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The disgruntled beneficiary and the executor’s lawyer

March 15th, 2009 · 4 Comments

Imagine this.  A beneficiary thinks a trustee is diminshing the trust estate by spending too much on lawyers. They have no standing to seek a taxation of the trustee’s solicitor’s bill, and the trustee’s solicitor’s file is unavailable to them by virtue of legal professional privilege enjoyed by the trustee.  The beneficiary has no contractual or equitable relationship with the solicitor.  You might think they’re rooted.  But you would be wrong, for the beneficiary may apply to VCAT’s Legal Practice List for an order that the solicitor pay to the disgruntled beneficiary that beneficiary’s share of so much of the fees properly and reasonably charged by the solicitor on instructions as represents the difference between what a reasonable trustee would have spent and what the trustee, perhaps over-anxious by disposition, in fact spent.  So says VCAT’s Legal Practice List’s decision in Sinni v DO [2009] VCAT 135.  I should disclose that I appeared in a directions hearing in this matter.

The Legal Profession Act, 2004 gives standing to beneficiaries of trusts and deceased estates to bring ‘costs disputes’ (a form of ‘civil complaint’) to the office of the Legal Services Commissioner, and from there to VCAT.  But what will rock every commercial lawyer in the land is VCAT’s construction of the Act so as to give it a power to order the innocent solicitor to pay fees properly written for work of unquestioned quality, but required by an over-anxious trustee, and received by him in good faith, to the disgruntled beneficiary, leaving the over-anxious trustee unaffected.  It is a rare example of a remedy without a wrong.  In fact, can anyone think of another example of a remedy without a wrong in the law?  Assuming that they are all reading either my blog or Austlii, disgruntled beneficiaries are sure to start using this jurisdiction as leverage in intra-beneficiary disputes, and beneficiary-trustee disputes. Happily, the jurisdiction exists only where the legal costs do not exceed $25,000, but lawyers acting for a trustee or executor of a deceased estate might consider including an indemnity by the trustee in favour of the lawyer in case of a suit of this kind being brought against them.

The applicant Sinni’s success was the more remarkable in that she sought to establish her case without access to most of the solicitor’s file, which remained hidden behind legal professional privilege enjoyed by the solicitor’s client, the executor.

The applicant and her brother did not get along.  Their parents left everything to them equally. The brother was named executor in the will.  The solicitor acted for the brother in his capacity as executor.  The executor took advice about disputes with the applicant in relation to the estates.  The solicitor sent the executor bills, and the executor paid them out of the estates of the parents.  The legal fees diminished the amount available for distribution to the beneficiaries.  In one sense, every dollar billed by the solicitor and paid by the executor out of the estate resulted in the applicant getting 50c less than she otherwise would have. That assumes that the legal services resulted in no benefit to the value of the estate, only a drain.  If the solicitor had repeatedly advised against litigation, the costs of which would have been borne by the estate, and then succesfully avoided it by being a diligent and canny solicitor and arranging a compromise, then every dollar spent giving that advice actually increased the amount which would otherwise be payable from the estate to each beneficiary.  Nevertheless, the roadmap to VCAT’s decision is in this paragraph:

‘[The applicant] has paid half of the costs charged by [the solicitor], in an indirect way, because the tax invoices were paid by the estates prior to the estates being distributed equally between [her brother] and [her].  I am satisfied that [the applicant] should not be required to contribute to some of those costs.’

There was no criticism of the solicitor’s work, and no suggestion that he overcharged.  Indeed, the solicitor withstood his 6 hour cross-examination well, being described as ‘an impressive witness’ who was was not disbelieved in any respect.  It is apparent that by this arduous cross-examination, VCAT allowed to occur a quasi-taxation at the suit of an applicant who had no standing to seek a real taxation.  VCAT’s reasoning went as follows:

’32 [The brother] in his capacity as executor is entitled to seek advice in relation to the administration of the estates.  In this matter, that advice almost certainly extends to the way in which he should respond as executor to complaints made by [the applicant] about the way in which the estates are being administered.  [The brother] is entitled to have reasonable costs of necessary advice paid by the estates, but he is not entitled to seek excessive advice and assistance from [the solicitor] and to have [his sister, the applicant] pay for half of the excess.’

It is this last sentence which reinforces my impression that there is not intended to be any finding in this matter that the solicitor did anything wrong.  Excessive legal services do not seem to have been provided as a result of over zealousness or rapacity on the part of the solicitor; rather it seems to be suggested that they were provided as a result of over-anxious requests by the executor.  This sounds like the beginning of a new regime whereby the executor is entitled to pay out of the estate something akin to his party-party costs but bear personally the difference between party-party and solicitor-client costs, albeit that the content of the two categories of costs is probably different from the content as traditionally understood of party-party and solicitor-client costs.  VCAT’s decision continued:

’33 In the absence of the dispute between [the beneficiary siblings], these would have been straight forward estates to administer.  The assets were almost entirely bank deposits, bonds and annuities that needed to be converted into cash.

34 … a little over half of the costs charged to date relate to the administration of the estates as such, and … the remainder relates to the dispute between [the sibling beneficiaries].

35 I accept the submissions made on behalf of [the applicant] that there were an excessive number of attendances upon [the brother] and that charges for some of those attendances were not reasonably incurred.  …  It is difficult to calculate the extent of the costs not reasonably incurred because I have not had access to the documents the subject matter of the claim to legal professional privilege. The amount charged indirectly to [the applicant] for the attendances is $1,427.80 (half of $2,855.60).  Doing the best that I can from the information available to me, I assess the amount that should be refunded to [the applicant] at $500.00.’

Before this desicion, it had not occurred to me that the parliament might have intended VCAT to have the power to make an order of the kind that was made.  The powers of VCAT on determining a costs dispute are set out quite specifically, and do not include a power to order the solicitor to pay legal fees received by him from a client to a person who is neither a client nor a person responsible for paying the solicitor’s fees.  No doubt VCAT relied on the ‘any other order the Tribunal thinks fit’ power in s. 4.3.17(f), assuming without discussion either that it was not to be read ejusdem generis, or that such a reading was not inconsistent with the existence of the power which was exercised.

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Tags: costs disputes · Duties to third parties · Legal Profession Act · Professional fees and disbursements · Retainers