Blackwell v Bbanh Pty Limited as trustee for the Bbanh Unit Trust

[2019] NSWSC 731

Supreme Court

New South Wales

Medium Neutral Citation:	Blackwell v BBANH Pty Limited as trustee for the BBANH Unit Trust [2019] NSWSC 731
Hearing dates:	6, 7, 14 June 2019
Date of orders:	07 June 2019
Decision date:	14 June 2019
Jurisdiction:	Equity - Commercial List
Before:	Parker J
Decision:	Judgment in favour of the plaintiff in the amount (subsequently corrected under the slip rule) of $22,707.35. The plaintiff pay the defendant's costs of the proceedings from 9 May 2019 onwards on an/the indemnity basis. There otherwise be no order as to costs.
Catchwords:	EQUITY — Trusts and trustees — Unit trusts – where claims that payments not authorised by trust largely resolved by parties’ concessions – whether judgment ought be entered on gross or net basis in accordance with terms of Trust deed – where judgment sought by reference to income figures disclosed in accounts and entered accordingly.   COSTS — Party/Party — Offers of compromise/Calderbank offers – where plaintiff succeeded in one aspect of claim but otherwise comprehensively failed – where successive offers of compromise made and refused – whether plaintiff ought to pay defendant’s costs following expiration of first offer.
Legislation Cited:	Civil Procedure Act 2005 (NSW), s 100(2)(b)
Cases Cited:	Cherry v Boultbee (1839) 4 My & Cr 442; 41 ER 171
Texts Cited:	None
Category:	Principal judgment
Parties:	Nathan John Blackwell (Plaintiff) BBANH Pty Limited as trustee for the BBANH Unit Trust (Defendant)
Representation:	Counsel: G Carolan (Plaintiff) RE Raffell (Defendant)   Solicitors: Access Law Group (Plaintiff) RMB Lawyers (Defendant)
File Number(s):	2018/332931
Publication restriction:	Nil

Judgment – EX TEMPORE

Revised and reissued 18 June 2019

1. These proceedings were listed for hearing before me last Thursday 6 June. The claims in the proceedings concerned entitlements to distributions of income from a family unit trust. The questions of entitlement were largely resolved by agreement and concession between the parties and I made an order for judgment on 6 June which has subsequently been corrected under the slip rule. I have been asked to give reasons for the order which I made and I must also deal with the question of costs. This judgment concerns those two issues.

2. The trust in question is known as the BBANH Unit Trust. The defendant company is the trustee. The trust has three unit holders, each of whom owns one third of the units on issue. The unit holders are Heath Alan Blackwell, Adam Thomas Blackwell and Nathan John Blackwell. For convenience and without disrespect I will refer to each of them by their first name.

3. There have been disagreements between the brothers for some years and there is now other litigation between them or interests associated with them, which are not fully described in the evidence and which it is not necessary to go into for the purpose of this judgment.

4. Nathan was a director of the trustee company until September 2015 when he was removed. Heath and Adam remain directors. The trust deed contains provisions entitling the unit holders to share in the trust's net income for each financial year of its operations. I will refer to those provisions in more detail at a later point. For present purposes it is sufficient to say that the claims in these proceedings concerned entitlements to income distributions for the 2015, 2016 and 2017 financial years. According to the accounts of the trust, the distribution entitlements for those years were as follows:

2014/2015    $85,406

2015/2016    $154,588

2016/2017    $381,411

Total      $621,405      

5. Nathan was recorded in the accounts of the trust as a creditor for the amounts of his distribution payments for the 2015 and 2016 financial years, but was not paid out.

6. On 19 June 2017 the trust paid out a sum of approximately $241,000. This was paid into the ANZ Bank to discharge a mortgage on a property co-owned by Nathan and Adam. That payment was debited to Nathan in the accounts of the trust, resulting in a small balance in the trust's favour. With the distribution to which Nathan became entitled for the 2017 financial year, the amount due to him was approximately $380,000.

7. Nathan commenced these proceedings in November 2018 as plaintiff. He sought orders requiring payment of the distributions for each of the financial years in question. At the time Nathan had been provided with tax returns for the trust for each of the financial years and the accounts of the trust for the 2015 and 2016 financial years. He had apparently not been provided with the accounts for the trust for the 2017 financial year. The figures in the tax return were different in some respects from the figures in the accounts, but overall the amount claimed was of the same general order of magnitude.

8. In making his claim Nathan did not give credit for the $241,000 which had been paid towards the mortgage liability on the property which he co-owned with Adam. The contention was that the payment of this amount out of the amounts due to Nathan from the trust was not authorised. On behalf of the defendant trust company, Adam claimed that Nathan did in fact authorise the payment. On Adam's account Nathan had been refusing to bear his share of the mortgage even though he was plainly liable as co-owner and co-mortgagor and, in fact, was using the property as his home.

9. About a month after the proceedings commenced Nathan borrowed $300,000 from his father, Alan Blackwell, to meet a pressing tax liability. After this payment was made the trust paid an equivalent sum to Mr Alan Blackwell. The trustee company's contention was that Nathan agreed that his father would be repaid out of moneys due to him from the trust for the moneys he was borrowing. This was disputed by Nathan who, again, contended that the $300,000 was unauthorised and did not affect the trust's liability to pay him.

10. Even taking the payments of $241,000 and $300,000 into account, there was a sum of about $80,000 owing to Nathan as the balance of the amount due to him from the 2017 distribution. On 28 May, shortly before the proceedings were due for hearing, the trust paid the sum of approximately $83,000 to Nathan. This in fact represented a slight over-payment on capital account. Nevertheless the hearing went ahead.

11. Nathan maintained his claim that the payments of $241,000 and $300,000 did not affect the trust's liability to him. He allowed credit only for the sum of $83,000 or so paid at the end of May 2019. He also claimed what counsel described as “damages” for late payment. Nathan's assertion was that the delay in payment had led to him incurring unnecessary liabilities to the Tax Office and perhaps to other creditors.

12. These contentions had no commercial merit. It is quite clear that the payments of $241,000 and $300,000 represented, in substance, benefits to Nathan. Had Nathan succeeded in his contention that these payments were unauthorised he would have been left with equivalent liabilities to members of his family. In the case of the $241,000 payment, Nathan would, I think, have been left liable to the trust itself since the trust would have had a claim against him for money had and received. The trust would have been entitled to set off that claim against any distribution entitlements pursuant to the claim in Cherry v Boultbee (1839) 4 My & Cr 442; 41 ER 171.

13. Events at the hearing showed that Nathan's claims had no forensic merits either. It was quite clear from the evidence presented that Nathan had in fact agreed to the $241,000 and $300,000 payments coming out of his entitlements to distributions from the trust. In the case of the $300,000 payment there was a signed document from Nathan which, in my view, represented a clear acknowledgement of this fact. Despite what appeared in his affidavits, when Nathan gave oral evidence he, in effect, conceded that this was so.    

14. Counsel for Nathan did not attempt in his submissions to support the contentions previously put forward on Nathan's behalf about a lack of authorisation, nor did counsel ultimately pursue some sort of damages claim. In the end it was common ground that Nathan was entitled to interest at Court rates on the unpaid portion of the distribution for the 2017 financial year, from the period when the accounts were issued specifying the amount of his entitlement down to the date of payment: see Civil Procedure Act2005 (NSW), s 100(2)(b).

15. Counsel accepted that there was no claim to interest for the period of delay in payment of the 2015 and 2016 distributions because they had been satisfied before the proceedings were commenced. The only complication with the amount of the judgment concerned the difference between income for accounting and tax purposes. Such differences are, of course, not uncommon. One example of a case where they arise is where franked dividends are received resulting in a grossed up income which is higher than the actual dividend paid. I understand, however, that that is not the explanation for the difference in the present case.

16. Counsel for the trustee pointed to the definition in the trust deed of the term "net income" which is defined as meaning "the net income of the trust fund as calculated under the Tax Act, but including all of the capital gain". Counsel suggested that this meant that for the purposes of distribution it was the gross figure for taxable income which represented the amount which should be distributed. It is not clear how this could work in practice where the gross and income could exceed the actual income available to the trust. Another clause of the trust deed (cl 32) appeared to provide that in such a case there was no entitlement to the excess gross income.

17. I did not find it necessary to resolve this question for the purpose of entering judgment in these proceedings. Counsel for Nathan sought payment calculated only by reference to the income distributions shown in the accounts. I saw no basis to award more than the amount actually claimed. If the trustee, on further consideration and advice, forms the view that the beneficiaries have been short-paid, having regard to what they were entitled on the true construction of the trust deed, then it can pay the difference to them.

18. On this basis I made an order that there be judgment for Nathan against the trustee company in the amount (subsequently corrected under the slip rule) of $22,707.35.

19. The remaining question concerns the costs of the proceedings. Counsel for Nathan sought an order that the defendant trustee company pay Nathan's costs. Counsel submitted that on any view Nathan had been entitled to the payment of $83,000 or so which was belatedly paid at the end of May 2019, and he had also obtained a further payment of interest on account of the delay. Counsel thus submitted that Nathan had in effect succeeded in obtaining a payment of $100,000 or so from the trust and had thereby succeeded in the proceedings.

20. Counsel for the trustee company submitted that Nathan had failed on the substantial issues raised in the proceedings and should pay the trustee company's costs of those proceedings. Counsel also relied on three offers which were made during the period leading up to the hearing to claim indemnity costs. The first of those offers was a Calderbank offer in the sum of approximately $190,000 which was made on 1 May 2019.

21. The offer originally did not specify a time limit but on the afternoon of 6 May Nathan’s legal representatives were notified that the offer would expire on the afternoon of 9 May.

22. The second offer was made by Calderbank letter of 14 May for the sum of approximately $284,000. That offer was expressed to be open for two days. Both of these offers were made before the payment of $83,000 to which I have referred.

23. The third and final offer was an offer made by notice in accordance with the rules which was served on 28 May, after the $83,000 had been paid. The offer was for a further $168,000. It was open until 4pm on 31 May, effectively allowing for two clear days.

24. I will deal first with the general costs of the proceedings up to the point where the offers were made. It is true that Nathan did in effect obtain a measure of success in the proceedings by in effect recovering approximately $100,000, but it was a limited measure of success. Nathan's claims concerning the 2015 and 2016 distributions failed completely.

25. Nathan also failed comprehensively on the issue concerning the $300,000 payment to his father Alan. So comprehensive was this failure that I found myself wondering whether there was some ulterior justification for pursuing the proceedings. My concerns were increased by the fact that in the course of proceedings counsel for Nathan sought in cross-examination to explore general questions about the conduct of the trust's business, and its decision-making processes, which were not relevant to the pleaded issues in the case. In my view, given Nathan's failure on the issues which raised the factual disputes in the case and necessitated the trial, I should not give him his general costs of the proceedings. At the same time there is no explanation for why the trustee did not promptly pay the balance of the amount due to Nathan and I consider that I should not award the defendant its general costs of the proceedings, at least up to the point at which the offers were made.

26. In my view the offer made on 1 May changed the dynamic. The offer was considerably more than Nathan's entitlement. Having regard to the weakness of Nathan's case on the substantive issues, the offer was an extremely generous one. In my view it was unreasonable not to accept the offer. In a case in this Division I do not consider that the time which Nathan had to consider the offer, which was nine calendar days, was in any way unreasonable. The case was a simple one and the defects in Nathan's case were plain for all to see.

27. For this reason I will order that Nathan pay the trustee company's costs of the proceedings from 9 May 2019 onwards on an indemnity basis. This conclusion makes it unnecessary for me to consider the other two later offers which were made.

28. The further order of the Court is:

1.   Order that the plaintiff pay the defendant's costs of the proceedings from 9 May 2019 onwards on an indemnity basis.

2.   Order that there otherwise be no order as to costs.

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Decision last updated: 19 June 2019