should not include the costs of the further submissions filed after the conclusion of the oral hearing of the appeal.

105    The Trustee should be directed to bring in short minutes of proposed orders to give effect to the above conclusions.

Associate:

Dated:    24 September 2012