FEDERAL COURT OF AUSTRALIA

Frost v Bovaird [2012] FCAFC 60 

Citation:	Frost v Bovaird [2012] FCAFC 60	
		
Appeal from:	Bovaird v The Trustee of the Bankrupt Estate of Frost [2010] FCA 1159,
Bovaird v The Trustee of the Bankrupt Estate of Frost (No 2) [2011] FCA 465	
		
Parties:	ALAN MAXWELL FROST AND DIANA CATHERINE FALLON v LEON LEWIS MACGILLIVRAY BOVAIRD, ALAN MAXWELL FROST AND DIANA CATHERINE FALLON v MONICA CATHERINE BOVAIRD, ALAN MAXWELL FROST AND DIANA CATHERINE FALLON v THE TRUSTEE OF THE BANKRUPT ESTATE OF MAXWELL WALTER ALLEN FROST, ALAN MAXWELL FROST AND DIANA CATHERINE FALLON v MONICA CATHERINE BOVAIRD AND LEON LEWIS MACGILLIVRAY BOVAIRD	
		
File numbers:	NSD 714 of 2011
NSD 725 of 2011
NSD 727 of 2011
NSD 728 of 2011	
		
Judges:	JACOBSON, SIOPIS AND NICHOLAS JJ	
		
Date of judgment:	30 April 2012	
		
Catchwords:	BANKRUPTCY – application by trustee in bankruptcy for directions under s 134(4) of the Bankruptcy Act 1966 (Cth) – deceased estate – judgment given in New South Wales Supreme Court against executors of deceased estate in favour of relatives of the deceased for the payment of monies and that costs be paid out of the deceased estate – deceased estate placed into bankruptcy administration – relatives appealed against the costs orders made by the New South Wales Supreme Court – whether trustee in bankruptcy should indemnify executors in respect of the costs of the appeal from the assets of the bankrupt estate – relatives commenced devastavit proceeding in New South Wales Supreme Court alleging misuse of office by the executors – whether trustee in bankruptcy should indemnify executors in respect of their legal costs in the devastavit proceeding.  	
		
Legislation:	Bankruptcy Act 1966 (Cth) ss 134(4), 249(3)
Trustee Act 1925 (NSW) s 63 	
		
Cases cited:	Bovaird v Frost [2009] NSWSC 337
Bovaird v Frost [2009] NSWSC 917
National Trustees, Executors and Agency Co of Australasia Limited v Barnes (1941) 64 CLR 268
Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220
Jennings v Mather [1902] 1 KB 1
Global Funds Management (NSW) Ltd v Burns Philp Trustee Co Ltd (in prov liq) (1990) 3 ACSR 183
Miller v Cameron (1936) 54 CLR 572
Armitage v Nurse [1998] Ch 241
Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66
Re Grimthorpe (decd) [1958] Ch 615 	
		
Date of hearing:	4 November 2011	
		
Place:	Sydney	
		
Division:	GENERAL DIVISION	
		
Category:	Catchwords	
		
Number of paragraphs:	105	
		
Counsel for the Executors:	Mr NA Cotman SC with Mr RJ Carruthers	
		
Solicitor for the Executors:	MBP Legal-McCrohon Bergseng Partners	
		
Counsel for the Bovairds:	Mr R Harper SC with Mr M Condon	
		
Solicitor for the Bovairds:	Garland Hawthorn Brahe	
		
Counsel for the Trustee in Bankruptcy:	
Mr M Aldridge SC	
		
Solicitor for the Trustee in Bankruptcy:	
Carneys Lawyers	

IN THE FEDERAL COURT OF AUSTRALIA		
NEW SOUTH WALES DISTRICT REGISTRY		
GENERAL DIVISION	NSD 714 of 2011	

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA	

BETWEEN:	ALAN MAXWELL FROST AND DIANA CATHERINE FALLON
Appellants/Cross-Respondents
	
and:	LEON LEWIS MACGILLIVRAY BOVAIRD
Respondent/Cross Appellant

IN THE FEDERAL COURT OF AUSTRALIA		
NEW SOUTH WALES DISTRICT REGISTRY		
GENERAL DIVISION	NSD 725 of 2011	

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA	

BETWEEN:	ALAN MAXWELL FROST AND DIANA CATHERINE FALLON
Appellants/Cross-Respondents
	
AND:	MONICA CATHERINE BOVAIRD
Respondent/Cross-Appellant

IN THE FEDERAL COURT OF AUSTRALIA		
NEW SOUTH WALES DISTRICT REGISTRY		
GENERAL DIVISION	NSD 727 of 2011	

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA	

BETWEEN:	ALAN MAXWELL FROST AND DIANA CATHERINE FALLON
Appellants
	
AND:	THE TRUSTEE OF THE BANKRUPT ESTATE OF MAXWELL WALTER ALLEN FROST
Respondent

IN THE FEDERAL COURT OF AUSTRALIA		
NEW SOUTH WALES DISTRICT REGISTRY		
GENERAL DIVISION	NSD 728 of 2011	

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA	

BETWEEN:	ALAN MAXWELL FROST AND DIANA CATHERINE FALLON
Appellants
	
AND:	MONICA CATHERINE BOVAIRD AND LEON LEWIS MACGILLIVRAY BOVAIRD
Respondent

JUDGES:	JACOBSON, SIOPIS AND NICHOLAS JJ	
DATE OF ORDER:	30 april 2012	
WHERE MADE:	SYDNEY	

THE COURT ORDERS THAT:

1.	The appeal is allowed in part.
2.	The cross-appeals are dismissed.
3.	The parties are within seven days to bring in a minute of orders which reflects these reasons.
4.	Each party is within seven days to file written submissions not exceeding four pages on the question of costs. 

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

IN THE FEDERAL COURT OF AUSTRALIA		
NEW SOUTH WALES DISTRICT REGISTRY		
GENERAL DIVISION	NSD 714 of 2011	

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA	

BETWEEN:	ALAN MAXWELL FROST AND DIANA CATHERINE FALLON
Appellants/Cross-Respondents
	
AND:	LEON LEWIS MACGILLIVRAY BOVAIRD
Respondent/Cross-Appellant

IN THE FEDERAL COURT OF AUSTRALIA		
NEW SOUTH WALES DISTRICT REGISTRY		
GENERAL DIVISION	NSD 725 of 2011	

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA	

BETWEEN:	ALAN MAXWELL FROST AND DIANA CATHERINE FALLON
Appellants/Cross-Respondents
	
AND:	MONICA CATHERINE BOVAIRD
Respondent/Cross-Appellant

IN THE FEDERAL COURT OF AUSTRALIA		
NEW SOUTH WALES DISTRICT REGISTRY		
GENERAL DIVISION	NSD 727 of 2011	

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA	

BETWEEN:	ALAN MAXWELL FROST AND DIANA CATHERINE FALLON
Appellants
	
AND:	THE TRUSTEE OF THE BANKRUPT ESTATE OF MAXWELL WALTER ALLEN FROST
Respondent

IN THE FEDERAL COURT OF AUSTRALIA		
NEW SOUTH WALES DISTRICT REGISTRY		
GENERAL DIVISION	NSD 728 of 2011	

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA	

BETWEEN:	ALAN MAXWELL FROST AND DIANA CATHERINE FALLON
Appellants
	
AND:	MONICA CATHERINE BOVAIRD AND LEON LEWIS MACGILLIVRAY BOVAIRD
Respondent

JUDGES:	JACOBSON, SIOPIS AND NICHOLAS JJ	
DATE:	30 april 2012	
PLACE:	SYDNEY	

REASONS FOR JUDGMENT
THE COURT:
1		On 26 November 2002, the late Mr Maxwell Walter Allen Frost died.  The late Mr Frost was survived by his two children, Mr Alan Maxwell Frost and Mrs Diana Catherine Fallon, and his estranged wife, Mrs Margaret Frost.  The late Mr Frost appointed his two children, Mr Alan Frost and Mrs Diana Fallon, as executors of his deceased estate.
2		The late Mr Frost was, also, survived by his elder sister, Mrs Monica Catherine Bovaird and his nephew, Mr Leon Lewis MacGillivray Bovaird, the son of Mrs Monica Bovaird.  Since the judgment in this matter was reserved, Mrs Monica Bovaird has passed away.
3		A considerable degree of animosity has emerged between the late Mr Frost’s relatives.  This has led to the litigation of which this appeal forms part.  As the primary judge observed, the late Mr Frost’s relatives fall into two hostile camps.  One of the camps comprises the late Mrs Bovaird and her son Mr Bovaird; and the other camp comprises the late Mr Frost’s two children and his estranged wife.
4		On 2 May 2003, probate in respect of the late Mr Frost’s will, was granted to Mr Alan Frost and Mrs Diana Fallon.  Under his will, the late Mr Frost left the whole of his estate amounting to some $835,000 to a charity, the Australian Cancer Research Foundation.
THE SUPREME COURT PROCEEDINGS
5		In 2004, the late Mrs Bovaird commenced a proceeding in the Supreme Court of New South Wales (No 2211/04) against Mr Frost and Mrs Fallon, the executors of the will.  The late Mrs Bovaird claimed provision for her maintenance and advancement pursuant to the Family Provision Act 1982 (NSW) out of the estate of the late Mr Frost.
6		In 2004, Mr Leon Bovaird, also, commenced a proceeding in the Supreme Court of New South Wales (No 3159/04) against the executors, claiming damages for the breach of an alleged agreement by the late Mr Frost to lend Mr Bovaird $880,000 unsecured and interest free for a term of 10 years.
7		In 2006, the late Mrs Bovaird commenced another proceeding in the Supreme Court of New South Wales (No 1923/06) claiming damages for breach of contract allegedly made in May 2001, between her and her late brother and AFM Developments Pty Ltd (AFM), a company associated with her late brother, to the effect that, in consideration of her agreeing to move from her home at Cecil Street, Gordon, to a retirement unit, her brother or AFM would pay for her aged care accommodation, meet her ongoing expenses for the rest of her life and lend her son, Mr Bovaird, the sum of $880,000 for the purpose of financing the redevelopment of Cecil Street.
8		All three of the New South Wales Supreme Court proceedings were tried together before Brereton J.
9		On 30 April 2009, Brereton J delivered reasons for decision in the three proceedings (Bovaird v Frost [2009] NSWSC 337).  Brereton J dismissed the proceeding brought by the late Mrs Bovaird pursuant to the Family Provision Act.
10		However, Brereton J found that the late Mr Frost had entered into a binding agreement with the late Mrs Bovaird and her son, as they had alleged.  Brereton J awarded Mr Bovaird damages in the sum of $1 in respect of the breach of the agreement to lend him money.  Brereton J awarded damages in favour of the late Mrs Bovaird in the sum of $1,239,110.  Brereton J found that AFM was not a contracting party and dismissed the case against AFM.  Brereton J adjourned the question of costs.
11		After having heard further submissions in respect of costs, on 4 September 2009, Brereton J made orders as to costs (Bovaird v Frost [2009] NSWSC 917).
12		In the family maintenance proceeding, Brereton J ordered that the executors in their capacity as such, pay the late Mrs Bovaird’s costs.
13		In proceeding No 3159/04, brought by Mr Bovaird, Brereton J ordered that the executors in their capacity as such, pay Mr Bovaird’s costs.
14		In the proceeding No 1923/06, brought by the late Mrs Bovaird, Brereton J ordered that the executors in their capacity as such, pay the late Mrs Bovaird’s costs.
15		Brereton J ordered that the late Mrs Bovaird and Mr Bovaird pay AFM’s costs in each of the two proceedings to which AFM was a party.
16		Before making the costs orders, Brereton J considered an argument made by the late Mrs Bovaird and Mr Bovaird that the executors should pay the costs of the proceedings personally, because they had acted unreasonably in defending the litigation.  Brereton J recorded the Bovairds’ argument as follows:
The plaintiffs further submit that the executors should be denied indemnity, both for their own costs, and for the costs payable by them to the plaintiffs, out of the estate, and should be left to bear those burdens themselves.

17		Before Brereton J, the Bovairds, also, submitted that their claims were overwhelming, that the conduct of the defence by the executors was unreasonable, that the costs, if paid from the deceased estate, would deprive them as the successful plaintiffs of the fruits of the litigation, and that there was no evidence to suggest that an order for costs against the executors personally, could not be met by the executors.
18		Brereton J found that there was no reason to suppose that the defence of the proceedings was otherwise than in accordance with the wishes of the beneficiary, the Australian Cancer Research Foundation.  Brereton J said that insofar as the executors were defending the proceedings against the deceased estate, as distinct from against AFM, they were plainly acting, and acting only, in the interests and for the benefit of the estate and not themselves.
19		Brereton J went on to say at [37]:
Moreover, in my view, had the defendants sought Re Beddoe advice, the court ‑ having regard to the duty of executors to uphold the will, the circumstance that the claim was one which called for “close scrutiny”, and the arguability of the defences of contractual intent, uncertainty, eligibility, circumstances warranting and adequacy of provision - would have advised that they would be justified in defending the proceedings.

20		On 23 October 2009, consequent upon the judgment of Brereton J in favour of the late Mrs Bovaird in the sum of $1,239,110, an order for the administration of the estate of the late Mr Frost in bankruptcy was made in the Federal Magistrates Court.  Mr Steven Nicols was appointed as the trustee in bankruptcy of the deceased estate of the late Mr Frost.
21		On 16 February 2010, the late Mrs Bovaird and Mr Bovaird commenced proceeding No 2010/41888 in the New South Wales Supreme Court claiming damages against the executors.  This proceeding has been referred to as the “devastavit proceeding” or the “waste proceeding”.
22		In the devastavit proceeding, the late Mrs Bovaird and Mr Bovaird have alleged that they were creditors of the deceased estate and that the executors owed a duty to preserve, protect and administer the assets of the deceased estate.  It was alleged that the executors failed to make adequate provision for the liabilities arising from the New South Wales Supreme Court proceedings.  Further, it is said that the executors paid the sum of $265,000 to their mother, Mrs Margaret Frost, to settle a foreshadowed claim by her against them in that capacity, pursuant to the Family Provision Act.  It was, also, alleged that the executors had paid an amount of $4,675 on account of Mrs Margaret Frost’s legal costs in relation to that claim.
23		The Bovairds, also, alleged that the executors made those payments to Mrs Frost knowing that the late Mrs Bovaird would be likely to commence proceedings against the deceased estate pursuant to the Family Provision Act, and without regard to the ability of the deceased estate to meet all the claims against it.
24		It was, also, alleged by the Bovairds in the devastavit proceeding, that the executors had used the funds of the deceased estate to pay the costs in a guardianship proceeding and AFM’s costs in the proceedings in the New South Wales Supreme Court.  The Bovairds, also, alleged that the executors had failed to file tax returns within the prescribed time limits causing the estate to incur penalties.  The Bovairds, also, alleged that the executors had failed to ensure that dividends due from the National Australia Bank Limited were properly paid and that they failed to obtain a tax file number for the deceased estate with the consequence that withholding tax was levied against the deceased estate.
THE FEDERAL COURT PROCEEDINGS
25		On 4 December 2009, each of the late Mrs Bovaird and Mr Bovaird filed an application in the Federal Court, seeking leave nunc pro tunc to proceed with the appeals which each had lodged against the decision of Brereton J in the New South Wales Supreme Court.  The leave was sought pursuant to s 249(3) of the Bankruptcy Act 1966 (Cth).  The proceeding brought by Mr Bovaird is proceeding No NSD 1394/2009, and that brought by the late Mrs Bovaird is No NSD 1395/2009.
26		On 17 March 2010, each of the Bovairds filed amended notices of appeal in their respective proceedings.
27		On 19 March 2010, the executors commenced an application (No NSD 283/2010) in the Federal Court against the trustee in bankruptcy of the bankrupt estate of the late Mr Frost.  By that date, Mr Nicols had been replaced as trustee in bankruptcy of the deceased estate, by Mr Giles Woodgate.  In that application, the executors sought a declaration that:
[T]he discharge of the right of indemnity by payment out from the assets of the estate is in priority of satisfaction of all other creditors and all other claims (including the costs, expenses and remuneration of Giles Woodgate) on the estate.

28		The executors also sought a declaration that:
[T]he vesting of the property of the late Maxwell Walter Allen Frost pursuant to an order for administration under Part XI is subject to the prior equitable proprietary right of Alan Maxwell Frost and Diana Catherine Fallon to be indemnified for their future legal costs out of such property for:

(a)	the purposes of defending proceedings brought against them as Executors by Leon and Monica Bovaird in the Court of Appeal and in the Equity Division of the Supreme Court of New South Wales and

(b)	for the purposes of asserting their Executors’ indemnity in Federal Court Proceedings 1394 of 2009 and 1395 of 2009 and these proceedings.

29		The executors, also, sought an order that on their written direction, the trustee in bankruptcy pay from the property of the estate, such sums as may be required to meet their legal expenses and costs on an indemnity basis in the Court of Appeal proceedings, the devastavit proceeding and the Federal Court proceedings.
30		On 25 March 2010, the trustee in bankruptcy filed, in proceeding No NSD 283/2010, an interim application for directions, pursuant to s 134(4) of the Bankruptcy Act.  By that application, the trustee in bankruptcy sought directions as to whether he would be justified or not justified in indemnifying out of the bankrupt estate, the legal costs of the executors in respect of each of the appeals against the decision of Brereton J in the New South Wales Court of Appeal, the devastavit proceeding, and the Federal Court proceedings.  The trustee in bankruptcy, also, sought directions as to the priority to be accorded to the costs and expenses of the trustee in bankruptcy, and those of the executors.
31		On 4 May 2010, the executors filed a further application (No NSD 470/2010) in this Court.  In that proceeding, the executors, also, sought an order staying the devastavit proceeding until further order.  The executors, also, sought orders that the devastavit proceeding was for the benefit of the bankrupt estate of the late Mr Frost, and that the trustee in bankruptcy of the estate was the proper plaintiff in the proceedings.
THE DECISION OF THE PRIMARY JUDGE
32		The primary judge heard all of the Federal Court proceedings at the same time.
33		The primary judge first considered the applications by the late Mrs Bovaird and Mr Bovaird for leave to proceed with their respective appeals against the orders made by Brereton J in the New South Wales Supreme Court proceedings.  Each of the late Mrs Bovaird and Mr Bovaird had appealed against the quantum of damages awarded to each of them by Brereton J, the orders in relation to AFM, and the costs orders made by Brereton J.  The costs orders appealed against were the order that the executors pay the costs of each of the late Mrs Bovaird and Mr Bovaird out of the deceased estate, and the order dismissing their application that costs be paid on an indemnity basis.
34		The primary judge declined to give the Bovairds leave to proceed in respect of the appeal against the quantum of damages awarded to each of them.  The primary judge held that continuing with the appeal in respect of the quantum of damages would be futile, bearing in mind that the amount of damages awarded in favour of the late Mrs Bovaird exceeded the amount of the deceased estate, and the late Mrs Bovaird and Mr Bovaird were the only substantial creditors.
35		However, the primary judge granted each of the late Mrs Bovaird and Mr Bovaird leave to proceed with the grounds of appeal before the New South Wales Court of Appeal, which impugned the costs orders made by Brereton J and the orders in relation to AFM.
36		In respect of proceeding No NSD 283/2010, the primary judge declined to make the order sought by the executors, that the trustee in bankruptcy pay, on the written direction of the executors, from the property of the estate, such sums as may be required to meet their legal expenses and costs on an indemnity basis in the Court of Appeal proceedings, the devastavit proceeding and the Federal Court proceedings.
37		Instead, on the trustee in bankruptcy’s application for directions, the primary judge made directions that the trustee in bankruptcy would not be justified in paying the legal costs of the executors as and when they were incurred, in respect of the Court of Appeal proceedings, the devastavit proceeding and the Federal Court proceedings.
38		The primary judge, also, dismissed the executors’ application insofar as it sought declarations concerning the priority between claims on the assets of the estate by the trustee in bankruptcy and the executors pursuant to their respective rights of indemnity.  The primary judge went on to say:
Although there is an interesting question of priorities between the executors’ right of indemnity and the trustee’s right of indemnity there are sufficient assets in the estate at this stage that that question does not presently – and may never – require resolution.

39		In respect of proceeding No NSD 470/2010, the primary judge dismissed the executors’ claim that the devastavit proceeding should be stayed.
THE APPEAL
40		The executors appealed against the directions made by the primary judge on the trustee in bankruptcy’s application and a number of the orders made by the primary judge.
41		The first ground of the amended grounds of appeal complained that the primary judge had erred in refusing to direct the trustee in bankruptcy to indemnify the executors for their costs as and when incurred by them, in respect of the Court of Appeal proceedings, the devastavit proceeding and the Federal Court proceedings.
42		The second ground of appeal complained that the primary judge erred in finding that an apparent sufficiency of assets in the estate was a basis for not dealing with the question of the competing priorities between the executors and the trustee in bankruptcy.
43		The third ground of appeal is related to the second ground of appeal, and complained that the primary judge erred in refusing to make a finding as to whether the right of indemnity of the executors for their legal costs in the four proceedings before the Federal Court was a right in priority to any right of indemnity of the trustee in bankruptcy.
44		The amended notice of appeal sought the following orders:
1.	An order that his Honour’s finding that the trustee in bankruptcy should not presently indemnify the appellant executors for their legal costs in any of the four proceedings:

(a)	be set aside; and

(b)	in lieu thereof that the trustee should indemnify the appellant executors for their legal costs in the proceedings before the Court of Appeal, the Devastavit proceedings and these proceedings.

2.	A declaration that the right of indemnity of the appellant executors for their legal costs in the four proceedings before his Honour is a right in priority to any right of indemnity of the trustee in bankruptcy and any other right of indemnity from the bankrupt estate.

3.	Alternatively, an order that the proceeding be remitted to Perram J to determine whether the right of indemnity of the appellant executors for their legal costs in the four proceedings before his Honour is a right in priority to any right of indemnity of the trustee in bankruptcy and any other right of indemnity from the bankrupt estate.

4.	Costs of the appeal and of the Court below.

5.	Such further or other orders as this Honourable Court thinks fit.

45		We now deal with each of the grounds of appeal.
GROUND 1
46		As mentioned, the executors complain that the primary judge erred in directing that the trustee in bankruptcy would not be justified in indemnifying the executors in respect of their legal costs as and when they are incurred in relation to the Court of Appeal proceedings, the devastavit proceeding and the proceedings in the Federal Court before the primary judge.
47		Trustees have a right of indemnity out of trust assets in respect of legal costs which are properly incurred by them as an incident of their administration of the estate.  In the case of National Trustees, Executors and Agency Co of Australasia Limited v Barnes (1941) 64 CLR 268 (Barnes), Williams J observed at 279:
Such expressions as acting “for the benefit of” “with reference to” or “on behalf of” the trust estate or in the discharge of his duty as a trustee are used indiscriminately in the judgments, but they all mean the same thing, namely, that the question is whether the costs, charges and expenses are properly incurred by the trustee as an incident of his administration of the estate.

48		The right of indemnity applies such that the trustee is not obliged first to meet a trust liability out of his or her own funds and then seek reimbursement from the trust funds.  Rather, the trustee is entitled to have resort to the trust funds in order to meet the liability in question.  Further, the trustee has an equitable lien over the trust assets to secure the right of indemnity.
49		These principles were not in serious contention before the primary judge, nor were they so in this Court.
50		The primary issue before this Court and the primary judge was whether, pending the determination of the Court of Appeal proceedings and the devastavit proceeding, the executors should, on an interlocutory basis, pursuant to their right of indemnity, be entitled to have their legal costs met from the assets of the estate.
51		The primary judge set out the reasons for his decision at [35]-[37] of the judgment in the following terms:
[35]	The issue which is pending in the Court of Appeal is whether the executors are entitled to an indemnity out of the estate for the costs of the proceedings before Brereton J.  That matter has been determined at first instance in favour of the executors but is now the subject of an appeal.  For reasons I have already given that appeal is not frivolous.  The material referred to in the devastavit proceedings may lend credence to the creditors’ contention that the executors have misused their offices to pay third parties substantial sums and to conduct litigation which may not have been in the estate’s interests.  Certainly, it shows payments were made to third parties.  Those matters, which appear largely to have come to light only after the appointment of the trustee in bankruptcy, may be material to the issues in the Court of Appeal.  It would be premature until that Court determines whether the executors have abused their office in defending the proceedings before Brereton J for the trustee in bankruptcy to meet costs to which it may ultimately transpire they are not entitled.  So too, insufficient is known at this stage to say, in advance, that the executors’ conduct of the appeal will be reasonable.  If the Court of Appeal were to conclude that the executors were unreasonable in defending the proceedings before Brereton J it is not difficult to see that a similar attitude might be taken to their defence of that position in the Court of Appeal itself.

[36]	Very much the same remark may be made about the devastavit proceeding.  It is possible that the executors will be vindicated but it is also possible that they will not.  It would be inappropriate to permit payment of their legal expenses in advance of a determination by the Court hearing that matter of the issue of whether the executors have engaged in the conduct alleged.

[37]	Accordingly, the trustee in bankruptcy would not be justified, at least at this stage, in meeting the executors’ legal costs in the Supreme Court, the Court of Appeal or in the devastavit proceedings.  When those Courts have finished examining the conduct of the executors this issue will, naturally enough, need to be revisited.  As to the proceedings in this Court a similar analysis applies.  If it transpires that the executors’ conduct of the underlying proceedings is such that they should not have been pursued then a similar position is likely to be taken to what is occurring in this Court.  Until the Court of Appeal determines that question it would be premature for the trustee to permit the estate assets so to be used.

52		In our view, the primary judge erred in his approach to the question before him.  This is because he failed to distinguish between the circumstances affecting each of the different proceedings in respect of which indemnification was sought.  In particular, in relation to the appeal proceedings, the primary judge failed to have sufficient regard to the fact that the propriety of the executors in defending the claims made by the Bovairds before Brereton J, had been the subject of judicial scrutiny and a determination favourable to the executors.
The appeal proceedings
53		In the case of Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220 (Alsop Wilkinson), Lightman J identified three categories of litigation in which trustees may become involved.  At 1223-1224, Lightman J observed:
Trustees may be involved in three kinds of dispute.  (1)  The first (which I shall call “a trust dispute”) is a dispute as to the trusts on which they hold the subject matter of the settlement.  This may be “friendly” litigation involving eg the true construction of the trust instrument or some other question arising in the course of the administration of the trust; or “hostile” litigation eg a challenge in whole or in part to the validity of the settlement by the settlor on grounds of undue influence or by a trustee in bankruptcy or a defrauded creditor of the settlor, in which case the claim is that the trustees hold the trust funds as trustees for the settlor, the trustee in bankruptcy or creditor in place of or in addition to the beneficiaries specified in the settlement.  The line between friendly and hostile litigation, which is relevant as to the incidence of costs, is not always easy to draw:  see In re Buckton; Buckton v Buckton [1907] 2 Ch 406.  (2)  The second (which I shall call “a beneficiaries dispute”) is a dispute with one or more of the beneficiaries as to the propriety of any action which the trustees have taken or omitted to take or may or may not take in the future.  This may take the form of proceedings by a beneficiary alleging breach of trust by the trustees and seeking removal of the trustees and /or damages for breach of trust.  (3)  The third (which I shall call “a third party dispute”) is a dispute with persons, otherwise than in the capacity of beneficiaries, in respect of rights and liabilities eg in contract or tort assumed by the trustees as such in the course of administration of the trust.

54		The nature of the proceedings brought by the Bovairds before Brereton J fell into the third category of disputes identified by Lightman J in Alsop Wilkinson.  The same categorisation would, in our view, attend the trustee’s defence of the third party’s appeal from Brereton J’s decision.  In relation to third party disputes, Lightman J observed at 1224:
Trustees (express and constructive) are entitled to an indemnity against all costs, expenses and liabilities properly incurred in administering the trust and have a lien on the trust assets to secure such indemnity.  Trustees have a duty to protect and preserve the trust estate for the benefit of the beneficiaries and accordingly to represent the trust in a third party dispute.  Accordingly their right to an indemnity and lien extends in the case of a third party dispute to the costs of proceedings properly brought or defended for the benefit of the trust estate.  Views may vary whether proceedings are properly brought or defended, and to avoid the risk of a challenge to their entitlement to the indemnity, (a beneficiary dispute), trustees are well advised to seek court authorisation before they sue or defend.  The right to an indemnity and lien will ordinarily extend to the costs of such an application.

55		In Jennings v Mather [1902] 1 KB 1, a case where a third party creditor proceeded against a trustee, it was held that a trustee is prima facie entitled to an indemnity and it was for the party alleging to the contrary, to displace the prima facie position.
56		The basis upon which the primary judge directed that the trustee in bankruptcy would not be justified in paying the costs of the executors as and when incurred in relation to the Court of Appeal proceedings appeared to be founded on two main reasons.  The first reason was that the appeal was not frivolous.  The second reason was that the material referred to in the devastavit proceeding “may be material to the issues in the Court of Appeal”.
57		There are two comments to be made in respect of the primary judge’s finding that the appeal was not frivolous.
58		First, in our view, the primary judge did not apply a sufficiently rigorous standard in assessing the strength of the Bovairds’ appeal.  In our view, a “not frivolous” standard was not a sufficiently rigorous standard to apply in circumstances where the proceedings before Brereton J were third party disputes, there had been a challenge in those proceedings to the propriety of the executors’ conduct in defending the Bovairds’ claims, the primary judge had found that the executors’ conduct in defending those claims was not unreasonable, and, the primary judge had, also, found that had a Beddoe application been made by the executors, it would have been granted.  In our view, it was necessary for the primary judge to have assessed the strength of the Bovairds’ appeal as significantly higher than being “not frivolous”, for him to have properly come to the view that the determination made by Brereton J, as to the propriety of the executors’ conduct, should not have effect pending the determination of the appeal.
59		Secondly, and in any event, in assessing the strength of the Bovairds’ appeal, the primary judge erred in not having regard to the reasoning of Brereton J in relation to the question of whether the executors had acted properly in defending the proceedings before him.  Brereton J had the benefit of having conducted the trial and gave detailed reasons for his conclusion that the executors had not acted unreasonably in defending the proceedings, and that had a Beddoe application been made it would have been granted.  In our view, by failing to address the merits of the arguments which the Bovairds intended to raise before the Court of Appeal, and by failing to assess the prospects of success of the appeal succeeding, the primary judge erred.
60		As mentioned, the second reason the primary judge gave in support of his decision was that the material the subject of the devastavit proceeding “may be material to the issues before the Court of Appeal”.  The executors were defendants in each of the proceedings before Brereton J.  The issue before Brereton J, in determining whether costs should be paid out of the estate, was whether the executors had acted properly in defending the claims which had been made by the Bovairds, as creditors of the deceased estate, in those proceedings.  It is Brereton J’s finding that the executors had acted properly in defending the claims which is in issue before the Court of Appeal.  The primary judge did not explain how the matters raised in the devastavit proceeding, may have any bearing on the discrete question before the Court of Appeal, as to whether Brereton J had erred in finding that the executors had acted properly in defending the Bovairds’ claims.  In our view, the primary judge erred in having regard to this issue, in support of the direction that the trustee in bankruptcy was not justified in paying the executors’ legal costs in respect of the appeal proceedings as and when incurred.
61		The primary judge, also, said that insufficient was known at this stage, to say in advance whether the executors’ conduct of the appeals would be reasonable.  It was, in our view, not open to the primary judge to take this factor into account in support of making the direction to the trustee in bankruptcy that he did.  Such information as was before the primary judge, in the form of the decision of Brereton J, was to the effect that the executors had acted properly in defending the Bovairds’ claims.  There was no basis for the primary judge’s speculation that in defending the decision of Brereton J on appeal, that characterisation of their conduct might change.
62		The Bovairds contended that if there was any doubt as to the entitlement of the executors to the right of indemnity, then the executors’ right of indemnity was suspended.  The Bovairds said that the “doubt” in this case arose from the allegations made in the devastavit proceeding.  In support of this submission, the Bovairds relied upon observations made by Rolfe J in the case of Global Funds Management (NSW) Ltd v Burns Philp Trustee Co Ltd (in prov liq) (1990) 3 ACSR 183 (Global Funds).  In Global Funds, there was an issue as to whether the trustee of a trading trust was entitled to rely on its right of indemnity to recover monies it had incurred in carrying out the business of the trading trust.  The issue arose in the context of a proceeding to appoint a new trustee - a proceeding in the nature of a beneficiaries dispute.  In that case, Rolfe J cited with apparent approval, the following statement of principle appearing in Meagher QC RP, Gummow WM, Jacobs’ Law of Trusts in Australia (5th ed, Butterworths, 1986) para 2104:
Hence, if there is any doubt about the matter, both his [the trustee’s] indemnity and the lien protecting it may be suspended pending investigation of his accounts.

63		In our view, the observations have no application to the issue now under consideration.  In this case, there is no question of there being any investigation of the executors’ accounts.  Here, there is no dispute that the executors have incurred, and will incur legal costs, in defending the appeal, in the same way that they incurred legal costs in defending the proceedings at first instance before Brereton J.  The only question is whether the executors have acted, or are acting, properly in incurring the identifiable legal costs.  That question has already been the subject of judicial determination in respect of their defence of the proceedings before Brereton J at first instance.  There is, in our view, no relevant relationship between the facts in Global Funds and the facts of this case.  Nor, in our view, for the reason given, is there a relevant relationship between the observations in Jacobs’ Law of Trusts in Australia cited by Rolfe J, and the facts of this case.
64		As previously mentioned, it is not apparent how the commencement of, and allegations made in, the devastavit proceeding would have a bearing upon the findings of Brereton J as to the propriety of the executors in defending the Bovairds’ claims before him, so as to undermine the continuing weight to be given to those findings.
65		For the reasons set out above, we are of the view that the discretion of the primary judge miscarried.  It is, therefore, open to this Court to re-exercise the discretion.
66		No attempt was made by the Bovairds, before this Court, to impugn the reasoning of Brereton J, as to the propriety of the executors’ conduct in defending the claims made by the Bovairds before Brereton J.  In those circumstances, for the reasons given in [58]-[59] above, it is our view, that Brereton J’s findings in respect of the propriety of the conduct of the executors in defending the Bovairds’ claims, should continue to have effect in respect of the conduct of the executors in defending that decision during the course of the appeal process.
67		In the circumstances, therefore, the Court sets aside the direction made by the primary judge that the trustee in bankruptcy was not justified in paying the legal costs of the executors out of the estate, as and when they were incurred, in respect of the appeal proceedings.  The Court substitutes a direction that, until the determination of the appeals, or further order, the trustee in bankruptcy is justified in paying the executors’ legal costs, as and when they are incurred, in relation to the conduct of the appeals in the New South Wales Court of Appeal.
The devastavit proceeding
68		In our view, the devastavit proceeding is to be treated as falling within the second category of the trustee litigation identified by Lightman J in Alsop Wilkinson.  Strictly speaking, the claims made by the Bovairds in the devastavit proceeding are as creditors, rather than as beneficiaries.  However, in our view, the claim is more akin to a beneficiaries claim because, by reason of the bankruptcy of the deceased estate, the only two persons with substantial claims to the assets comprising the deceased estate, are the Bovairds.
69		In Alsop Wilkinson, Lightman J observed as follows at 1224, in relation to the question of costs in a beneficiary claim:
A beneficiaries dispute is regarded as ordinary hostile litigation in which costs follow the event and do not come out of the trust estate:  see per Hoffmann LJ in McDonald v Horn [1995] ICR 685, 696.

70		The observations of Lightman J, reflect the principle that a trustee will not be able to rely upon the right of indemnity in respect of legal costs incurred in protecting only his or her personal interests (see Miller v Cameron (1936) 54 CLR 572 at 578-579, Bovaird v Frost [2009] NSWSC 917 per Brereton J at [28]-[33]).
71		However, those observations are certainly not exhaustive of the issue, and there will be circumstances when a trustee against whom misconduct is alleged, will, nevertheless, be entitled to rely on the right of indemnity to have his or her legal costs paid from the estate.  This may occur, for example, where a court finds at the trial of the action, or even afterwards, that the trustee acted properly in defending the claim made against him or her, or has been exonerated from wrong doing.
72		Barnes is an example of a case where the executors established a right to exercise the indemnity in respect of their legal costs incurred in defending a beneficiaries’ claim alleging misconduct by the executors.  This was done in a separate proceeding brought after the determination of the beneficiaries dispute.  In Barnes, the executors successfully defended claims of breach of trust and costs orders were, accordingly, made against the unsuccessful beneficiaries.  The unsuccessful beneficiaries were unable to meet the costs orders.  The executors then applied to the Victorian Supreme Court for declarations that, pursuant to their right of indemnity, they were entitled have their costs paid from the assets of the estate.  The Victorian Supreme Court refused to make the declarations sought.  However, the High Court found in favour of the executors on the basis that the costs of defending the proceeding had been properly incurred as an incident of the administration of the estate, and the executors were entitled to exercise their right of indemnity in respect of the costs not paid by the unsuccessful beneficiaries.
73		In Armitage v Nurse [1998] Ch 241, the Court of Appeal of England and Wales held that the right of the trustees to recoup themselves from the trust funds in respect of legal costs incurred in defending themselves against a beneficiary’s claim of misconduct, was not to be exercised until after the dismissal or discontinuance of the claim made against them.  In that case, a beneficiary alleged breach of trust against the trustees of a settlement, but the beneficiary had not alleged actual fraud.  The trustees defended the claim on the basis that an exclusion clause in the deed of settlement operated to exclude liability for any misconduct short of actual fraud.  The primary judge found in favour of the trustees on the basis of this defence.  On appeal, the Court of Appeal of England and Wales agreed with the primary judge’s view on the effect of the exclusion clause and found that the trustees were entitled to an order that their costs of the litigation be paid from the trust funds.  However, the Court of Appeal, also, gave the appellant beneficiary, leave to amend the statement of claim, if so advised, to plead fraud.  Millett LJ (with whom Hutchison and Hirst LJJ agreed) observed at 263:
The possibility of amendment affects the order for costs which ought to be substituted for the order which the judge made.  In my judgment the respondents should have the right to recoup themselves out of the trust fund but only if and when the action against them is discontinued or dismissed.

74		There is, however, a means whereby a trustee against whom misconduct is alleged, may be able to have resort to the trust funds, pending the determination of that claim, in order to pay the legal costs incurred in defending the claim, without fear of being found liable for breach of trust as a result of doing so.  This is by obtaining the sanction of the court by way of judicial advice, prior to the trial of the proceeding, to permit him or her to do so.
75		In the case of Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 (St Petka), the High Court recognised that it was open to a trustee faced with an allegation of misconduct by a beneficiary, to apply to court for judicial advice.
76		However, whether a trustee faced with a beneficiaries’ claim alleging misconduct, will be successful in obtaining judicial advice permitting the exercise of the right of indemnity, pending the determination of the dispute, will very much depend on the circumstances of the case.  At [67], the High Court (Gummow ACJ, Kirby, Hayne and Heydon JJ) made the following observations in respect of the application of s 63 of the Trustee Act 1925 (NSW), which empowers the New South Wales Supreme Court to give judicial advice to trustees:
Role of context in applying s 63.  Sixthly, the application of s 63 will tend to vary with the type of trust involved.  Where there is a non-charitable private trust involving a conflict between beneficiaries, or between beneficiaries alleging a breach of trust out of which a trustee has profited and that trustee, and where the defendants in those proceedings have a personal capacity to fund the defence, it might not be correct to give the trustee an opinion, advice or direction.  The position is not necessarily the same where the trust is for a charitable purpose, where the public interest is involved since ex hypothesi the trust is beneficial to the public, where none of the contestants in the litigation about the trust is suing or defending in order to augment, defend or seek the restoration of personal assets, and where a crucial question is the precise terms of the purpose for which the trust exists.

77		At [69]-[71], the High Court observed further:
[69]	While trustees acting gratuitously are entitled both under the general law and s 59(4) of the Act to an indemnity out of the trust assets for expenses incurred in administering the trust, it was understandable that the legislature should enact provisions enabling them to take advice before embarking on any course which might carry a risk of incurring costs that might be outside the indemnity.

[70]	In particular, trustees who are sued, particularly for breach of trust, may sometimes experience uncertainty about whether they will be able to obtain indemnity as to the costs of their defence under s 59(4) in any event.  Perhaps they will if their breach is excused under s 85(2); but they cannot be sure, in advance, that the court’s discretionary power to excuse the breach will be exercised in their favour, and one of the matters to be excused is their failure to obtain the court’s direction under s 63 or otherwise…

[71]	In short, provision is made for a trustee to obtain judicial advice about the prosecution or defence of litigation in recognition of both the fact that the office of trustee is ordinarily a gratuitous office and the fact that a trustee is entitled to an indemnity for all costs and expenses properly incurred in performance of the trustee’s duties.  Obtaining judicial advice resolves doubt about whether it is proper for a trustee to incur the costs and expenses of prosecuting or defending litigation.  No less importantly, however, resolving those doubts means that the interests of the trust will be protected; the interests of the trust will not be subordinated to the trustee’s fear of personal liability for costs.  (Footnote omitted; original emphasis.)

78		The High Court went on to say at [74]:
A necessary consequence of the provisions of s 63 of the Act is that a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings.

79		In our view, the tenor of the cases and observations referred to above, do not support the contention advanced by the executors that, even in cases of beneficiaries disputes where misconduct is alleged against a trustee, the trustee is, pending the determination of that claim, prima facie entitled, without more, to use the trust funds, to meet legal costs incurred in defending the claim, and the onus is on the party alleging otherwise, to prove it.  The same holds true in respect of the observations adopted by Rolfe J in Global Funds referred to at [62] above.
80		Here, although the trust established by the late Mr Frost’s will was for charitable purposes, as we have said, the nature of the devastavit proceeding is analogous to a beneficiaries dispute in which a claim of impropriety is made against the executors.  In fact, in our view, there are similarities between the devastavit proceeding and the first of the category of claims referred to by the High Court in the observations extracted at [76] above, in respect of which the High Court observed that it may not be correct to give the trustee a direction to have resort to the trust funds.
81		In this case, there was no evidence before the primary judge that the executors had sought, or obtained, judicial advice under s 63 of the Trustee Act in respect of their conducting a defence of the devastavit proceeding.  Nor was there evidence of any other judicial assessment having been made of the prospects of the executors successfully defending at trial, the allegations of breach of duty made in the devastavit proceeding, or the executors otherwise obtaining at trial, or later, an order permitting them to exercise their right of indemnity to meet their legal costs from the assets of the estate.
82		We observe that, this is a crucial distinction between the appeal proceedings (where there was before the primary judge, a judicial assessment of propriety of the executors’ conduct in defending the Bovairds’ claims) and the devastavit proceeding (where there was no such judicial assessment).
83		Further, there was no attempt made by the executors before the primary judge to address the merits of the allegations of misconduct made in the devastavit proceeding, with the object of persuading the primary judge that there was a strong prospect of the Bovairds’ devastavit claim being dismissed, or an order, otherwise being made, recognising the executors’ entitlement to use the trust funds to pay their legal costs incurred in defending the claim.  Before the primary judge, the executors challenged the standing of the Bovairds to bring the devastavit claim.  That question is ultimately a matter for the trial, but does not affect the fact that no attempt was made before the primary judge to address the allegations of impropriety made against the executors.
84		In our view, in these circumstances, it was open to the primary judge in the exercise of his discretion, to give effect to the general position stated by Lightman J, in respect of the incidence of a trustee’s legal costs incurred in defending a beneficiaries dispute, namely, that the costs do not come out of the estate.  As we have mentioned, that general position, is qualified in the respects mentioned above.  However, in our view, there was nothing before the primary judge, which would have permitted him to come to the view that there was a reasonable prospect that any of the qualifying circumstances would apply.  Nor, as we have said, was there any evidence of the executors having obtained judicial advice, sanctioning access to the assets of the estate to meet ongoing legal costs.
85		We, therefore, dismiss this part of the executors’ appeal.
The Federal Court proceedings
86		We now deal with the question of whether the trustee in bankruptcy would be justified in paying the executors their ongoing legal costs incurred in relation to the conduct of the Federal Court proceedings before the primary judge.
87		The primary judge declined to make any orders or directions to that effect.  The primary judge held that the same reasoning which applied in relation to the legal costs incurred by the executors in respect of the Court of Appeal proceedings and devastavit proceeding, also, applied in relation to the costs of the Federal Court proceedings before him.  In our view, in making that finding, the primary judge erred by failing to distinguish between the relationship which each of those proceedings bore to the Court of Appeal proceedings and the devastavit proceeding respectively.
88		In our view, insofar as the executors opposed the application for leave to proceed, in respect of the appeal proceedings, that opposition is to be treated as a continuation of the defence by the executors of the third party claims made by the Bovairds as creditors against the deceased estate.  Accordingly, for the reasons set out above, the primary judge should have directed that the trustee in bankruptcy would be justified in meeting the ongoing legal costs of the executors in opposing the application for leave to proceed as part of their defence of the Bovairds’ claims and the decision of Brereton J in those proceedings.  In failing to do so, the primary judge erred.  Accordingly, we set aside the direction made by the primary judge, and substitute, therefor, a direction that, until the determination of the appeal proceedings or further order, the trustee in bankruptcy would be justified in meeting the costs of the executors in respect of proceedings No NSD 1394/2009 and No NSD 1395/2009, as and when incurred.
89		However, in relation to proceeding No NSD 283/2010 (which included the trustee’s application for directions), the executors sought orders for the payment of their ongoing legal costs in respect of the appeal proceedings and devastavit proceeding.  For reasons which we have set out above, the primary judge should have directed that the trustee in bankruptcy would be justified in meeting some of the costs incurred by the executors in bringing that proceeding, on the basis that part of that application was directed towards the indemnification of the executors’ ongoing costs in respect of the appeal proceedings.  In failing to do so, the primary judge erred.  Accordingly, we set aside the direction made by the primary judge, and direct that the trustee in bankruptcy would be justified in meeting, until the determination of the appeals or further order, half of the costs of the executors in respect of proceeding No NSD 283/2010, as and when incurred.
90		We, also, observe that the primary judge made an order that the executors should bear the costs of the Bovairds in respect of proceeding No NSD 283/2010.  We will hear from the parties whether, in light of our findings, that order should be varied.
91		As to proceeding No NSD 470/2010, for the reasons we have given in relation to the devastavit proceeding above, the primary judge did not err in directing that the trustee in bankruptcy would not be justified in meeting the executors’ legal costs.
92		The effect of this Court’s directions that the trustee in bankruptcy would be justified in meeting the executors’ costs, as and when incurred, in respect of the appeal proceedings and the Federal Court proceedings to the extent referred to above, are, of course, of interim effect.  If it is determined on appeal that the executors are not entitled to any indemnity in respect of their costs of the appeal proceedings, then the executors, would no doubt be ordered to repay any interim monies paid to them by the trustee in bankruptcy.
GROUNDS 2 AND 3
93		The primary judge dismissed the executors’ application for declarations to the effect that the executors’ right of indemnity as protected by their equitable lien, took priority to the trustee in bankruptcy’s right of indemnity, as protected by his equitable lien.  The primary judge dismissed the executors’ application on the basis that there was no utility in making the declarations.  First, the primary judge said that the question of whether the executors had a right of indemnity in respect of legal costs incurred in the proceedings before Brereton J and the Court of Appeal, and the devastavit proceeding, was yet to be finally determined, and, therefore, the question of priority may never have to be determined.  The second reason which the primary judge gave in support of his decision, was that there were sufficient assets in the estate to accommodate the payment of the executors’ legal costs in respect of the outstanding proceedings, even if the executors were to establish an entitlement to a right of indemnity in respect of those proceedings.
94		In our view, the primary judge did not err in deciding that it would be premature to make any declaration in respect of the question of the priority between the executors’ right of indemnity and the trustee in bankruptcy’s right of indemnity.  The question of whether the executors’ are entitled to a right of indemnity in respect of legal costs incurred in the relevant legal proceedings remains to be finally determined.  As the primary judge correctly decided, until that question is settled, the question of priority between the respective parties’ claims to the estate does not arise, and may never arise for final determination.
95		The directions made by this Court that the trustee in bankruptcy would be justified in meeting the executors’ legal costs of the appeal proceedings, and some of the costs in respect of the Federal Court proceedings, until the determination of the appeal or further order, does not, in our view, comprise a sufficient basis to depart from the determination of the primary judge.  This is because this Court’s direction to the trustee in bankruptcy is interlocutory in effect.  The rationale which underlies the primary judge’s decision that it would be premature to make declarations having final effect in respect of the priority of the respective rights of indemnity, still applies.  Further, there is nothing to indicate that the assets in the estate would not be sufficient to accommodate the costs of meeting the executors’ ongoing legal costs, the subject of the directions made by this Court.  Although no submissions were directly addressed to the amount of costs likely to be incurred by the executors in the appeal proceedings, having regard to the limited scope of the appeal, it is unlikely that the legal costs would be substantial.  The same applies in respect of that portion of the executors’ costs of the Federal Court proceedings, which this Court has directed the trustee in bankruptcy would be justified in paying.  The primary judge was of the view that the assets of the estate were sufficient to accommodate the payment of a significantly larger sum, if an indemnity was proved.  Further, senior counsel for the trustee in bankruptcy addressed the Court as to the financial position of the estate at the date of the hearing.  This information confirms that there are sufficient assets available to accommodate the payment of both the executors’ claims on the assets, and the trustee in bankruptcy’s likely claims on the assets, at least until the determination of the appeal proceedings.
96		However, the trustee in bankruptcy did ask that, if this Court did make a direction that he would be justified in paying any legal costs incurred by the executors as and when incurred, from the estate, the Court, also, direct that the trustee in bankruptcy would be justified in according an equal priority to the payment from the estate of his ongoing costs, properly incurred.
97		In our view, by reason of the matters referred to in [83] above, it would be appropriate to make a direction that, until the outcome of the appeal proceedings or further order, equal priority be given to the payment of the legal costs of the executors pursuant to the Court’s direction, and to the payment by the trustee in bankruptcy of his costs properly incurred in the administration of the estate.
98		The trustee in bankruptcy, also, asked that, if the Court made any direction that the trustee in bankruptcy would be justified in meeting any of the executors’ legal costs, this Court make a direction in terms of para 4 of the interim orders sought by the trustee in bankruptcy in proceeding No NSD 283/2010.
99		The interim order sought in para 4 was that, in the event that the trustee in bankruptcy was justified in paying the legal costs incurred by the executors, the trustee in bankruptcy would be justified in paying the legal costs:
(a)	upon receipt from the solicitor for [the executors] of tax invoices relating to these costs; or

(b)	upon being satisfied that the claims for the payment of the costs referred to in (a) above are reasonable and proper; or

(c)	upon receiving an independent assessment of the costs referred to in (a).

100		In our view, it is not appropriate to make such a direction.  This is because the question is posed at too high a level of generality.
101		The legal position is that a trustee who has properly incurred costs as an incident of the office, is entitled to a full indemnity in respect of those costs.  Accordingly, in the ordinary course of events, a trustee acting properly, would be entitled to be fully reimbursed in respect of the costs actually incurred by the trustee (Re Grimthorpe (decd) [1958] Ch 615 at 623, cited with approval by the High Court in St Petka at [69]).
102		It follows that, in the ordinary course of events, the trustee in bankruptcy would be justified in meeting the solicitors’ invoice upon receipt of the same.  However, there may be a circumstance which causes the trustee in bankruptcy to have concerns that the invoice which has been presented for payment, by the solicitors, does not reflect costs which are properly incurred.  In those circumstances, a diligent trustee in bankruptcy may make further inquiries as to the basis upon which the costs were incurred.  In our view, the question of how to respond to the presentation of invoices for legal costs, is a matter which goes to the ordinary day-to-day management of the estate, and calls for the exercise of judgment on a case‑by‑case basis, by reference to the general statement of principle referred to in the preceding paragraph.
103		In the absence of a specific factual context, there is no utility in the Court seeking to provide advice in the general terms sought by the trustee in bankruptcy.
THE CROSS-APPEAL
104		Each of the late Mrs Bovaird and Mr Bovaird cross-appealed against the refusal of the primary judge to grant leave to proceed with the appeal in respect of the question of the quantum of damages.  In our view, the primary judge made no error in refusing leave to proceed on the grounds that increasing the size of the judgment debt was a futile exercise because the amount of the debt substantially exceeded the amount available to the Bovairds as creditors in the bankrupt estate.  The Bovairds contended that the primary judge did not have regard to the fact that the Bovairds had commenced the devastavit proceeding and that there was a prospect that the amount available to creditors from the estate may increase by the successful pursuit of that proceeding.  However, the Bovairds were unable to demonstrate that, even if the devastavit proceeding was successful, the amount in the estate then available to the creditors would exceed the amount owed to the Bovairds.  A further consideration militating against the grant of leave to appeal on the quantum of damages is that additional costs would be occasioned by an expansion of the scope of the appeal for no demonstrable benefit.
105		Accordingly, the cross-appeals are dismissed.  The parties are within seven days to bring in a minute of orders which reflects these reasons.  Each party is within seven days to file written submissions not exceeding four pages on the question of costs.

I certify that the preceding one hundred and five (105) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Jacobson, Siopis and Nicholas.	

Associate:

Dated:	30 April 2012