Clay v James - [1999] WASC 129

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: CLAY & ORS -v- JAMES & ORS [1999] WASC 129

CORAM: MASTER BREDMEYER

HEARD: 1 AUGUST 1999

DELIVERED : 12 AUGUST 1999

FILE NO/S: CIV 1501 of 1999

BETWEEN: MARK GREGORY CLAY
PAUL JAMES CLAY
MOIRA HELEN CLAY
Plaintiffs
AND
LEONARD CHARLES JAMES
KEVIN GUSTAV KARLSON
DOROTHY VERONICA WALKER
First Defendants
JEANETTE RAMONA CLAY
Second Defendant
ERNST & YOUNG (A FIRM)
Third Defendant
FREEHILL HOLLINGDALE & PAGE (A FIRM)
Fourth Defendant

Catchwords:

Applications to dismiss originating summons as an abuse of process - Duplication of other actions

Legislation:

Nil

Result:

Applications allowed in part

Representation:

Counsel:

Plaintiffs:     Mr M G Clay
First Defendants           :     Mr S Penglis
Second Defendant         :     Mr C E Chenu
Third Defendant           :     No appearance
Fourth Defendant          :     Mr S Penglis

Solicitors:

Plaintiffs:     Martin de Haas
First Defendants           :     Freehill Hollingdale & Page
Second Defendant         :     Durack & Zilko
Third Defendant           :     No appearance
Fourth Defendant          :     Freehill Hollingdale & Page

Case(s) referred to in judgment(s):

Smith & Anor v Maloney, unreported; FCt SCt of WA; Library No 980266; 18 May 1998

Case(s) also cited:

Brechin v Shire of Brookton [1999] WASC 3
Davidson v Shearer (1992) 10 FLR 357
Edith Cowan University Student Guild v R & I Bank of WA Ltd, unreported; SCt of WA; Library No 930145; 19 March 1993
Greenhill Associates (WA) Pty Ltd v Directories (Aust) Pty Ltd, unreported; SCt of WA; Library No 5493; 4 September 1984
Griffiths v Holdings Pty Ltd, unreported; SCt of Vic; BC 970428; 27 August 1997
Hawkesley v May [1956] 1 QB 304
McHenry v Lewis [1882] 22 Ch D 397
McKechnie v Campbell (1996) 17 WAR 62
Merriman v Perpetual Trustee Co Ltd (1896) 17 NSW Eq 325
Moore v Inglis (1976) 9 ALR 509
Peruvian Guano Co v Bockwoldt [1883] 23 Ch D 225
Re J Flavelle (Dec) [1969] 1 NSWLR 361
Stirling Marine Service Pty Ltd v Austral Piling & Constructions Pty Ltd & Anor, unreported; SCt of WA; Library No 970620; 21 November 1997

MASTER BREDMEYER: The first, second and fourth defendants have applied by chamber summons to have this action dismissed as an abuse of process, or alternatively to countermand its entry for trial.
Although the plaintiffs' originating summons is an originating summons and thus a separate action, on the face of it, it purports to raise for determination preliminary issues between the parties in actions CIV 1343 of 1993, CIV 1615 of 1994 and CIV 2402 of 1996. The five questions, called "declarations", sought to be raised are as follows:
"1.1On 10 June 1974, the Trust vested in interest and in possession in the members of the Specified Class living at that date.
1.2Upon the vesting of the Trust at the end of the Trust Period on 10 June 1974 the trustees of the Trust held the assets:
(a)in equal shares on 5 bare trusts one for each of the members of the Specified Class living at that date including the Plaintiffs; alternatively
(b)on a bare trust for the members of the Specified Class living at that date as tenants in common in equal shares.
1.3That any payments made from the vested assets of the Trust after 10 June 1974 to a member of the Specified Class must be taken into account as a payment from that member's share in the vested assets and in reduction of that member's residual entitlement in the remaining vested assets.
1.4There are no terms of the Trust Deed that defer or make defeasible the interest that vested in each of the members of the specified class at the end of the Trust Period on 10 June 1974.
1.5It is an implied term of the Trust that immediately at the end of the Trust Period or as soon as reasonably practical thereafter the trustees of the Trust shall pay or transfer the trust fund to the members of the specified class living at the end of the Trust Period in equal shares."
The procedure in the originating summons is prima facie wrong. The plaintiffs should have brought a separate application in each of the three actions for a trial of the preliminary issues and asked for them to be heard together. Leaving aside the procedural form chosen for a moment, I want to concentrate on the merits of a trial of the preliminary issues in the three actions.
In CIV 1343 of 1993, which is a substantial action against the trustees and the second defendant, I consider that the five questions asked are significant. They are important questions of law in the action. Their determination could significantly reduce the length and cost of the trial and their determination could promote a settlement. Experience of case management has shown that the existence of a significant possibility that the determination of one or more issues tried separately may lead to a settlement is a practical consideration which should be taken into account: Smith & Anor v Maloney, unreported; FCt SCt of WA; Library No 980266; 18 May 1998 at 14 per Malcolm CJ with whom Kennedy and Ipp JJ agreed. They are questions which do not need oral evidence. They are questions of law and of construction only.
CIV 1615 of 1994 is the plaintiffs' action against Ernst & Whinney and Ernst & Young (the accountants). The statement of claim is similar in form to that in CIV 1343 of 1993 except that it has not been amended to take account of the 1996 decision of Wallwork J, affirmed by the Full Court in 1998. CIV 2402 of 1996 is the plaintiff Mark Clay's action against Freehill Hollingdale & Page ("Freehills").
Mr Penglis has argued that the preliminary questions of law sought to be raised in this originating summons only concerned the plaintiffs and the trustees and other beneficiaries of the trust. He says they do not concern the accountants or Freehills and they do not concern the actions brought by the plaintiffs against the accountants and Freehills.
In the accountants' action numerous breaches of trust are alleged. For example, pars 14 and 15 of the re‑amended statement of claim in that action plead that in October 1987 $300,000 was invested by the trustees on the advice of the defendants in Seal Investments Pty Ltd. In pars 21 and 22 it is pleaded that in 1983 the trustees, on the advice of the defendants, invested trust moneys in CSTF. It is said that these investments were not authorised by the trust deed. That is denied in the defence so that is an issue in this case. The questions asked in the originating summons are relevant to this. If the trust vested in interest and in possession on 10 June 1974 the trust deed is not applicable after that date so it does not apply to these two investments.
The re‑amended statement of claim pleads that by the trust deed the widow, Mrs Clay, was limited to receive $20,000 per year. It is pleaded that by a series of tax imputation credits in 1988 to 1992, the use of trust funds to pay for professional services provided to her by the accountants, and by interest‑free loans to her from the trust, this clause of the trust deed was breached. That is relevant to the questions asked in the originating summons. If the trust deed ceased to have effect on 10 June 1974 the $20,000 per annum limit to Mrs Clay was lifted. That issue would thus fall away.
It is pleaded that the trustees on certain dates in 1987, 1989 and 1991 loaned money to Mrs Clay interest‑free I think in respect of income tax payments. It is said that this was not authorised by the trust deed. This is denied by the defendants so that is an issue. This issue falls away if the trust deed does not apply after 10 June 1974.
I consider the determination of the preliminary issues in the originating summons could determine a significant number of issues in the accountants' action which would reduce the length (and cost) of trial and might prompt a settlement.
In the action against Freehills the pleadings have been updated to take into account the decision of Wallwork J on the vesting of the trust on 10 June 1974 as affirmed by the Full Court. The plaintiff has pleaded that the trust assets vested in the beneficiaries (called in the pleading the members) on the death of the Duke of Gloucester on 10 June 1974. That is denied in the defence. As Mr Penglis said in argument, Freehills was not a party to that decision and is therefore not bound by it.
The plaintiff pleads that the trustees were not authorised to deal with the plaintiff's share of the trust assets after 10 June 1974 other than to transfer it to him. The defendants plead that cl 2 and cl 6 of the trust deed continue to apply after 10 June 1974. Clause 2 says, in effect, that at the expiration of the trust period the trustees hold both capital and income for the beneficiaries then living in equal shares. I understand the reference to par 6 of the trust deed as saying that after vesting, ie after 10 June 1974, the trustees are still protected by cl 6 of the trust deed. That clause provides:
"IT IS HEREBY EXPRESSLY AGREED AND DECLARED that the Trustees purporting to act in the execution of the trusts and powers hereof shall not be liable for any loss not attributable to their dishonesty or to the wilful commission or omission by them of any act known by them to be a breach of trust."
The plaintiff pleads in par 10 that after 1974 on various dates the trustees paid various sums for legal fees to Freehills out of moneys vested in the members. The defendants in their pleading acknowledge receipt of the moneys but deny they were paid out of assets vested in the members.
I consider that the questions asked in the originating summons will have a significant impact on these issues. Their determination by a Judge will decide whether the trust assets vested in interest and possession in the members on 10 June 1974. The Judge will decide if, as soon as practical thereafter, the trustees had to transfer the assets to the members in equal shares.
I consider in all three actions the trial of preliminary issues should determine important questions of law which will shorten the three trials and may promote a settlement of them. I consider the preliminary questions are questions of construction of documents and of legal argument and could be argued shortly.
As I have said above the form of the application - a fresh originating summons - is prima facie wrong, but the alternative of three applications for a trial of preliminary issues, one for each action, then a consolidation of them or a joint hearing, is also not too elegant or convenient. I propose to allow the application. It will be on a hearing of this originating summons but it will be, as stated in the summons, a trial of preliminary issues in the three actions. The form of the questions should be "whether …". If requested I would be willing to add a sixth question, "Whether, upon the vesting of the trust, the trustees continued to enjoy the protection afforded by cl 6 and cl 7(b) of the trust deed?". That question is a question of construction and is a corollary to some of the other questions.
I will allow the defendants an opportunity to file any affidavits in opposition on the trial of the preliminary issues.
I consider that Jeannette Simone Clay should be joined to these proceedings. She is one of the beneficiaries of the trust who will be affected by the decisions made on the preliminary questions. Mr Clay said that the plaintiffs did not wish to join her as they had no dispute with her and sought no orders against her. That may be so, but the decisions made on the preliminary issues will affect her and the Court, having made rulings on the administration of the trust, would want to bind her. The Court would not want to revisit these same questions later on an application from her. Whether she will want to file an appearance or not, is up to her. If she files an appearance she can be represented at the trial by a lawyer, or she may choose to go unrepresented and simply abide by the orders of the Court.
I will direct that she be joined as the fifth defendant in this action. I will give leave under O 10 r 1(1)(a)(i) and (h) to serve her out of the jurisdiction. I will also allow substituted service by post on her in Italy and I will allow 30 days for her after service to file an appearance. I consider it is important that this case be heard quickly and it would unnecessarily delay matters if she was served personally through the diplomatic channels. That usually takes many months. I consider personal service not practical in the circumstances.
Given that I am going to allow time for the defendants to file any affidavits and that I am directing service on Jeannette Simone Clay, I consider the entry for trial should be countermanded.