Spatt v Benson; Benson v Spatt

Nathan Spatt (the “deceased”) died on 11 July 2015, leaving an estate with a sworn value of approximately $23 million (the “estate”). A significant amount of that value is represented by shares in three private companies (the “Companies”). Pursuant to his will (the “Will”), the residuary estate was to be divided equally between his widow, Julie Merle Spatt, and his grandchildren Joel Spatt, Jesse Spatt and Julie Dorothy Spatt. The executors under the Will were Mr Michael William Benson, who was the deceased’s longstanding accountant but – importantly – not a beneficiary under the Will, and Joel Spatt. Without any disrespect, I shall refer to the family members by their given names, with Julie Merle Spatt being referred to as Julie Senior.

A dispute broke out among the residuary beneficiaries as to the administration of the Will. Joel commenced proceedings 2017/245068 to remove Mr Benson as an executor (the “Removal Proceedings”). Mr Benson commenced proceedings 2017/356484 (the “Judicial Advice Proceedings”) for judicial advice as to whether he was justified in defending the Removal Proceedings. Julie Senior has sided with Mr Benson, including providing him with an indemnity for his costs of these proceedings. Jesse and Julie have aligned themselves with their brother Joel.

The Judicial Advice Proceedings came before me for hearing in late 2017. Since then the Court has conducted a number of hearings intended to focus the parties on the real issues in dispute between them concerning the administration of the Will. To their credit, the parties have managed, although not without controversy, to agree on steps which have led to the estate having been substantially (but not yet completely) administered.

The point has been reached where the parties agree that both the Removal Proceedings and the Judicial Advice Proceedings should be brought to an end. The remaining argument between them, which is the subject of these reasons, is how that should be done (dismissal or discontinuance) and how the costs should be borne.

The parties have settled their disputes and neither the Removal Proceedings nor the Judicial Advice Proceedings has been dealt with on the merits. In those circumstances, the Court has determined that Joel should be given leave to discontinue the Removal Proceedings and that the Judicial Advice Proceedings should be dismissed. No sufficient reason has been demonstrated why the usual course in relation to an executor should not be followed, with the result that Mr Benson is entitled to be indemnified for his costs of these proceedings out of the estate on the indemnity basis. With one exception, the Court makes no other order as to costs with the intention that each party should bear their own costs. The exception is that the parties to the Administration Motions (see paragraph [55] below) should each have their costs paid out of the estate on the indemnity basis.

Mr L Ellison of Senior Counsel appeared with Mr B Narula of Counsel for Joel, Mr P T Russell of Counsel appeared for Mr Benson, Mr S B Docker of Counsel appeared for Julie Senior, and Ms C McPhillips, Solicitor, appeared for Jesse and Julie. While both Jesse and Julie have made submissions, neither of them is a party to either set of proceedings, although they were respondents to one of the Administration Motions.

The deceased died on 11 July 2015.

Mr Benson and Joel were nominated as the co-executors of the estate under the Will. Mr Benson was the longstanding accountant of the deceased, and Joel is one of the deceased’s grandchildren. Mr Benson is not a beneficiary under the Will. In these reasons, the phrase “the beneficiaries” refers to Joel, Jesse and Julie, and not Julie Senior, unless expressed otherwise.

The deceased left to Julie Senior two properties valued at $2,200,000 and $1,330,000, and an indexed legacy of $2,000,000. Maurice, who is the deceased’s son and is not involved in these proceedings, was left $750,000. Joel, Jesse and Julie were each left $1,000,000. All of the specific gifts under the Will have been distributed.

The residuary estate was left to Julie Senior, Joel, Jesse and Julie. This included all of the issued shares in the Companies. The beneficiaries proposed that these shares were to be transferred in specie to the beneficiaries of the residuary estate. The Companies were investment vehicles comprising cash and investments. Mr Benson and Julie Senior were the sole directors of the Companies after the death of the deceased.

On 5 August 2015, Joel noted in correspondence to Mr Benson that “it would be prudent that I be appointed as director of” the Companies “in my joint capacity as executor and trustee of the estate with you, as ultimately the estate is now the 100% shareholder in the Companies”.

On 13 August 2015, Mr Benson replied the “three Companies are an entirely different matter and don’t form part of the estate”.

On 21 August 2015, approximately one month after the death of the deceased and prior to the grant of probate, the executors advised the beneficiaries that “until Probate has been granted nothing will be happening with the estate”. Moreover, the beneficiaries were informed that the three Companies “will remain static as far as possible and the only transactions to occur will be those of an unavoidable nature” and “will be approved by Joel Spatt and Michael Benson”.

On 10 September 2015, a similar letter was sent by Joel and Mr Benson to Jesse:

Despite the above correspondence, on or about 11 September 2015, Mr Benson invested the sum of $150,066 in the estate’s name with Langley Finance Pty Ltd.

On 18 September 2015, Mr Benson and Julie Senior invested $250,000 with Alceon Secured Debt Fund.

Probate was granted on 23 November 2015.

On 31 March 2016, Jesse requested an update on the administration of the estate. Joel forwarded the message to Mr Benson saying, inter alia:

Mr Benson replied to Joel:

On 11 November 2016, an email was sent from Jesse to both of the executors which included:

On 23 February 2017, there was a meeting between the executors and the residuary beneficiaries. At this meeting, it was decided that subject to advice from KPMG, the beneficiaries wanted the shares in the Companies to be distributed to them in specie. This arrangement was confirmed in a series of emails between the parties.

In May 2017, Joel retained his lawyers, Legacy Law, and both Jesse and Julie retained Ms McPhillips.

In June 2017, Mr Benson retained Ashurst as his legal representative.

On 24 July 2017, before any proceedings were commenced, Ashurst wrote to the beneficiaries:

On 11 August 2017, by statement of claim, Joel commenced the Removal Proceedings against Mr Benson, seeking orders to have Mr Benson removed as the executor of the estate. Those proceedings also sought to have Mr Benson pay Joel’s costs on the indemnity basis, and pay his own costs, without recourse to the estate.

The primary complaint in the Removal Proceedings was that Mr Benson had failed to transfer the estate’s shares in the Companies to the beneficiaries of the residuary estate in specie pursuant to the Will. The reason this did not happen is because Julie Senior did not want to receive the shares in the Companies and become a minority shareholder. Instead, Julie Senior sought to receive her quarter of the residuary estate in cash. Julie Senior was joined as the second defendant in the Removal Proceedings. Joel also complained that he had not been given access to the financial records of the Companies and that Mr Benson had failed to provide financial and other information to the beneficiaries.

On 6 September 2017, Ashurst sent a letter to the beneficiaries articulating the issue concerning the shares:

This proposal by Mr Benson was ignored or rejected by the other beneficiaries of the residuary estate.

On 6 October 2017, Ashurst sent further correspondence to the beneficiaries relating to the construction of the Will:

The beneficiaries did not take up the invitation to approach Senior Counsel or the Court for advice.

Another letter dated 6 November 2017 was sent to the beneficiaries saying that they had failed to explain:

On 10 November 2017, a reply was sent to Mr Benson’s legal representatives, which included:

This letter provided no suggestion that the beneficiaries were willing to compromise and give Julie Senior her share of the residuary estate in cash as she had requested, rather than the shares in specie.

On 24 November 2017, Mr Benson commenced the Judicial Advice Proceedings to obtain judicial advice about whether he would be justified in defending the Removal Proceedings.

At a directions hearing for the Judicial Advice Proceedings before me on 6 December 2017, I asked what the basis was for the removal application. Mr Ellison SC, who appeared for Joel, replied (T4:18-24)

On 11 January 2018, Julie Senior entered into a deed of indemnity with Mr Benson. Under this agreement, Mr Benson was indemnified for all his legal costs concerning both the Removal Proceedings and the Judicial Advice Proceedings, including indemnifying Mr Benson against any adverse costs orders.

On 26 February 2018, I stayed both the Removal Proceedings and the Judicial Advice Proceedings, so what appeared to be the real matter in dispute could be addressed, being the construction of the Will and the administration of the estate. No party opposed those orders being made.

Also on 26 February 2018 the legal representatives of Joel informed the legal representatives for Mr Benson that they were content to allow Julie Senior to be paid out of her share of the residuary estate in cash. This arrangement is noted in paragraph [41] below, whereby pursuant to consent orders dated 16 March 2018, it was agreed that Julie Senior’s share of the residuary estate would be paid out in cash.

On 2 March 2018, Joel commenced another set of proceedings, 2018/68933 (the “Construction Proceedings”), which sought to determine the construction of the Will. In those proceedings, Mr Benson was the first defendant, Julie Senior was the second defendant, Jesse was the third defendant and Julie was the fourth defendant.

On 8 March 2018, Julie Senior filed a cross-claim in the Construction Proceedings.

On 16 March 2018, the Construction Proceedings were finalised by these consent orders:

Despite the Construction Proceedings, and therefore what the Court had been told was the main issue of contention between the parties, being resolved, both the Removal Proceedings and the Judicial Advice Proceedings continued.

On 19 March 2018, Mr Benson emailed Joel, following the making of the consent orders on 16 March 2018. He said:

This meeting came to nothing and again there was no progress in the administration of the estate.

On 2 May 2018, I ordered the parties to participate in a mediation, “the subject matter of the mediation to be the identification, and to the extent possible, agreement of what steps are required to be taken to administer the Estate.”

Mediation occurred on 31 May 2018 and 3 August 2018 with the assistance of the Hon Keith Mason AC QC. Although the main issue in dispute had been resolved by the consent orders of 16 March 2018, the parties were still unable to agree on the further steps necessary to administer the estate.

At the first mediation, it was agreed that Joel would have access to the books and records of the estate and the Companies, to make copies of those records and documents. It was also agreed that Joel’s costs of reviewing those documents were to be borne by the estate up to a limit of $50,000.

Joel subsequently engaged KPMG to carry out a review of the books and records of the Companies and the estate.

In mid-2018, prior to the second mediation, KPMG prepared a report of its investigations. In accordance with the agreement, the estate paid $50,000 towards KPMG’s fees for preparing the report. No additional allegations emerged against Mr Benson as a result of KPMG’s review.

On 8 August 2018 a letter was sent by Joel’s legal representatives to Mr Benson. It requested that Mr Benson be removed as accountant of the estate and the Companies, and that KPMG replace him. The letter specifically requested:

On 20 August 2018, Mr Benson’s legal representatives replied to the letter in the preceding paragraph. They stated, inter alia, why Mr Benson could not agree to be removed as executor of the Will. They also outlined why the distribution of the residuary estate had gone for so long:

Following the resolution of the Construction Proceedings, on 22 August 2018 the matter was before me again for a directions hearing in relation to the Removal Proceedings and the Judicial Advice Proceedings. At this hearing, Mr Ellison SC submitted for Joel (T6:28-32;T7:20-22) (emphasis added)

Directions were then made for the filing by 14 September 2018 of notices of motion in both the Removal Proceedings and the Judicial Advice Proceedings for any application to dispose of the proceedings. I also invited the parties to exchange what I described as draft notices of motion in relation to what each party contended should be the next steps in the administration of the estate.

In response to those directions, on 14 September 2018 Mr Benson filed two notices of motion, one in each of the Removal Proceedings and the Judicial Advice Proceedings, which sought to have both sets of proceedings dismissed. The notice of motion in relation to the Removal Proceedings sought to have Mr Benson’s costs of and incidental to the notice of motion and the Removal Proceedings be paid out of the estate on the indemnity basis. Similarly, the notice of motion in the Judicial Advice Proceedings also sought to have Mr Benson’s costs paid out of the estate on the indemnity basis.

On 17 September 2018, Julie Senior filed a draft notice of motion. On 21 September 2018, Joel filed an amended notice of motion. Both of these motions (the “Administration Motions”) sought orders in relation to the administration of the estate. While filed in the Removal Proceedings, they were unrelated to the Removal Proceedings, which were stayed at the time.

On 21 September 2018, all of the notices of motion which had been filed, being both Administration Motions and those of Mr Benson in both the Removal Proceedings and Judicial Advice Proceedings were set down for hearing on 19 October 2018.

The parties were able to agree on the further administration of the estate. On 19 October 2018, the Court made a series of detailed orders by consent which included:

By consent, the proceedings were stood over on two occasions to enable the administration of the estate to be carried out.

On 9 April 2019, I made directions in both the Removal Proceedings and the Judicial Advice Proceedings that Mr Benson’s notices of motion of 14 September 2018 were to be heard on 30 August 2019.

On 23 August 2019, Joel’s solicitors served two additional notices of motion. The first was in relation to the Removal Proceedings, seeking to discontinue the proceedings and the second sought the dismissal of the Judicial Advice Proceedings on the basis that the Removal Proceedings were dismissed. Both notices of motion also seek various orders as to costs, in essence that Mr Benson should pay his own costs and pay Joel’s costs on the indemnity basis, both without recourse to the estate.

Mr Benson’s “best estimate” of the costs he has incurred to date from both sets of proceedings is $750,000. However, it is likely the accurate figure is higher.

The issues around the administration of the estate have been resolved by the parties, and the parties and their legal representatives are to be congratulated for being able to do so. The subject of argument before me was how the proceedings were to be disposed of and the costs consequences. The formal framework for that debate was provided by Mr Benson’s two motions of 14 September 2018 (see paragraph [54] above), Joel’s motions of 23 August 2019 (see paragraph [60] above) and the costs of the Administration Motions (see paragraph 57(5) above).

While the starting point for costs is that costs follow the event, rules 42.19 and 42.20 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) deal with proceedings that are not resolved by a final hearing:

In McNamara v San [2010] NSWSC 809 at [12] Hallen AsJ (as his Honour was then) set out the following principles in respect of UCPR r 42.20:

Furthermore, UCPR r 42.25 provides:

In Bovaird v Frost [2009] NSWSC 917, Brereton J (as his Honour then was), considered UCPR r 42.25 and said at [28]-[29]:

Section 59 of the Trustee Act 1925 (NSW) provides, noting especially s 59(4):

In Nobarani v Mariconte [No 2] [2018] HCA 49; (2018) 360 ALR 390, (“Nobarani”) the High Court held, per Kiefel CJ, Gageler, Nettle, Gordon and Edleman JJ at [2]-[3],

Joel, Jesse and Julie drew attention the oft-cited passage from the judgment of McHugh J in Re Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624 (“Lai Qin”) (emphases added; citations omitted):

The recent decision of Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84; (2018) 97 NSWLR 681 (“Nichols”) also considered the question of costs. At [2] and [8], Basten JA said:

In Nichols, Payne JA (with whom Meagher JA agreed) also noted (at [47]):

Mr Benson submitted only that he should be indemnified for his costs in relation to both the Removal Proceedings and the Judicial Advice Proceedings out of the estate of the deceased. He sought no costs orders against other parties.

Mr Benson’s submissions can be summarised as:

Joel and the other beneficiaries, Jesse and Julie, are strongly opposed to Mr Benson receiving his costs on the indemnity basis out of the estate of the deceased. Instead, Joel submits Mr Benson should pay his own costs. Additionally, Joel seeks an order that Mr Benson pay his (Joel’s) costs on the indemnity basis, without having recourse to the estate of the deceased. In the alternative, Joel submits that there should be no order as to costs. Additionally, Joel submits that no order as to costs should be made concerning Julie Senior, with the intent that she bear her own costs.

Joel’s submissions can be summarised as:

Julie Senior supported Mr Benson in both his notices of motion, namely that both sets of proceedings should be dismissed, and Mr Benson should be entitled to have his costs paid on the indemnity basis either by the estate, or by Joel. To date, Julie Senior has indemnified Mr Benson, so an order as to Mr Benson’s costs would effectively enable Mr Benson to reimburse Julie Senior.

Julie Senior’s submissions can be summarised as:

Jesse and Julie, while not joined to either of the proceedings as parties, have made submissions to the Court. They were parties to one of the Administration Motions. They support the position of Joel in the proceedings, and oppose the estate bearing any costs as sought by Mr Benson. If the Court sees fit to grant Mr Benson’s costs, they submit that those costs should be capped, having regard to Mr Benson’s behaviour and the circumstances.

In their submissions, they noted that the estate has already paid legal costs for the parties amounting to $126,989.75, and $169,400 for the fees owing to KPMG.

It was also submitted that given the indemnity Julie Senior provided to Mr Benson, he was able to act with some impunity towards the other beneficiaries.

Jesse and Julie support Joel’s argument that he was justified in commencing the Removal Proceedings after he had:

Both Jesse and Julie accept that had Joel been authorised to complete the investigation of the assets of the Companies, it is likely that neither the Construction Proceedings, nor those parts of the relief sought in the Removal Proceedings relating to the transfer of shares, would have been required. As such, it was Mr Benson’s unreasonable behaviour which resulted in the costs of the matter escalating.

Given the advanced state of the distribution of the estate, there is no utility in the Removal Proceedings continuing, not least since Joel ceased to press for that relief (see paragraph [52] above). No party has submitted anything to the contrary. Because the proceedings were commenced by Joel, the Court will grant him leave to discontinue the Removal Proceedings. In doing so I have not overlooked Mr Benson’s submission that dismissal of the Removal Proceedings would be preferable because it would offer some reassurance that Joel will not commence fresh proceedings. I do not regard that as a relevant consideration given the estate has been substantially administered. As will be apparent from what follows, the Court will otherwise order for the purposes of UCPR r 42.19 with the intention that all parties other than Mr Benson should pay their own costs.

There was unanimity that once the Removal Proceedings were ended, by whatever form of order, the Judicial Advice Proceedings should be dismissed. The Court will make that order.

The Court has determined that Mr Benson’s costs in relation to both the Removal Proceedings and the Judicial Advice Proceedings should be paid out of the estate on the indemnity basis. The legal principles in relation to the usual entitlement of trustees to indemnification from the fund are clear and set out in paragraphs [65] to [68] above. Those principles should not be departed from unless sufficient grounds are established. I am not satisfied that any such grounds have been established. Mr Benson’s costs have been incurred in his capacity as executor. Nor has the Court been provided with any evidence – as opposed to assertion – that the amount of costs he has incurred is unreasonable so as to provide a proper basis on which to reduce them or cap them.

Noting that the proceedings have been resolved without a hearing on the merits, and while I accept that Joel acted reasonably to commence the proceedings, I am not satisfied the Removal Proceedings would necessarily, or even likely, have ended in Mr Benson’s removal. Mr Benson acted reasonably to defend them and to bring the Judicial Advice Proceedings. As the executor of the estate, he is entitled to have his costs associated with those claims paid out of the estate and on the indemnity basis.

Thereafter, having closely case managed the proceedings, I am satisfied that overall the parties continued to behave reasonably in the conduct of the proceedings until their further prosecution became futile such that, as McHugh J said in Lai Qin (see paragraph [69] above), “the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings”. That will be the result in these proceedings, with the only exception being Mr Benson’s indemnity from the estate because of his status as an executor.

I accept Mr Benson’s submission that the Court should not make any substantive findings of fact, or speculate upon any likely outcome of either set of proceedings, in relation to the conduct of the parties, because that would be to do exactly what McHugh J says in Lai Qin the Court should not do, and most recently articulated by the Court of Appeal in Nichols as set out in paragraphs [70]-[71] above. This consideration applies with particular force to the numerous matters which the beneficiaries have sought to raise concerning Mr Benson’s conduct (see, for example, paragraph [75(1)] above) which go well beyond the limited issues raised in the Removal Proceedings (see paragraph [26] above) that were resolved by the parties. To attempt to consider and make findings on such additional matters in the context of what has been an argument as to costs and where there is no cross-examination of the parties, would deny procedural fairness to Mr Benson, would be the equivalent of conducting a hearing on the merits without all of the evidence, and would be inimical to the just, quick and cheap resolution of the remaining issues in dispute.

Notwithstanding that he was a co-executor, Joel’s position in the litigation was adversarial to both Mr Benson and Julie Senior. In addition to applying Lai Qin (see paragraph [69] above), I respectfully adopt the observation of Basten JA in Nichols (see paragraph [70] above) that because the substantive matters have settled prior to hearing, there is no event for costs to follow. Consequently, there is no successful party who is entitled to have their costs paid by the opposing side. As such, the Court will make no order as to the costs of Joel and Julie Senior, with the intent that each pays his or her own costs.

The costs incurred by any party in relation to the Administration Motions should be borne by the estate on the indemnity basis.

While the starting point for costs is that costs follow the event, this is not always the case. If proceedings are commenced, and the parties’ participation in those proceedings are for the benefit of the estate, then the costs of the trustees and participating beneficiaries are to be paid out of the estate of the deceased: Murdocca v Murdocca (No 2) [2002] NSWSC 505 at [71]-[78].

The Court invited the Administration Motions to crystallise the issues in relation to the administration of the estate. The motions were for the benefit of the estate and as such, the costs of Mr Benson, Joel, Julie, Jesse and Julie Senior in relation to those motions should be paid out of the estate on the indemnity basis.

The parties will be given an opportunity to bring in short minutes to give effect to these reasons.