Benson v Doloraine Pty Ltd
[2015] TASSC 41
•31 August 2015
[2015] TASSC 41
COURT: SUPREME COURT OF TASMANIA
CITATION: Benson v Doloraine Pty Ltd [2015] TASSC 41
PARTIES: BENSON, Christopher Ian
BENSON, Mark Andrew
BENSON, David Anthony
v
DOLORAINE PTY LTD
FOREST HILL FARM (TASMANIA) PTY LTD
FILE NO: 70/2015
DELIVERED ON: 31 August 2015
HEARING DATES: 28, 29 July 2015
JUDGMENT OF: Porter J
CATCHWORDS:
Equity – Trusts and trustees – Powers duties rights and liabilities of trustees – Maintenance and advancement – Powers of advancement – Discretionary family trust – Proceedings by beneficiaries for declarations of constructive trusts – Resolution of trustee to pay or apply 20 per cent of net value of trust fund to each of three beneficiaries – Upon that resolution court declared that 20 per cent of net value of trust fund beneficially held – Quantum of interest ascertainable – Effect of resolutions and declarations – Beneficiaries hold vested beneficial interests.
Chianti Pty Ltdv Leume Pty Ltd (2007) 35 WAR 488; Fischer v Nemeske Pty Ltd [2015] NSWCA 6, followed.
Korda v Australian Executor Trustees (SA) Ltd (2015) 89 ALJR 340, considered.
Aust Dig Equity [166]
Equity – Trusts and trustees – Trustees their appointment, dismissal etc – Removal – Appointment of new trustees – By the Court – Corporate trustees of family discretionary trusts controlled by two beneficiaries – Questions of breach of duty, conflict of interest and hostility – Trustees removed.
Porteous v Rinehart (1998) 19 WAR 495; Hancock v Rinehart [2015] NSWSC 646; applied.
Aust Dig Equity [126]
REPRESENTATION:
Counsel:
Applicants: S B McElwaine SC
Respondents: D V Aghion and D Coombes
Solicitors:
Applicants: Rae & Partners
Respondents: Fairley & Associates
Judgment Number: [2015] TASSC 41
Number of paragraphs: 124
Serial No 41/2015
File No 70/2015
CHRISTOPHER IAN BENSON, MARK ANDREW BENSON,
DAVID ANTHONY BENSON v DOLORAINE PTY LTD,
FOREST HILL FARM (TASMANIA) PTY LTD
REASONS FOR JUDGMENT PORTER J
31 August 2015
Introduction
The applicants, Christopher Benson, Mark Benson and David Benson, are the three sons of Ian Benson and Gloria Benson. The family is involved in a farming business in the north of the State. The structure of the family's financial affairs and of the conduct of the business is a little complicated.
The respondent Doloraine Pty Ltd (Doloraine) is a company, the sole directors of which are Ian and Gloria Benson who each hold two of the four issued $1 shares. Doloraine is the trustee of the I R & G M Benson Family Trust; which is a discretionary trust. Doloraine is the registered proprietor of two properties in Ulverstone which are investment properties held on trust. It has no other function.
The respondent Forest Hill Farm (Tasmania) Pty Ltd (FHFT) is a company, the directors of which are Ian and Gloria Benson who each hold one of the two issued $1 shares. FHFT is the trustee of the Benson Family Trust which is another discretionary trust. FHFT is the registered proprietor of five separate properties in the Don and Forth areas which it holds as trustee, and is the vehicle for the operations of the farming business.
It follows, of course, that the control of the companies is exclusively in the hands of Ian and Gloria Benson. In these reasons, where there needs to be a collective reference to the two companies, I will refer to them as the 'trustees' or the 'respondents' as the context requires.
Ian and Gloria Benson are also the joint owners of three properties in the Latrobe, Forth and Don areas. They are the only partners in a partnership known as I R & G M Benson, which provides land for the use of FHFT for the conduct of the farming business. I will refer to them as Mr and Mrs Benson or the 'parents'.
Until September 2013, all members of the family were involved in running the business. That business is the production, packing and marketing of organic vegetables. There are a number of assets associated with the business, which include water licences, plant and equipment, livestock, stock-in-trade, goodwill and consumables.
Since September 2013, the applicants have not worked in the business, but they continue to live in houses on farm properties. The applicants have been, and continue to be, in conflict with their parents over the applicants' interests in the properties and the business. Very little of the history was was revealed in these proceedings, but the issues seem to have been ones which regrettably are not uncommon within farming families. In November 2013, the three applicants took action in the Federal Court against Doloraine, FHFT and Ian and Gloria Benson. The applicants asserted that they had been required or expected to work on the farming properties (and on a property previously owned by the parents in Queensland), and made financial and non-financial contributions towards the acquisition of assets. They claimed representations were made by the parents that the farming business was a joint enterprise, at least involving the individuals, and that they would acquire interests in the assets.
The applicants sought declarations and other relief in relation to their asserted interests. The proceedings went to a hearing before Pagone J, but at the end of the evidence the parties reached agreement, and on 5 December 2014 the trial judge made consent orders. It is convenient to set out those orders at this point. The formal order is in these terms. "The Court orders by consent that:
1 Upon Forest Hill Farm (Tasmania) Pty Ltd, as Trustee of the Benson Family Trust pursuant to a Deed of Trust dated 1 July 2001, having advised the Court that it has resolved to exercise its power to pay or apply 20 per cent of the net value of the Trust Fund to each of the Applicants pursuant to clause 5.1 of the Trust Deed,
The Court declares that 20 per cent of the net value of the Trust Fund is beneficially held by the Trustee for each of the Applicants.
2 Upon Doloraine Pty Ltd, as Trustee of the I R & G M Benson Family Trust pursuant to a Deed of Trust dated 21 July 1998, having advised the Court that it has resolved to exercise its power to pay or apply 20 per cent of the net value of the Trust Fund to each of the Applicants pursuant to clause 5 of the Trust Deed,
The Court declares that 20 per cent of the net value of the Trust Fund is beneficially held by the Trustee for each of the Applicants."
Of course, the actual orders were the declarations; the court merely noted that the resolutions had been made. The trustees do not seek to argue that the resolutions were not in fact made. Despite the dichotomy between the resolutions and the orders, it is convenient if, at times, I collectively refer to them as the 'consent orders', but specifically discriminate when necessary. This is because, on the trustees' argument, the declarations add little to the resolutions, and because the meaning of the term "net value of the Trust Fund", as it appears in both resolutions and declarations, is a matter of principle contention.
I have uncontested evidence that for the purposes of the Federal Court proceedings, the parties agreed the value of the assets held by the trustees and by the partnership, and the amount of the trustees' liabilities. Precise figures were agreed for each item in detailed lists, but I will use approximations of the totals. The assets the subject of agreement extended to plant and equipment, livestock, crops in ground and cool storage, consumables and the business goodwill. The total figure was approximately $12.9 million. The trustees' liabilities for bank loans and equipment finance were agreed at approximately $5.92 million. The parties also agreed the quantum of the partnership bank liability in the sum of approximately $1.59 million. The bulk of the liabilities of the trustees and of the partnership was indebtedness to a bank. Although I have no evidence about this, it seems to have been common ground that the liabilities to the bank were charged against all trust and partnership assets.
Unfortunately, within about a week of the making of the consent orders, a dispute arose about their meaning and consequences. There is contention about the conduct of the trustees after 5 December. The applicants are now seeking the removal of the trustees as trustees of the family trusts, and as trustees of further trusts which are said to have been created. Additional and consequential relief is also sought. I am also dealing with a cross-application by the trustees, by which clarification of their powers under the respective trust deeds is sought. Central to, but not necessarily dispositive of, the application and the cross-application is the effect of the resolutions made by the trustees, and of the declarations made by the court.
The trust deeds
As is apparent from the orders, the discretionary trust of which Doloraine is trustee, was created first in time; 21 July 1998. The discretionary trust of which FHFT is trustee was created by a deed dated 1 July 2001. The consent orders deal with the trusts in reverse chronological order, but counsel in these proceedings dealt with the deeds in their chronological order. For that reason I will do the same. Where appropriate, I will refer to them as the 'first' and 'second' deeds. For the moment, I will only set out their essential features, and will mention other aspects when necessary.
The I R & G M Benson Family Trust
Under this deed, Mr and Mrs Benson are described as the "principals". They, along with their children, grandchildren and great-grandchildren, and the spouses of the principals' children, grandchildren and great-grandchildren are the specified beneficiaries.
This deed does not contain a definition, as such, of the term "Trust Fund", which is the term used in order no 2 of the orders. However, the declaration of trust in the deed refers to the "settled property [$20] and any additional property real or personal paid or transferred to or otherwise vested in the trustee for the purposes of this deed and the investments and property from time to time representing the same or any part or parts thereof and the income thereof (collectively, 'the trust fund') …".
By cl 2(a), the deed makes provision for the trustee to "pay apply or set aside the whole or any part of the net income of the trust fund … for the benefit of all or one or more exclusive of the others or other of the primary beneficiaries … ". "Set aside" is defined as including placing sums to the credit of a beneficiary in the books of the trust fund. There is a power to accumulate income through a fiscal year, and a discretion to convert accumulated income to capital at the end of such year. Under cl 2(c), any income not applied, paid, accumulated or converted is held on trust for the "residuary beneficiary", which is a charity. By cl 3, any amount placed to the credit of any beneficiary in the books of account of the trust fund is to be held by the trustee in trust for that beneficiary absolutely with power to the trustee pending payment to invest or apply or deal with the fund or resulting income therefrom in any manner provided for.
Clause 5, referred to in order no 2 of the consent orders, is in the following terms:
"Power of Advancement of Capital
5 The trustee may from time to time pay apply or set aside from the trust fund any capital not otherwise disposed of for the maintenance, education, advancement or benefit of the beneficiaries or any of them as the trustee thinks fit."
The Benson Family Trust
This deed contains somewhat more elaborate provisions. The "primary beneficiaries" are Mr and Mrs Benson. Secondary beneficiaries include their children, step-children and grandchildren; (that list is not exclusive). "Trust Fund" is defined as meaning the settlement sum, any further or additional property which may be donated, signed, or transferred to, or vested in the trustee to be held upon the trusts, any other property which from time to time may be held by the trustee upon and subject to the trusts, and any income of the Trust Fund accumulated by the trustee pursuant to the power to do so in the deed.
As to income, the provisions of this deed generally work in the same way as the first deed. "Setting aside" income has the same meaning. Under cl 3.3 of the second deed, any income not paid, applied, set aside or accumulated is held on trust absolutely for the "Default Beneficiaries" who, under this deed, are Mr and Mrs Benson. Differently from the first deed there is cl 3.7. That "declares" that each beneficiary in whose favour the trustee may pay, apply or set aside income for the year, has an immediate and indefeasible vested interest in that part of the income for that year.
Clause 5.1, referred to in order 1 of the consent orders, is in the following terms:
"Apply Whole or Part
5.1
The Trustee shall have and may exercise in its absolute discretion at any time and for time to time … power to pay or apply the whole or any part of the Trust Fund to or for the benefit of all or any one or more exclusively of the others of the Primary Beneficiaries the Secondary Beneficiaries or the Tertiary Beneficiaries then living or in existence and such proportions or manner as the trustee shall think fit."
The aftermath of the consent orders
After the making of the consent orders there was an exchange of letters between the applicants' solicitor, Mr Hart of Rae & Partners, and the solicitor acting for the trustees, Mr Fairley of Fairley & Associates. The letters explain the parties' respective approaches to the consent orders, and show their actions. To a very large degree, what was said also summarises their positions a taken in these proceedings. For those reasons, I will set them out in some detail.
On 12 December 2014, Mr Hart wrote to Mr Fairley. Mr Hart first mentioned the question of costs of the Federal Court proceedings and continued:
"The second issue we wish to raise is the implementation of the orders made by the Court. The orders contemplate the applying or setting aside of the net assets of the two Trusts in favour of the three Applicants.
As the interests of our clients in the two Trusts has now been recognised, short of crystallisation upon a sale and discharge of the liabilities of the Trust, are the Respondents Mr and Mrs Benson senior prepared to discuss whether particular assets might be the subject of negotiation?
Are there particular assets within either Trust which might be, for want of a better expression, 'traded' or appropriated towards the satisfaction of a portion of any Applicant's interest in the net proceeds of the Trusts after payment of liabilities? Also, can our clients lease any premises from the Respondents, in particular so as to afford the Respondents rental income within the partnership for the mutual benefit of the parties?
Is there any assistance that might be afforded by any of the Applicants towards their parents in realisation of any of the assets, if the realisation of assets is necessary so as to satisfy the interests of any of the Applicants in either Trust?
In particular, are the Trustees prepared to appropriate particular assets in their present state towards the satisfaction of the interests of any of the Applicants?"
On the same day, Mr Fairley wrote to Mr Hart. The letters appear to have crossed. Relevantly, the letter states:
"We are instructed that the trustees will, in accordance with [the] Orders, pay (as distinct from apply) 20% of the net value of the trust funds to each of your three clients. It is the trustees' intention that, subject to market factors, payment will take place this financial year."
Mr Fairley then set out his instructions, which can be summarised as follows:
· The assets of FHFT would be sold as a going concern, including the farm properties, the plant and equipment and the farming business.
· For the purposes of the sale, the applicants should return all plant and equipment owned by FHFT or Doloraine by no later than 31 December 2014.
· Notwithstanding that demand, FHFT may apply one or more vehicles to one or more of the applicants in part satisfaction of the order, such a course to be decided upon by FHFT in its absolute discretion after considering the requirements of any incoming purchaser of the business.
· The farm houses on two FHFT properties were to be vacated by no later than 31 January 2015, as was a property owned by Mr and Mrs Benson senior.
· The two Doloraine properties would be sold individually.
· Upon the settlement of all debts of the trustees, payment would occur in accordance with the terms of the orders.
Mr Fairley went on to say:
"It is in your clients' interests that the sale proceed as smoothly as possible, so that the best price can be achieved on sale. FHFT in particular carries significant debt, which will only be cleared if the sale attracts a market price. Needless to say, your clients should not interfere in any way with the operation of the business pending the sale, or the sale itself. We repeat that doing so will only harm your clients' interest in achieving the best sale price possible."
Mr Hart replied on 17 December 2014, saying:
"Your correspondence evidences a profound lack of understanding on the part of the trustee of each trust as to the legal consequences of the declarations made by the Federal Court … Until those declarations were made it is perfectly true that no person within the class of beneficiaries of either trust had an equitable proprietary interest in the assets of the trust. However, upon the making of each declaration and in accordance with clauses 5.1 of the Benson Family Trust and 5 of the I R & G M Benson Family Trust, each of the applicants became entitled to a specific, defined and beneficial interest in the net assets of each trust. Each is now entitled to claim specific property for himself. Each has a beneficial equitable proprietary interest in the net assets of each trust.
Accordingly the net assets held by each trustee, equivalent to the 20% net interest, have ceased to be the subject of the express terms of each discretionary trust. In favour of each applicant new trusts have been created. In each case each trustee is bound, strictly, to hold the identified interest for the benefit, and the benefit only, of each applicant. The intended course of action set out in your letter is a profound repudiation by each trustee of its respective duties and obligations to each applicant created as a consequence of the declarations …
The obligation of each trustee, with effect from 5 December 2014, is to either pay or to apply to the benefit of each of the applicants 20% of the net value of each trust fund. Unless each applicant expressly consents, it is not open to either trustee to deal with any of the assets of either trust in a manner inconsistent with the vested beneficial interest of each applicant. Consent has neither been sought, nor given. In particular it is not open to either trustee to:
· Sell the assets as a going concern;
· Require the vacation of the residences …;
· Deny to the applicants their proportionate share of the income generated by the use of their assets;
· Deny to the applicants possession of any plant and equipment, including vehicles;
· Apply any portion of the income to which the applicants are entitled, to any other beneficiary of either trust and in particular in favour of Mr & Mrs Benson."
Mr Hart went on to say that it would appear that each trustee, and Mr and Benson as knowing participants, had already acted in breach of their obligations as trustees. Mr Hart called for an immediate account of income applied since 5 December 2014, and for the identification of any benefits applied to any persons apart from the applicants since that date. He went on to say that compliance with the obligations under the orders involved a mathematical calculation based on admissions by the trustees and Mr and Mrs Benson in the proceedings as to the value of assets and the quantum of liabilities. It was asserted that the net interest, once ascertained, was immediately payable on 5 December 2014.
Mr Hart then set out some calculations, and noted that bank liabilities were cross-collateralised; "… in other words the bank approved the loans on the basis that all liabilities were in effect charged against all assets. On that basis the only proper way to treat the indebtedness of the Group is to pro rata the debt against all assets". He then provided a calculation of debt attributable respectively to the partnership and to the trusts.
Mr Fairley replied on 19 December 2014. He said:
"1The order of the Court notes that the trustees have resolved to pay or allocate a proportion (being 20% per sum) of the net value of the trust funds (emphasis added). [sic] The Court then declared that '20% of the net value of the trust funds are beneficially held for each of the applicants'.
2Contrary to the assertion of your clients … as recorded in your letter, there is 'no specific, defined and beneficial interest in the net assets of the trust'. There is a beneficial interest in 20% per sum of the net value of the trust funds, but the value is unascertained in dollar terms and does not attach to any particular asset. Rather it attaches to each of the trust funds as a whole."
Mr Fairley made the following further points:
· It was not correct to say that each applicant was entitled to claim specific property, nor correct to say that each had a beneficial equitable proprietary interest in the net assets of each trust.
· The proper analysis was that each applicant had a beneficial equitable interest in receiving, by payment or allocation, 20 per cent of the net value of each of the trust funds as distinct from the specific assets themselves.
· The trusts continued to operate pursuant to the terms in all respects, save only that 20 per cent of the net value of the trust fund was now held beneficially for the applicants, to be paid or allocated to them.
· The trustees' discretion as set out in the trust deeds remained unfettered.
By letter of the same date Mr Fairley again wrote, pointing out that the applicants were yet to return all of the plant and equipment, including vehicles, as requested in the letters of 12 and 19 December 2014. Mr Fairley said that his clients noted that the ongoing occupation of the residences on the farming properties would inhibit the sale of the assets. He conveyed his instructions to reiterate that the farming properties were to be vacated by 31 January 2015. He also reiterated his clients' position that in accordance with the consent orders, the applicants did not have specific and/or defined interest in the net assets of the trusts. He said, "They have a beneficial interest in 20 per cent per sum of the net value of Trust Funds. Thus, each of your clients has a beneficial equitable interest in receiving, by payment or allocation, 20 per cent of the net value of each of the trust funds once ascertained in dollar terms".
The last volley in this exchange came from Mr Fairley on 19 January 2015. He noted his instructions that the applicants were yet to return all of the plant and equipment, including vehicles, as had previously been requested. He also noted his clients' view that the ongoing occupation of the residences on farming properties would inhibit the sale of those assets, and reiterated his instructions that the properties were to be vacated by no later than 31 January. He said he was instructed to remind Mr Hart's clients that neither they, nor any third party at their invitation, were to enter onto the farms. The letter continues:
"In putting the above we reiterate our clients' position that, in accordance with the Orders of the 5th December, your clients do not have a specific and/or defined interest in the net assets of the Trust. They have a beneficial interest in 20% per son of the net value of the Trust Funds. Thus, each of your clients has a beneficial equitable interest in receiving, by payment or allocation, 20% of the net value of each of the Trust Funds once ascertained in dollar terms."
The applicants commenced these proceedings on 29 January 2015. On 26 February 2015 the trustees filed an interlocutory application in the Federal Court seeking variation of the consent orders, primarily by the inclusion in each declaration of the words "on the terms set out in the [named] Deed", after the words "… is beneficially held …". By an interlocutory application filed in these proceedings on the next day, the trustees sought to have these proceedings stayed pending the determination of the application in the Federal Court, and sought the transfer of these proceedings to the Federal Court under the cross-vesting legislation. On 18 March 2015, that application was adjourned sine die, and on 2 April 2015 the application to the Federal Court was, by consent, dismissed with no determination on the merits.
The resolutions and the Federal Court declarations
Before setting out a short summary of the arguments, it may be worthwhile to note the nature of the applicants' interests under the trust deeds before the consent orders. As beneficiaries under a discretionary trust, their interest was an expectation or hope that the discretion would be exercised in their favour. They were entitled to be provided with or have access to information in relation to trust assets and the management of the trusts. This underpins the right to have the trusts properly administered. They had no right to income and no vested or contingent interest in any trust assets. See Gartside v Inland Revenue Commissioners [1968] AC 553 at 607, 615-616; Kennon v Spry (2008) 238 CLR 366 per Gummow and Hayne JJ at 393 [74]-[75].
The arguments
The applicants argue that the effect of the resolutions and orders was that 60 per cent of the net value of the fund was "removed" from each discretionary trust, and that defined trusts in favour of each applicant were created. There are six such "defined" trusts, being one of 20 per cent of the net value of each trust fund, held for each applicant. The contention is that each applicant has an absolute vested interest in 20 per cent of the net value of each trust fund as at 5 December 2014; it matters not that no cash payment could then be made, nor that assets had not then be converted to money.
The applicants say that the amount was fixed on that day because of, and by reference to, the agreed total value of assets and liabilities. They argue that neither trust deed makes provision for the creation of any form of trust where the power to pay or set aside the whole or a portion of the capital has been exercised, and that the effect of the resolutions and the declarations is to displace the continuing operation of each discretionary trust in relation to that part of each trust fund to the extent of the identified value.
The respondents deny the existence of any defined or fixed trust for distribution. They argue that "the effect of the consent orders was to declare a beneficial interest in the trust fund in favour of the applicants, but otherwise subject to the rights and duties of the trustees under the trust deeds." The beneficial interest was explained to mean only an entitlement to compel the trustees to act on the resolutions; that is, each applicant has an entitlement to compel the trustees to administer the trusts, which are otherwise discretionary, in order to ensure that each applicant receives a 20 per cent share of net value. The only purpose of the declarations was to confirm or "give effect to" the trustees' resolutions pending the exercise of the advancement powers under the trust deeds.
The respondents do not accept that separate trusts have arisen and that the applicants each hold a vested interest in 20 per cent of the net value of each trust fund. They say the trustees were, and remain, obliged to satisfy the interests of the applicants by advancement out of the trust. That will involve the ascertainment of the net value of the trust, with part of the trust funds to be appropriated for the purposes of the advancements, and then payment or application to the applicants in satisfaction of the applicants' interests. The choice between payment and application remains at the discretion of the trustees pursuant to the powers under the deeds. The respondents say that in practical terms, the trust assets will need to be sold and part of the net proceeds paid to the applicants in satisfaction of their interests.
The respondents advance an alternative view, although this is put shortly in the respondents' written submissions but was not addressed in oral argument. It is that the orders "declared an express trust with respect to net value, but otherwise subject to the trustees' powers of appropriation and sale." Even on this alternative hypothesis, it is said that the trust deeds still have their full operative effect.
The circumstances in which the consent orders were made
Of course, on their face, the resolutions were unilateral acts of the trustees, although they were made in the throes of negotiations to settle the proceedings. The declarations were made by consent in words formulated by the parties. Generally, in construing the meaning of consent orders, a court can have regard to the type of surrounding circumstances as those which can be used to construe a contract: Kirkpatrick v Kotis (2004) 62 NSWLR 567 at 575 [45]. The construction is to be determined objectively, not as a matter of subjective intention, but considering the understanding and belief of reasonable people in the position of the parties. That requires consideration of the text, the surrounding circumstances known to the parties, and the purpose and object of the transaction: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22]; Electricity Corporation v Woodside Energy (2014) 251 CLR 640 at 656-657 [35]. In Kirkpatrick at 579 [57], Campbell J described surrounding circumstances as "facts known to all parties to the consent order … the very thing that a person trying to understand and obey the order would take into account."
Each party relies on the discussions in open court leading to the making of the orders, and it is proper to take them into account, although ultimately the benefit might be limited due to the words actually used. The settlement of the proceedings evolved over some hours, during which the trial judge reconvened on several occasions to hear further from the parties. The applicants were represented by the same counsel as appeared before me, while the trustees' counsel in this application appeared for all respondents in those proceedings; the trustees and the parents. The commencement point of the process was a concession made on behalf of all respondents to the judge at the start of closing submissions. Counsel for the respondents handed up a minute of orders proposed by them. The first order consisted of declarations that (a), in about 1999, the applicant sons entered into a joint enterprise with their parents for farming purposes, which was conducted by FHFT; and (b), that on 17 February 1998, the sons and the parents entered into a joint enterprise for investment purposes, which was conducted by Doloraine. The second order sought was a declaration that "Doloraine and FHFT hold 60 per cent of the assets presently held owned by them pursuant to a constructive trust in favour of the sons, being 20 per cent for each son."
Mr Aghion, counsel for the respondents, said to his Honour:
"The matter is proceeding but in a more limited fashion. … If I might explain … a concession we are instructed to make. The concession is that there was a joint enterprise – both for investment and farming purposes – between Chris, Mark and David Benson on the one hand and Ian and Gloria Benson on the other. I will term that the joint enterprise. The joint enterprise was conducted and continues to be conducted by Doloraine Pty Ltd for the investments and Forest Hill Farm (Tasmania) Pty Ltd for the farm. I say continues to be conducted, but I say that in light of the fact that the relationship has irretrievably broken down and, in all probability, the joint enterprise came to an end in about September 2013. That is the concession …
Joint enterprise, of course, is a term of art and has no legal significance in terms of the identity of entities. It is at this point that I would identify the matters that are remaining for determination, as we see it. When I say 'we' I mean commonly at the bar table. The first question is: what is the proportion of the assets held by Doloraine and Forest Hill Farm on constructive trust … The second question is: are the partnership assets held by the parents - … - subject to the constructive trust? The third question is: what is the relationship between the constructive trust and the express trusts. The fourth question is: should this court direct a sale or partition in lieu of sale of the assets that are subject to the constructive trust, and finally: what form of order should this court make?"
There followed a discussion between counsel for the respondents and the judge about the nature of the remaining questions. His Honour expressed some concern about making the first order, suggesting that there lacked "sufficient elements of certainty." His Honour then had a lengthy exchange with counsel for the applicants. There was discussion about how remedial constructive trusts in the terms sought could stand with the express discretionary trusts. The court adjourned so that the parties could confer. His Honour was given the written closing submissions from both sides. When the court reconvened, counsel for the respondents addressed the issue of how the declaration might be framed. That led to a discussion of the evidence. At one point the judge observed that the second question which was left open, cast doubt on the effectiveness of the concession. After a further lengthy discussion with both counsel in turn, the court adjourned for the lunch break.
On resumption, counsel for the applicants gave the trial judge a "summary of relative values of the partnership assets", and further discussion was had about the form of the key order. A brief adjournment followed, after which counsel for the applicants told the court that he was instructed not to pursue the partnership claim and to accept the concession. He said that that left the formulation of orders. His Honour said that if the position was that the parties agreed that interest had been created, he could take that as a fact into account, and that would justify the making of declarations. Counsel for the applicants started to articulate a declaration that the trustees held certain properties on trust for each of the applicants as to 20 per cent. His Honour interrupted:
"HIS HONOUR: Does - I haven't looked at the deed. Do the express trusts permit the distribution of corpus?
MR McELWAINE: Yes. They do, your Honour.
HIS HONOUR: Isn't that a simple way to deal with it?
[Mr McElwaine SC then identified cl 5.1 in the second deed.]
HIS HONOUR: All right. Well, now, assuming there's a similar clause, as there probably is, in the other deed - let's make that assumption - - -
MR McELWAINE: Yes.
HIS HONOUR: - - - then would the solution not be for the parties at least through their counsel, if not by talking to each other, agree to resolve the dispute upon terms that the trustee hereby determines to distribute? So you get it out of the trust as from today.
MR McELWAINE: Yes.
HIS HONOUR: And they can all go home with something in their pocket.
MR McELWAINE: That's an eminently sensible solution, and I can say that we
will agree to that, your Honour.
HIS HONOUR: Mr Aghion, can you see any problem with that?
MR AGHION: If the parties agree, yes.
HIS HONOUR: Well, that gives effect to your concession."
The trial judge then discussed the effect of the concession with counsel for the respondents, and what the intention of it was. The following exchange occurred:
"HIS HONOUR: But at the moment, the general idea seems to be this: that on the evidence that I have heard and upon the basis that the individuals who at all times have acted as the trustee - as the directors and shareholders of the trustees of the trusts, having conceded that it was the intention of those who controlled the trust to confer an equitable benefit to the three sons, then, in order to resolve the dispute, they would hereby accept the fact that the concession would be given effect to - - -
MR AGHION: Yes.
HIS HONOUR: - - - by a formal resolution. That, if I may say so, would also save your clients from catastrophic capital gains tax.
MR AGHION: Yes.
HIS HONOUR: Now, there may be some other consequential orders that may be required to put everybody back to the position so far as resolution and distributions over the last year or so. But that, I would have thought, in the scheme of things might be regarded as small beer."
Further discussion took place about the concession. The end result was that there was a short adjournment during which counsel for the respondents sought instructions. Upon resumption, the trial judge was told by counsel for the respondents that the concession stood, and it was a question of formulation of the order. Counsel for the respondents said that perhaps all that was required was for the corporate trustees to give an undertaking to the court that they would respectively exercise each identified power in each trust deed so as to pay or apply to the benefit of each of the applicants 20 per cent each of the net value of the assets of each trust. His Honour suggested that the better approach from the applicants' perspective would be to seek a declaration. His Honour said:
"If I were in your position, I would get a declaration from the court that the trustee having sought to resolve the matter by exercising … their respective powers under the clause to give effect to the concession that had earlier been made, it stands – the court declares that it stands."
He suggested the parties talk about that issue. The matter was again stood down and, on resumption, the orders which were ultimately made were read out. His Honour said that having been informed of the position of the trustees, he was prepared to make the declarations sought.
The effect of the resolutions and declarations
The applicants rely on two recent decisions of Australian intermediate courts of appeal which reflect a longer and broader line of authority. It is convenient to start first with one case in that line which is referred to in both decisions: Commissioner of Inland Revenue v Ward [1968] NZLR 1.
The case involved a trust deed which conferred on the trustee a discretionary power to "pay … or otherwise apply 'trust income for the benefit of various infant beneficiaries'." Before the end of the income year in question, the trustee executed a declaration in respect of trust income to the effect that stated amounts of the trust income for that year were held for each of the four infant beneficiaries. Appropriate entries were made in the trust's books, but the relevant amounts were not paid into separate accounts until some years later. The issue was whether income tax should be assessed on the whole of the income earned by the trust in the particular year. That involved the question of whether what was done by the trustee was an application of the trust income within the meaning of the applicable tax legislation, so as to relieve the trustee of liability for tax on the income.
North P and McCarthy J (Turner J dissenting), held that the declaration, deliberately arrived at and recorded, of itself effected an immediate vesting of the specific part of the trust income. That is, there had been an application of the trust income within the meaning of the statutory provisions. Both judges in the majority referred to Re Vestey's Settlement; Lloyds Bank Ltd v O'Meara [1951] 1 Ch 209. North P said at 15:
"I read Vestey's case therefore as laying down the principle that if a trustee takes the necessary step of exercising a power to 'pay or apply' income for the benefit of infants, who only have a contingent interest in the outcome, it is immaterial whether the income is immediately used for the benefit of the infants. It is sufficient if it is allocated to them in terms which make the parts of the income so allocated the separate property of each infant."
His Honour went on to refer to an argument put by the appellant concerning the effect of Re Pilkington's Will Trust [1964] AC 612. That case concerned a section of the English Trustee Act 1925, which enabled a trustee to pay or apply any capital money subject to a trust, for the advancement or benefit of any person entitled to the capital of the trust property or of any share thereof whether absolutely or contingently on attaining any specified age, or on the occurrence of any other event. North P noted the appellant's reliance on the case as authority for the submission that in the case of a capital advancement, the funds so advanced must be taken right out of the trust's estate and devoted to the benefit of some person who holds it clear of the limiting trusts of the settlement under which the power of advancement is exercised. At 16, his Honour continued:
"I have no doubt that that is true in the case of an advance of a capital sum for it is of the very essence of the exercise of the power that the capital sum so advanced ceased to form part of the trust property. But I do not regard Pilkington's case as any authority for the view that in the case of income which is the fruit of the trust property, the same considerations apply and I do not regard that case as in any way weakening the conclusion reached … in Vestey's case relating to the allocation of accrued income."
In Ward at 30, McCarthy J dealt with the argument that the resolution should not be regarded as applying income unless it acted as a declaration of trust imposing a trust on the trustee in favour of beneficiaries, or created a debtor/creditor relationship between them. He said he thought the argument proceeded "on rather unsound bases". His Honour went on to say:
"The moneys covered by the resolution were of course held on trust both before and after the resolution; held, basically, under the trusts created by the original deed. The effect of the resolution was to fix the beneficiaries to whom payment would eventually have to be made and to that extent one could perhaps speak of a new trust, but this is by no means an unusual occurrence in the administration of trust deeds. A power of appointment, though in many respects different from a power to apply, does supply a like illustration in this respect. To suggest that a trustee may not in such circumstances hold a particular amount in trust for a particular beneficiary unless the moneys are identifiably separate from the remaining trust assets is, I think, unsound. No such separation was effected in Vestey's case. There the resolution applied only to part of a sum of money standing to the credit of the trustees at their bank; the balance was to be held as before. The moneys were not in hand and capable of physical division; there was instead a credit in a current banking account. I fail to see any difference in principle between that situation and that which pertains in the present case." [My emphasis.]
The first of the cases relied on by the applicants is Chianti Pty Ltdv Leume Pty Ltd (2007) 35 WAR 488. That case concerned a discretionary trust with terms similar to those in the deeds in the present case. The trustee could determine to pay, apply or set aside income in any accounting period to, or for, one or more of the general beneficiaries. A determination to pay, apply or set aside could effectually be made and satisfied by placing the amount to the credit of the relevant beneficiary in the books of the trust. Any amount set aside for any beneficiary ceased to form part of the trust fund, and was to be held by the trustee as a separate trust fund on trust for that person absolutely.
In each of four years the trustee resolved that so much of the income for the year as had not been previously paid or applied, was to be applied for the benefit of stated beneficiaries in stated amounts, with "this application being effected by crediting the set amounts to such beneficiaries in the books of the trust". At 509 – 510 [65], Buss JA (with whom Martin CJ and Pullin JA agreed) held that the effect of each resolution was that the trustee held the relevant amount upon trust for the beneficiary absolutely. However, his Honour did go on to note that the amounts had been placed to the credit of the beneficiaries in the books of the account and the "current liability", although they were described in various ways.
Buss JA went on to consider Commissioner of Inland Revenue v Ward (above) in the context of considering an alternative basis for recovery; whether the trustee had admitted that the distributed amounts were owing to the beneficiary. At 515 [77], his Honour held that the financial statements and the evidence of a person involved in the administration of the trustee company, when considered in the context of the relevant factual and legal background including the terms of the trust deed and the resolutions, constituted admissions by the trustee that the distributed amounts were owing by the trustee to the beneficiary.
The next case is Fischer v Nemeske Pty Ltd [2015] NSWCA 6. Again, the case concerned a discretionary trust. Under cl 4(b) of the deed, the trustee had the power to advance or raise any part or parts of the whole of the capital or income of the funds and to pay or apply the same as the trustee thinks fit for the maintenance, education, advancement in life or benefit of any of the specified beneficiaries. The relevant aspect of the case concerned a resolution of the trustee "that a final distribution be and is hereby made out of the asset revaluation reserve for the period … and that it be paid or credited to … " Mr and Mrs Nemes as joint tenants. The reference to the "asset revaluation reserve" was a reference to the revaluation of the sole asset of the trust, being a number of shares in a company. The trust was established by a deed of settlement in 1974. The shares were then valued at $1,000. As at 31 July 1994, the shares had been revalued at about $3.9 million.
After the resolution had been made, the books of account acknowledged a debt in that amount to the beneficiaries named in the resolution. In issue is whether any trust property was distributed to the beneficiaries by the resolution. It was argued against the beneficiaries that under the clause of the trust deed, the trustee only had power to make "an advance" from the assets of the trust representing "trust funds" and that, as the only assets held by the trust were the shares, in order for there to be a distribution of capital from the trust fund, there needed to be a transfer of at least some of the shares, and that this did not occur. It was submitted that it was a "legal nonsense" to speak of the trustee making a distribution out of the asset revaluation reserve, and that the purported distribution was a nullity.
Barrett JA (with whom Beazley P and Ward JA agreed) at [56], said that the central question was whether the trustee's determination that "the entire reserve", – that is, the whole of the unrealised accretion recognised and quantified by the process of revaluation – be distributed to the beneficiaries, was a determination that capital income should be advanced or raised and paid or applied by allocation to the beneficiaries. His Honour referred to Chianti Pty Ltd v Leume Pty Ltd and went on to note, by reference to Vestey's case, that it was clear that income may be "applied" by a process of crediting even in the absence of express provisions dealing with the crediting of amounts to beneficiaries in the books of the trust. His Honour also noted the effect of Vestey's case as stated by North P in Commissioner of Inland Revenue v Ward.
At [62]-[63] his Honour continued:
"In the present case, Nemeske, as trustee, expressly identified an unrealized accretion in value arising from revaluation of the Aladdin shares and therefore a particular share of the value of the trust assets. It then determined, by the resolution of 23 September 1994, that that accretion or share should be used immediately (that is, 'advanced') rather than being left to be dealt with in the fullness of time. The accretion or share formed part of either the 'capital' or the 'income' of the 'Trust Funds'. The trustee's resolution that the identified portion of the 'capital' or 'income' (described, perhaps inaptly, as the 'asset revaluation reserve' that stood in the books at $3,904,300) be 'distributed to' Mr and Mrs Nemes caused capital or income to be dealt with in a way contemplated by clause 4(b), that is, by being 'applied' for the benefit of those two persons. The specific setting aside or appropriation that the resolution effected by means of the words 'be distributed to' – which carried precisely the same connotation as the words 'shall belong to' in Vestey's case – did not result in any cash payment or change in ownership of specific property. But it did cause the trustee's obligations with respect to the trust assets to change so that, to the extent of $3,904,300, the trustee was required to recognize and accommodate an immediate and absolute vested interest of Mr and Mrs Nemes.
There is nothing anomalous about the concept that a trust fund is held, to an extent defined in money terms, for one beneficiary to the exclusion of others even though the assets in the trustee's hands do not include money of the relevant amount. It was held in MSP Nominees Pty Ltd v Commissioner of Stamps [1999] HCA 51;198 CLR 494 at [8] that redemption of units of a unit trust under a provision fixing a 'price' for the redemption was a process that effectuated, fulfilled or realised the unitholder's rights and interests in respect of the trust fund and caused that unitholder to have 'at least, an absolute right to the price for the redemption'. The trustee thus came to hold the trust fund upon trust to pay thereout to the particular beneficiary the amount to which that beneficiary had an absolute right; and that position prevailed regardless of the nature and composition of the trust assets. As Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ observed in Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; 192 CLR 226 at [48]:
'The entitlement of the beneficiaries in respect of the assets held by the trustee which constitutes the "property" to which the beneficiaries are entitled in equity is to be distinguished from the assets themselves'." [My emphasis.]
Before going to the issue of a debt due (as to which the court followed what was said in Chianti), Barrett JA said at [64] that in summary, his opinion was that the trustee advanced and applied capital or income of the trust funds to the extent of the $3.9 million by due exercise of the power conferred by cl 4(b). At [75], his Honour noted that the exercise of the cl 4(b) power by the resolution caused the trustee's obligations with respect to the trust property to change so that, to the extent of the $3.9 million, it was required to "recognise and accommodate an immediate and absolute vested interest of Mr and Mrs Nemes". Further, at [76] his Honour said:
"There was an application of capital or of income in such a way that the powers and duties of the trustee with respect to the applied capital or income ceased to be those generally prevailing by virtue of the trust deed and became instead the powers and duties applicable to and consistent with the holding of the trust fund upon trust to pay thereout $3,904,300 to Mr and Mrs Nemeske [sic] in satisfaction of an absolute entitlement on their part."
The respondents did not address this line of authority, and its application to this case. At this stage I should note that, to a very large extent, the respondents' arguments are based on a conclusion in their favour as to an issue about which there is a dispute. The issue is the meaning to be given to the words "net value of the Trust Fund" as they appear in the consent orders. As I have noted, the applicants argue that this was established by reference to the agreed figures in the Federal Court proceedings. The respondents accept that there was agreement between the parties for the purposes of that litigation, but say that it "does not necessarily follow that there is agreement outside of" that litigation. The submission continued: "[E]ven if there is, it says nothing about what the present net value is." It seems to me that much of respondents' argument is based on the assumption that the net value of each fund was not ascertainable at the time of the consent orders, or that the agreed figures were not incorporated into those orders by the reference to "net value". The respondents do not directly address why that would be so. Having said that, I will consider the respondents' arguments, and later return to the point.
The respondents rely heavily on the decision of the High Court in Korda v Australian Executor Trustees (SA) Ltd (2015) 89 ALJR 340. Given its asserted significance, I will deal with it in some detail. The dispute concerned two companies in a corporate group; a forest company which grew trees, and a milling company which felled, milled and sold timber. The forest company made a trust deed with Australian Executor Trustees (AET) under which AET would act as trustee for investors who wished to participate in timber plantation schemes undertaken by the companies. At the same time, AET and the companies entered into a tripartite agreement which, together with the trust deed, provided (among other things) that the forest company would promote the timber plantation schemes to investors, the milling company would pay to the forest company the proceeds of selling the timber after deducting the milling company's expenses, the forest company would pay those proceeds, and also any proceeds from selling plantation land, to AET after deducting the forest company's expenses, and AET would hold the proceeds on trust for the investors. Neither instrument expressly provided that either company was to be a trustee of the investors.
Under the scheme, the forest company issued securities, called 'covenants', to investors. By these covenants an investor would receive "due proportion" of the benefits obtained from the sale of harvested timber. After recoupment of its expenses and a fee, the balance of the proceeds was to be paid to the forest company, which, after further deductions, was required to pay the balance to AET for the investors for distribution in accordance with their respective holdings. In some cases, covenants provided for a further payment attributable to the increase in value of a planted area once it was clear-felled. The forest company represented in prospectuses that investors would be entitled to an 'interest' in the scheme timber and in the 'value' of the land. The preamble to the tripartite deed also described scheme timber as the 'property' of investors. After a time, joint receivers and managers of the each of the companies were appointed. AET brought proceedings on the behalf of the covenant holders. Both at first instance and on appeal, AET succeeded in its contention that the proceeds from timber and land sales were held on trust for the investors. The question was whether the proceeds were subject to the receivership or held on trust.[1]
[1] At [17], French CJ explained the issue:
"The trust deed created an express trust, in the hands of AET, of the net proceeds of the sale of milled timber and 'land value' payments made by the forest company to AET. The principal issue for determination in the Supreme Court and in this court was whether an intention to create a trust in favour of the covenantholders was to be imputed in relation to the timber and land sale proceeds in the hands of the forest company and the milling company. AET sought to support the decision of the Court of Appeal in this court on the basis of a trust of both sets of proceeds, evidently underpinned by a trust or trusts of the planted trees and the scheme land."
The Court unanimously allowed the appeal in four separate judgments – French CJ, Hayne and Kiefel JJ, Gageler J, and Keane J – on the basis that the scheme's documentation, when placed in its commercial and regulatory context, did not support the existence of a trust over the timber and land sales proceeds. A number of factors were considered, and given varying degrees of prominence in deciding the outcome. A very broad summary is as follows. French CJ said the scheme documents were at best treated as being "at least analogous" to a multilateral agreement between all the parties: [51]. While the creation of a trust might be commercially advantageous, it did not reflect the joint intention of the promisors and promisees: [53]. Hayne and Kiefel JJ emphasised that the dealings between the companies and the investors reflected contractual obligations rather than obligations as trustee: [79]–[83]. The documents did not suggest that the investors' interests were to be specially preferred or protected against commercial adversity: [85]–[87].
Gageler J took view that the decisive omission from the agreement was that the companies should hold the proceeds separate from their own money. This "hallmark duty of a trustee" indicated that there was no intention to hold the money on trust: [110]–[111]. Keane J held that no trust arose because the documents did not make express provision for the trust relationship contended for, although they did expressly provide for other funds to be held on trust, and that the documents showed the investors' contributions would not be separated from the general funds of the companies but used in their businesses: [136] and [204].
The respondents argue that the facts in Korda are "remarkably similar" to the facts of this case, and say that Korda is "the most important case in this matter". However, with respect, I am unable to see what matters of principle emerge from the judgments in Korda which are of particular assistance in the present exercise. It is true that, to an extent at least, the objectively ascertained intention of the parties has some relevance in this case. It is also true that a relevant factor in Korda was that there was no requirement in the arrangements for the funds said to be trust property, to be kept separate. The respondents draw a comparison between the the prospectuses and covenants in Korda with the consent orders, in the sense that in the Korda documents there was reference to a "proportion" of the proceeds of sale. The respondents also suggest that the terms of the covenants in Korda are "replicated by the agreement as evidenced in the consent orders". However, after due consideration, I am afraid that the significance and helpfulness of these attempted factual comparisons escapes me.
For the sake of completeness, I will deal with an associated point argued by the respondents. This was that the rule in Saunders v Vautier[2] militated against the applicants' position. The so-called "rule" was considered by the High Court in CPT Custodial Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98, and extensively by Leeming JA in Beck v Henley [2014] NSWCA 201 at [32]-[37]. It is unnecessary to set out the analyses. The principle recognises the rights of beneficiaries, who are sui juris together absolutely entitled to trust property, to exercise a proprietary right to overbear and defeat the intention of a settlor to subject property to the continuing trusts, powers and limitations of a trust instrument. The rule is best described as a power on the part of the beneficiaries, with a correlative liability on the part of the trustees: CPT at [44].
[2] (1841) Cr & Ph 240; 41 ER 482.
It may have been put as an illustration of why it was that no separate defined trusts were created. However, it seemed to me that in a somewhat circular process, the respondents argued for the absence of defined trusts by asserting that no applicant could call for the amount held on trust for him, because the net value of each trust fund is yet to be established. Again, that assumes that each applicant's share was not ascertained, or at least readily ascertainable, on 5 December 2014, and that the consent orders did not embody net value on the basis of the agreed figures.
For what it is worth, I would add an observation that a beneficiary with an indefeasible vested interest in an aliquot share of a trust fund may, subject to the terms of the trust, terminate the trust in respect of that share and call for payment. Similarly, several beneficiaries who are absolutely entitled may agree between them to the effect that part of the property held on trust be transferred to them according to their shares: Whakatane Paper Mills Ltd v Public Trustee (1939) 39 SR(NSW) 426 at 440; Quinton v Proctor [1998] 4 VR 469 at 474.
Further submissions made by the respondents focused on the powers available to the trustees under the deeds. These submissions were made in support of the proposition that no separate defined trusts arose. In varying terms, each deed gives the trustee powers of sale, expenditure, business management, engagement and employment, and allocation of asset valuation fluctuation to income or capital. Each deed enables the trustee to appropriate any part of the trust fund in the actual conditional state of investment at the time of appropriation, in or towards the satisfaction of any share of any person in the trust fund that the trustee may determine.
The point made goes to the intention of the parties. The respondents say that the parties cannot be taken to have intended to create trusts standing outside of the trust deeds; it is simply unnecessary. The interests in the net value can be ascertained and paid pursuant to the provisions of the trust deed. I do not overlook those provisions but do not see them as particularly relevant in deciding this issue. The existence of those powers does not negate the applicants' arguments. The effect of the consent orders and those powers are not mutually exclusive.
This case has few parallels with Korda. It involves two express trusts which are discretionary in their operation in relation to distribution to beneficiaries. There is a resolution of the trustee in each instance in identical terms, by which a proportion of the trust fund is to be paid or applied to nominated beneficiaries. Those resolutions having been made in the context of the court proceedings by the beneficiaries, the court made declarations to the effect that each of those persons holds a beneficial interest in the trust fund to the stated proportion.
The prominent issue which emerged is the certainty or otherwise of the interest said to be the subject of the defined trusts as argued for by the applicants. The respondents say that it is not possible to identify what the "net value" is. They argue that the net value has yet to be ascertained because the market value of the properties has yet to be established; there may be capital gains consequences, and there may be litigation costs for which the trustees may be entitled to an indemnity out of trust assets. The respondents also point out that there is no agreement about cross-collateralisation of the partnership debts. Leaving aside the last point, I have already observed that this position assumes, without much scrutiny, the validity of the respondents' own position that the consent orders did not reflect a settlement of the applicants' claimed interests on the basis of agreed values.
In my opinion, when the circumstances of the Federal Court proceedings and of the discussions leading to the making of the consent orders are viewed objectively, it is clear, and I find, that "net value of the Trust Fund" meant the value of the assets as agreed in the proceedings, as offset by the liabilities as agreed. My reasons are as follows.
First, the respondents did not argue that the net value of the trust funds could not be ascertained on 5 December 2014 from the agreed figures. They did not argue that even if net value were to involve the exercise of taking into account the cross-collateralisation of debt, net value was then unascertainable. (I add that I am not being asked to decide whether the "net value" is to be increased by an adjustment to take into account partnership debt.)
In cases in which an interest in a trust fund is defined by description, it is sufficient for certainty of interest purposes, if the extent of the interest is reasonably capable of being ascertained: Re Golay's Will Trusts [1965] 1 WLR 969 at 972; Associated Alloys Pty Limited v ACN 001 452 106 Pty Ltd (In liq) (2000) 202 CLR 588 at 604 [30]. See also MSP Nominees v Commissioner of Stamps (SA) (1999) 198 CLR 494 at 501-502 [6]-[8] where the right of a unit holder in a unit trust to the vesting of an absolute right to the price for "redemption" of units, involved a calculation based on the value of the trust fund.
Second, it is an unlikely scenario that the parties agreed to a settlement in which:
· the applicants did not have any certainty as to what they would be receiving;
· the trustees had no precise understanding of the impact on the trust funds, knowing that 40 per cent of the net value of each had to be administered on the existing discretionary basis; and
· the parents were in a similar position to the trustees.
For the respondents to be correct, the applicants would have had to accept that what they were to receive could fluctuate depending on the value of the assets; principally, the lands and the business goodwill. External factors might affect those things. The applicants may have contemplated that assets would have to be sold but it can be inferred that, on 5 December 2014, they may also have reasonably contemplated that at least part of their interests would be satisfied by the appropriation of assets; in particular of course, the land and houses making up their respective homes. It is unlikely that people in their position would have agreed to an arrangement in which there was to be a liquidation of all assets as and when, and at a price. to be determined by the parentally controlled trustees
The terms of the consent orders have to be put in their immediate context, and what was said leading to their making. In effect, the applicants were claiming an entitlement to a share of the business assets on the basis of their contributions and representations made. The original proposal in the document given to the trial judge was that there be declarations of constructive trusts in respect of the proportions of the assets. The applicants were not seeking orders for sale, and in fact opposed such orders sought by the respondents. Of course, the use of the trial judge's comments during the settlement process is limited to the provision of context, but I think it is of some significance that the announcement of the resolutions and the seeking of the declarations by agreement came shortly after his Honour raised the making of resolutions as a possible solution to the impasse. With respect, what his Honour said is not completely unambiguous, but plain enough. He asked whether the solution would be for the parties to agree to resolve the dispute "upon terms that the trustee hereby determines to distribute? So you get it out of the trust as from today … and they can all go home with something in their pocket." [Emphasis added.]
On the basis of my finding, the line of authority advanced by the applicants should be applied. The resolutions of themselves operate to vest absolute interests in the proportion of net value. Even if that is not so, and more is required such as crediting amounts to beneficiary accounts or showing liabilities in the books of account, in this case the Federal Court made declarations. When pressed about the need to give some meaning to those declarations, and as to what that meaning is, the respondents asserted that they were "prophylactic" and did not create a beneficial interest greater than the usual interest held by a beneficiary of a discretionary trust. They argue that the declarations did not operate to do anything other than to "corroborate" the resolutions which triggered the use of trustee powers under the deeds "to get the net value out of the trusts".
I cannot accept that submission. Although it may or may not support the respondents' argument and was not mentioned by them, I suppose it is arguable, more so in respect of the second deed, that the resolutions are revocable. Under the first deed, a resolution for the payment, application or setting aside of any part of the income is irrevocable by virtue of cl 2(e), while c1 7(b) provides that the exercise of any discretion or power, shall be sufficiently evidenced if noted in minutes kept by the trustee, and if not expressed to be revocable will be deemed to be irrevocable. Clause 5.10 of the second deed provides that determinations or resolutions of the trust deed allocating income are irrevocable. That deed is otherwise silent.
Be all that as it may, in my view, the respondents do not have a satisfactory answer to the question about the purpose of the declaration. When properly used, the term "beneficial interest" has a particular meaning in this context: they were the words agreed upon by the parties, and accepted by the trial judge as appropriate to bring the proceedings to an end. It is quite clear from the transcript that the trial judge was being careful not to make orders which were meaningless, or not suited to the occasion. In my view, the declarations of beneficial interests in something which was then ascertainable should be given their ordinary meaning and full effect.
I am satisfied that the effect of the consent orders was that each applicant obtained a vested interest in 20 per cent of the net value of each trust fund as it stood at that time in terms of the agreed values. What that means is that, in respect of each discretionary trust and each applicant, there is an "imperative trust for distribution" of the relevant amount, to use the words of the court in Queensland Trustees Limited v Commissioner of Stamp Duties (1952) 88 CLR 54 at 64.
At least at one point, the applicants asserted that their interests are held by the trustees completely outside the terms of the deeds, and as 'bare trustees' whose only duties are to convey the interest on demand, and to 'guard' it in the meantime.[3] That may be so, but for present purposes, it is not necessary to resolve what the strict situation is. There are fixed trusts in favour of the applicants, and it is recognised that new trusts occur within the administration of discretionary trusts: McCarthy J in Commissioner of Inland Revenue v Ward at [30]. As to that, in the case of each deed there are provisions by which amounts come to be held by the trustees in trust for the beneficiary absolutely. Clause 3 of the first deed operates to that effect when an amount is placed to the credit of any beneficiary in the books of account of the trust fund. Clause 3.7 of the second deed has that effect where the trustee pays, applies or sets aside income for a beneficiary.
[3] See the discussion about the meaning of a "bare trust" by Gummow J in Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 281-283.
The simple end result is that the trustees must recognise that each applicant has a vested beneficial interest in the net value of the trust fund as ascertained by reference to the agreed values on 5 December 2014, and comply with their obligations accordingly. All of the machinery to enable the the trustees to deal with fixed trusts for distribution seems to be exclusively within the terms of the deeds.
Removal of the trustees?
Events since 5 December 2014
For the applicants, I have evidence in the form of two affidavits of Christopher Benson sworn 29 January and 23 July 2015. He also gave some further oral evidence but was not cross-examined. For the respondents I have, among other affidavits, one from Ian Benson sworn 24 July 2015 on which he was cross-examined. Without intending any disrespect, it is convenient if I refer to the Bensons by their first names.
Apart from the identities of the parties, some detail about the history of the Federal Court proceeding and the exchange of correspondence after the consent orders, the affidavits of Christopher establish the following.
· Neither he nor either of his brothers has been asked to consent to a sale of the assets held by the trustees. They do not consent to any sale of the assets.
· They may be prepared to consent if given the opportunity to participate in the sale process and, in particular, receive information concerning the sale.
· Each of the applicants continues to live in the homes on the properties despite the notification given that they were required to vacate them.
· None of the applicants has any other home immediately available. Christopher is married with six children aged between three and ten years. Mark Benson is married but does not have children, while David Benson is married and has seven children aged between six months and eight years.
· The farming business continues to operate as before the orders. None of the applicants has had any role in the operation of the business.
· There has been no payment by either of the trustees to any of the applicants under any obligation or power. Each of the applicants is presently doing casual labour work to earn an income.
· The applicants have not had any involvement in the day-to-day conduct of the farming business. They have been denied access to the property, save for the particular homes in which they live. Some living expenses which were previously "met by the business" are now not being paid.
· The continued operation of the business includes the same employees (or similar positions). The same machinery and irrigation equipment is being used for planting, growing and harvesting of similar crops, in comparable volumes on the same properties, and with sales to "more or less the same customers".
· The applicants have not received "any account of the [trustees] dealing with assets …, the operation of the business and the application of the income and expenditure of either trust" [sic].
· Similarly, no information has been supplied about the operation of the business, its activities, income or expenses.
I will come back to Christopher's oral evidence. It was given in response to Ian's affidavit. In that affidavit Ian says that he has been farming for over 40 years, first as a conventional farmer in Queensland, and for the last 20 years as an organic farmer in northern Tasmania. He provides some detail of the acquisition of the properties. After moving to Tasmania in 1995, he farmed conventionally for three years before converting to organic farming. Since September 2013 he has had sole responsibility for the management of a farm operation. He directs four full-time farm employees, two truck drivers and two fitters, and works closely with his wife. He generally oversees the whole of the operation.
Of some suggested significance in the present context is the registration of the farm as an organic farm by the National Association for Sustainable Agriculture, Australia (NASAA). It is convenient to set out the relevant parts of Ian's affidavit:
"7Certification for the NASAA Standards is based upon the conduct of the 'operator'. The operator is defined in the standard as 'the person responsible for the conduct of the operation who may or may not be licensed to use the NASAA label'. The standard then sets out extensive compliance requirements upon the operator. This is different to 'the licensee', which is defined as 'the person legally responsible for maintaining compliance to this standard'.
8In respect of the Forest Hill Farms therefore, the licensee is 'the Trustee for the Benson family trust trading as Forest Hill Farms Tasmania'. Because of [the fact of my management and day to day operational decision making] the current operator is me.
9Should a new Trustee be appointed to operate the farm, that Trustee will need to comply with the Organic Standards. If the farm's organic certification was lost, reconversion to organic status would take between 12 months and three (3) years. If that occurred the farm would not be able to compete with the commercial non-organic farming operations which surround it on the north-west coast due to their lower operating cost.
10I understand that my sons propose that an accountant … be appointed as trustee. I assume that he would continue to work from Launceston – off the farm, and that he does not have experience as an organic farmer. If my assumptions are correct, then the accountant will need to retain a farm manager to be the 'operator' for the purpose of the NASAA standard. If another person or persons are appointed to operate our business and fails to manage the business correctly, they will not suffer any financial loss as [my wife] and I are personal guarantors for all debts of the trust, using our partnership properties.
11I have a very clear understanding of organic farming that I built up over the last 20 years. As a result I know how an organic farm should be run, and how this farm should be run. I cannot see how the management of the farm would work practically if I was answerable to someone who did not have that level or type of knowledge."
In his affidavit, Ian goes on to say that after the order was made on 5 December 2014, he and his wife, on behalf of the trustees, decided to sell the trust assets and business as a going concern. This was so that they could get the best price for the assets, calculate the net value of the trusts, and then comply with the orders by paying 20 per cent of that value to each of the known beneficiaries. They have sought assistance from their friend and former real estate agent, John McFarlane, to assist with the start of a sale process. They have recently had a prospective purchaser inspect the farm and are now in negotiations to try to reach a suitable sale price. Ian expresses his concern that appointment of an external trustee would indicate a problem with the business, and would become a factor in any negotiation of the sale price.
He says that as soon as they are able to, his wife and he intend to comply with the orders and pay the applicants their respective 20 per cent share of the net proceeds. They have so far, and will continue to, follow the advice of their lawyers and accountants. He says that the applicants have been provided with the 2013 and 2014 financial statements; the 2015 financial statements are in draft form, and once in final form will be provided to the applicants.
Those draft financial statements for 2015 were produced in obedience to a subpoena. Ian's evidence was that he did not expect the final accounts to differ much from the drafts. He was cross-examined about the draft accounts and the accounts for previous years. For FHFT there was a net profit of $773,448.18 shown for the year ended June 2015. Not showing a comforting level of understanding about the operation of the trusts, Ian did not recall whether there had been a resolution to distribute that net profit before 30 June 2015. When asked further about the distribution of the net profit, he said that the figure had not been "clarified" by the accountant, but he agreed that the drawings of $524,227 shown in the accounts had been paid to him and his wife, with them paying the balance in tax.
He said he could not recall whether there was any distribution of the profit to the applicants for the year ended 30 June 2014. When shown the accounts, he acknowledged that the net income was divided principally between himself and his wife ($315,090 each) with nominal sums to the grandchildren, and that no distribution had been made to the applicants in that year, because "we're the ones working, the boys weren't." (The FHFT accounts for the 2013 year show distributions to the applicants of $40,000, $80,000, and $40,000 to Christopher, Mark and David respectively.)
Ian agreed that he had used trust assets since 5 December 2014 to conduct the farming business. He also agreed that he had not accounted to the applicants since that date for any of the profit earned from that business. The following exchange occurred:
In fact, you've kept the profits, either for your own benefit or those of your wife, haven't you?.....It's a bit hard to understand sorry.
You and your wife have funded your lifestyle since 5 December 2014 out of the profits of the business, that's correct isn't it…..Well, we're the ones that was working, the boys weren't.
Yes and you took the benefit of all of the profit since 5 December 2014 didn't you…..We took money from the beneficiary loan … which was owed to us legally.
Points which emerged from further cross-examination are as follows.
· He agreed that it was "fair to say" that there is an irreconcilable conflict between him and his sons. When asked whether the relationship with his sons had irretrievably broken down, he said, "Who knows what the future holds, I don't know … as of today, yes, but who knows what the future holds."
· He had not consulted with his sons nor obtained their consent since 5 December 2014 for the continued use of a 60 per cent interest in the net assets of either trust.
· He had not consulted with his sons since 5 December 2014 as to the terms of sale of the business. He had initiated enquiries about sales entirely on his own account and without reference to his sons.
· He and his wife were after the highest price they could get, but they would determine the terms of sale. He had not consulted with his sons as to any aspect of the price or the terms of sale, and he had no intention of doing so.
· He was not prepared to negotiate with his sons to transfer one or more of the assets to them in satisfaction of the Federal Court orders; he had not done so so far to date and had no intention of doing so in the future.
· After 5 December 2014, he had simply continued to conduct the business under each trust as usual utilising all of the trust assets.
Returning to the relationship with the applicants, Ian said that he had not given his sons any information about the conduct of the trusts since 5 November 2014 because they were not working for them anymore. "They're the ones that up and left. We didn't kick them out." He agreed that his comment underscored the irretrievably broken relationship between himself and his sons. He would not agree with the proposition that he particularly disliked his sons, "I don't particularly dislike anybody." He agreed that he had prohibited his sons from entering the farms in the sense of having anything to do with the farming businesses.
In relation to the organic certifications, Ian agreed that someone else could become the certified operator, although he said he would have to stay on for 12 months as a mentor. He did agree however, that it would not be necessary if a person already regarded as able to run an organic farm, could perform the function within the business. He agreed that any new trustee would need to take advice and appoint someone to run the farms properly. He was asked whether he would be prepared to accept an appointment from an accountant to continue running the farms pursuant to the organic certification. He replied that it would be very hard to take orders from someone who knows nothing about farming; he would find it very difficult, and would struggle with it.
In re-examination, Ian was taken to the draft profit and loss statement for the year ended 2015. He confirmed that there is no entry for rental and that FHFT had not paid any. He confirmed that the three properties owned by the partnership were farmed agricultural properties. He produced a lease dated 30 June 2015 between him and his wife as lessors and FHFT as lessee for the three partnership properties. The lease was for a one-year term from 1 July 2014 at an annual rental of $413,250. He explained that the rental was calculated on the total of 550 acres at $15,000 per acre "because they are organic they are worth more than conventional [acreage], which is $10,000 to $12,000 per acre".
Additionally, Ian produced two separate agreements between FHFT and himself, and FHFT and his wife. Both agreements were entitled "Farm Manager Employment Agreement", and both were dated 30 June 2015. The terms of each agreement are identical. Mr and Mrs Benson are engaged by FHFT as "General Manager Operations" of the farms owned and leased by FHFT. The annual salary in each case is $60,000, together with the statutory superannuation, four weeks' annual leave, and two weeks' personal leave per year.
I return to Christopher's evidence to the extent that it was given in anticipation of Ian's affidavit evidence about organic certification. As to this, Christopher said that the farms had organic certification between 1999 and April 2013. He produced documents for the years ended August 2003 and for an 18-month period ending 2012 which showed the certificate in the names of Mr and Mrs Benson and the three applicants, Christopher, Mark and David. Christopher described the role that each of the applicants had in the business until August 2013. He said that between late-1999 and August 2013, it varied but it was predominantly himself and his brother Mark who were the ones who dealt with NASAA.
His evidence was that there was no particular qualification or experience needed to obtain or maintain the organic certification; it was more to do with ability to comply with the rules of certification. A buyer of the properties would need to apply, but assuming compliance on the farm in the interim, certification could continue because it ran with the land. He said that he did not know of any matter which would preclude him from applying for and obtaining the organic certification, assuming a new trustee was appointed, and assuming the new trustee had asked him to do so.
As to the sale of the farming business, I should mention the affidavit evidence of John McFarlane, a former farmer and rural estate agent. There were some parts of Mr McFarlane's affidavit which were not pressed when challenged, and I took the balance provisionally, subject to relevance. Mr McFarlane has known Mr and Mrs Benson since 1986. Between 1993 and 2000, after he sold his farm, he worked as a rural real estate agent. In January 2015 Mr and Mrs Benson contacted him and asked his advice about selling the businesses associated with both trusts. His advice was rather than list the businesses with a commercial agent, they should make informal enquiries. This was because any suspicion of a forced sale might result in a poor price. Apparently, two parties have expressed interest, one of whom carried out a comprehensive inspection on 2 July 2015. This might show reasonable attempts to sell the assets but it does not seem to have any real relevance to the issues.
The power of removal
Section 32 of the Trustee Act 1898 provides that the Court may, whenever it is expedient to appoint a new trustee or new trustees, and it is found inexpedient, difficult or impracticable so to do without the assistance of the Court, make an order for the appointment of a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees.
Additionally, it is well established, and it is common ground in this case, that the Court has an inherent power to remove a trustee and appoint another as a replacement. There may be a question as to whether this provision gives the Court power to remove a trustee who desires to continue in office, at least where there is a dispute as to the facts: Jacob's Law of Trusts in Australia, 7th ed, at 351 [1585] (3). Subject to that, the principles to be applied in the exercise of the discretion in either case are the same, and are well settled. In Miller v Cameron (1936) 54 CLR 572, Dixon J at 580-581 said:
"The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove a trustee the Court forms a judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary. A trustee is not to be removed unless circumstances exist which afford ground upon which the jurisdiction may be exercised."
The proper approach has been discussed at length in both Porteous v Rinehart (1998) 19 WAR 495 at 506-609, and Hancock v Rinehart [2015] NSWSC 646 at [120]-[124]. Not surprisingly, the dominant consideration is expressed to be the welfare of the beneficiaries: Porteous at 507; Hancock at [120], and the cases cited. The word "expedient" is given its ordinary meaning, and in its context, means "conducive to, or fit or proper or suitable having regard to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts": Porteous at 507. Essentially, the question is whether the continuance of the trustee would prevent the proper execution of the trust. In Hancock, Brereton J identified three main considerations, described as "general guidelines" or "rules of practice". They are:
· the wishes of the person by whom the trust was created, if expressed or implicit in the trust instrument;
· a trustee should not be appointed with a view to promoting the interests of some of the beneficiaries in opposition either to the wishes of the settlor or the interests of the other beneficiaries;
· regard should be had as to whether the appointment would promote or impede the execution of the trust.
At 352 [1585], the learned authors of Jacobs' Law of Trusts, 7th ed, point out that friction or hostility between the trustee and the beneficiaries is not of itself a reason for the removal of the trustee, particularly where the point of view of the impugned trustee was honestly held, arguable and tenable: Quinton v Proctor at 475-476. But where the hostility is grounded on the mode in which the trust has been administered, it is a factor not to be disregarded. At 353 [1586] of Jacobs, the authors set out various circumstances in which trustees have been removed from office. Relevantly, they include where the trustee has refused to execute the trust, where a trustee is not impartial, "and generally where the court has been satisfied that the trust property would not be safe in the trustee's hands and the trust executed in the interests of the beneficiaries".
The jurisdiction to remove a trustee can be exercised without there being established any breach of duty or misconduct in any other way. A conflict of interest and duty can suffice: Porteous at 507-508. In Hunter v Hunter [1938] NZLR 520, referred to in Porteous at 508, Myers CJ said at 530 that it was sufficient if the evidence showed that:
· there was conflict between interest and duty;
· the trustees had failed to recognise this conflict and to take steps to ensure that their interests should not prevail as against their duty, and had disregarded the interests of the beneficiaries; and
· a state of hostility existed between the trustees and the immediate possessor of the trust estate which was calculated to work against the true interests of the estate.
The circumstances of this case
The applicants say that the conduct of the trustees has been in breach of their duties, or is otherwise misconduct, and that, as I understand it, taken alone or in combination with other matters, this conduct justifies removal. I note that a contravention of duties imposed, or a failure to exercise powers reasonably, amounts to a breach of trust: Re Spedding (Deceased) [1966] NZLR 447 at 463-464; Walker v Stones [2001] QB 902 at 916; Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 at 498 [32]-[33].
I find the relevant facts to be as follows. The trustees have not acknowledged any greater interests possessed by the applicants than those of beneficiaries under discretionary trusts, except perhaps to a very limited degree. The trustees have, in a real sense, utilised the amounts to which the applicants are entitled, by continuing to carry on the business without any recognition in the books of account that amounts are owed to the applicants. The trustees have used all assets of the trust funds in which the applicants have, in a loose sense, an interest. The trustees have not accounted to the applicants for the use of their entitlements.
Despite the request in Mr Hart's letter of 12 December 2014, the trustees have not consulted with the applicants about the payment or application of any amount, or the appropriation of any asset in or towards the discharge of the liability. According to Mr Ian Benson, they have no intention of doing so. Similarly, the applicants have not been consulted about the sale of the properties and the business, and again there is no intention to do that. The only information which has been provided comes from Ian Benson's affidavit, and the limited information from Mr McFarlane.
Lastly, it seems to me that there may well have been a failure to reasonably carry out the duties in respect of the discretionary trusts in relation to both the financial years ended 2014 and 2015. The applicants appear to have been excluded from consideration in relation to a favourable exercise of the discretion to distribute. This follows the breakdown of the relationship in late 2013. The evidence tends to suggest that the only beneficiaries to receive an exercise of discretion in their favour in the year ended 2015 were Mr and Mrs Benson. That brings me to the question of hostility.
It is quite clear that there is a high level of hostility on the part of Mr and Mrs Benson to their sons. Despite Ian Benson's comment to the effect that the future is uncertain, I am satisfied that there are irreconcilable differences and that the lack of a reasonable relationship will continue, at least for a considerable period of time. When Ian spoke of the state of the conflict, I detected in his tone a high level of animosity. I cannot, and do not mean to, transform an observation of Pagone J into a finding of mine, but I think it is significant that, after hearing several days of evidence, his Honour was moved during the closing discussion to say:
"These people have got to the stage where their hatred of each other is so enormous that it won't end here unless we make sure that it does end here."
The regrettable fact that it did not end there, and the extent of the dispute thereafter are things which speaks for themselves. Within seven days, the parties were in serious disagreement about what it was they had agreed.
I am also satisfied that the trustees are now irretrievably in a conflict of interest situation. That has a number of aspects. Mr and Mrs Benson have exclusive control of the trustees. Mr and Mrs Benson are primary beneficiaries under both discretionary trusts, the funds of which are now represented by 40 per cent of the net value as things stood on 5 December 2014. The applicants remain beneficiaries under those discretionary trusts. The trustees have made no distributions to the applicants in the years ended 2014 and 2015. With the exception of nominal amounts to the applicants' children, all distributions have been to Mr and Mrs Benson.
Additionally, the trustee companies, as controlled by Mr and Mrs Benson, entered into three agreements with FHFT on 30 June 2015. The first is the lease of partnership properties to FHFT. It will be recalled that it retrospectively operates from 1 July 2014, the annual rental being $413,250, although the liability does not appear in the draft financial statements. On its face, it means that Mr and Mrs Benson had arranged for FHFT to enter into an agreement which benefits them personally, and creates at least a potential liability to be borne by the trust fund. Additionally, there are the two farm manager employment agreements. They operate prospectively. Mr and Mrs Benson have accordingly arranged for FHFT to enter into agreements with them which pay them a salary, at the same time as they control the trustee and the exercise of the discretion to distribute under the trust deed.
In his evidence, Ian Benson did not explain why these agreements had been entered into. However, in submissions it was argued that the events of 5 December 2014 brought about a change, in that previously all matters "had been dealt with in house", but that after the settlement there were separate interests to be considered, those separate interests being those of the trusts and of the partnership. What that meant precisely, and why it justified the particular agreements is not at all clear. The express discretionary trusts remain in existence although with funds amounting to 60 per cent less in net value than they had previously. The Benson Family Trust remained a trading trust with legal ownership of the same assets as it had previously.
As noted by White J in Porteous, in Passingham v Sherborn (1839) 9 Beav 424; 50 ER 407, two trustees were removed without misconduct when one became a tenant of trust property, a conflict thus arising, and the other had been inactive. At 50 ER 408, Lord Cottenham said that the one trustee had put himself in a situation in which it was not very likely that he should be able to protect the estate, because he was the lessee. In this case the corporate trustee, controlled by two potential beneficiaries under the discretionary trust of which it was trustee, became a tenant of property owned by the same two beneficiaries, and so liable to them for rent and in respect of the other obligations of a tenant. Although the situation is not as obvious or acute as in Passingham, its interests as a tenant might conflict with its duties in respect of all potential beneficiaries under the trust.
I have considered the suggested difficulties which may arise in relation to the organic certification of the farms, were an independent trustee to be appointed. The evidence of Christopher Benson satisfies me that the difficulties suggested by Ian Benson are not of any particular significance. An independent trustee might well involve any one or more of the applicants in the business, given their previous close involvement in its management. Ian Benson did not completely rule out continued involvement at some level. It seems to me that provided management practices remain the same, there should be no difficulty in maintaining the certification. In any event, that issue presupposes the sale of the farming business as a going concern.
Resolution
I accept that caution must be exercised before taking the step of removing the settlor appointed trustee. I take into account the situation as I have set it out. I have regard to the interests of all potential beneficiaries under the discretionary trusts. As I have noted, those trusts continue to operate, although it will be with reduced funds. The trustees are intent on a liquidation of all trust assets, but even with that scenario there will be a not insignificant corpus remaining to be administered. It may not be in the beneficiaries' interests for that liquidation to occur, and in any event, I do not have confidence that the trustees, controlled by Mr and Mrs Benson, will adopt a reasonable and even handed approach to the exercise of the discretion to benefit. Having given the matter its due consideration, I have concluded that that they should be removed as trustees of the discretionary trusts. To the extent that the fixed trusts in favour of the applicants sit within the framework of the discretionary trusts, that adds weight to the reasons for removal.
To the extent that the fixed trusts sit outside the framework of the discretionary trusts, I think it is quite clear that the trustees should be removed. Similar considerations apply in relation to the proposed liquidation. That may not be in the applicants' interests. There may be other ways of providing them with their entitlements. It may be that the applicants see it in their best interests, but in any case, they should be given an opportunity to be involved in the process of payment or appropriation. It may not be necessary to order the removal of the trustees in respect of the fixed trusts, but I will do as a matter of caution and for the sake of clarity.
The new trustees proposed by the applicants are Steven Hernyk, from whom I have an affidavit sworn on 19 February 2015, and Salvatore Algeri, both of Deloitte Touche Tohmatsu. In practical terms, it is intended that Mr Hernyk be the more active trustee. The applicants propose that the appointment be on "joint and several" basis as required by Deloitte's internal policies and procedures. Mr Hernyk is experienced in receiverships and liquidations, and is now employed as a consultant. Mr Algeri is a partner in the firm. Deloitte's fees are set out in Mr Hernyk's affidavit. The respondents did not argue that the proposed trustees are not suitable as such. I do not think anybody overlooks the fact that independent trustees will come at a cost. Complete independence is now essential for the trust arrangements in this case. I am satisfied that Mr Hernyk and Mr Algeri should be appointed as trustees.
Section 43 of the Trustee Act provides that every trustee appointed by the court "shall, as well before as after the trust property becomes by law, or by assurance, or otherwise, vested in him, have the same powers authorities and discretions, and may in all respects act as if he had been originally appointed a trustee by the instrument, if any, creating the trust." The applicants have foreshadowed the need to consider the grant of broad powers under s 47 of the Trustee Act. That enables the Court to confer powers of dealing with property generally, or in any particular instance. I will attempt accommodate this concern in the orders.
Other relief
Apart from consequential orders, the applicants seek orders for the taking of accounts of administration in common form and an inquiry. An applicant must prove that the person against whom the order is sought must be an accounting party, and that there is an entitlement to a sum, even uncertain. In the relation of trustee and beneficiary, a trustee is an accounting party. A beneficiary's entitlement to an account in common form does not depend on proof of a breach of trust, or default. For these propositions see Hancock v Rinehart at [338]-[341] and the cases cited. The provision of annual financial statements, albeit audited, does not equate to the provision of the accounts to which beneficiaries are entitled: Hancock at [353].
The respondents' opposition, of course, was linked to arguments about the effect of the consent orders, and the issue of removal. Apart from reliance on the provision of financial statements, an issue I have disposed of, I do not understand that there was any argument as a matter of principle or fact which would mean that the remedy was not appropriate should the applicants succeed. At the least, the trustees have had the benefit of the applicants' vested interests since 5 December 2014. I am satisfied that an order for an account in common form should be made.
Orders
The possible need for further submissions about the detail of some consequential orders was raised. In all the circumstances, I think the best thing to do is to make the following orders, but direct that orders (6) and (7) lie in court until 5.00 pm on 2 September 2015 pending any application by any party by letter to my associate seeking to be heard further about the terms. The orders are as follows:
(1)Doloraine Pty Ltd is removed as the trustee of the I R & G M Benson Family Trust constituted by a deed of settlement dated 21 April 1998, and as trustee of the three fixed trusts created by the resolution and consent Federal Court declaration of 5 December 2014.
(2)Forest Hill Farm (Tasmania) Pty Ltd is removed as the trustee of the Benson Family Trust constituted by a deed of settlement dated 1 July 2001, and as trustee of the three fixed trusts created by the resolution and consent Federal Court declaration of 5 December 2014.
(3)Steven John Hernyk and Salvatore Algeri of Deloitte Touche Tohmatsu, 1/117 Cimitiere Street, Launceston, are appointed trustees in place of Doloraine Pty Ltd and Forest Hill Farm (Tasmania) Pty Ltd, and they are authorised to carry out their duties and exercise their powers jointly and severally.
(4)Pursuant to s 33 of the Trustee Act, the assets and property which make up the Trust Funds of each Trust and the proportion of each Trust Fund to which each applicant is beneficially entitled under the fixed trusts referred to in orders (1) and (2), vest in Steven Allan Hernyk and Salvatore Algeri.
(5)The respondents deliver up to Steven Allan Hernyk and Salvatore Algeri within 28 days all documents of the trusts in their possession, custody or power, with liberty to apply to the Associate Judge to be relieved in respect of any particular document or class of document.
(6)Steven Allan Hernyk and Salvatore Algeri have liberty in these proceedings to apply solely or jointly to a judge from time to time pursuant to s 47 of the Trustee Act or the Court's inherent jurisdiction, to confer powers and give directions in cases not provided for by the trust deeds.
(7)(a)An account be taken of trust property. including transactions entered into by the first and second respondents, in respect of the fixed trusts referred to in orders (1) and (2), for the period 5 December 2014 to date inclusive, and inquiries be made.
(b)Those proceedings are adjourned to a date to be fixed before the Associate Judge for directions and to be otherwise dealt with under Pt 24 of the Supreme Court Rules 2000.
(c)The respondents pay any amount found to be due on taking the account.
(8)There is liberty to the parties to apply within seven days, as to the making of any further or consequential orders.
(9)The respondents' cross-application is dismissed.
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