Eustace v Beystar Pty Ltd

[2010] QSC 270

SUPREME COURT OF QUEENSLAND

CITATION:

Eustace & Anor v Beystar Pty Ltd & Ors [2010] QSC 270

PARTIES:

TIMOTHY STEPHEN EUSTACE
(first applicant)
DAVID ANDREW EUSTACE
(second applicant)

v

BEYSTAR PTY LTD
ACN 056 401 999
(first respondent)
MICHAEL ANTONY EUSTACE
(second respondent)
PETER GREGORY EUSTACE
(third respondent)

FILE NO/S:

BS 5124 of 2010

DIVISION:

Trial

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

21 July 2010

DELIVERED AT:

Brisbane

HEARING DATE:

21 July 2010

JUDGE:

Fryberg J

ORDERS:

1.   Application dismissed.

2.   The applicants pay the second and third respondents’ costs for the application to be assessed.

CATCHWORDS:

Equity – Equitable remedies – Injunctions – Interlocutory injunctions – Relevant considerations – Balance of convenience generally – Application to restrain beneficiary’s solicitors from drawing funds for payment of legal expenses – Knowledge of allegation of misappropriation of trust funds

Equity – Trusts and trustees – Powers, duties, rights and liabilities of trustees – Miscellaneous other powers, duties and liabilities – Other particular cases – Whether trustees have power to interfere with beneficiary’s use of funds distributed

COUNSEL:

A Crowe SC with M Wilson for the applicants
No appearance for the first respondent
M P Amerena for the second and third respondents

SOLICITORS:

Quinn & Scattini for the applicants
No appearance for the first respondent
Tobin King Lateef for the second and third respondents

HIS HONOUR:  This is an application for an interlocutory
injunction and for abridgment of time.  The parties to the
application are four brothers, two are the applicants, two are
the respondents.  The applicants seek to restrain their
brethren from authorising their solicitors to draw upon a
payment of $30,000 made to the solicitors’ trust account on
account of the respondents' legal costs.

The $30,000 was paid to the solicitors by the two brothers,
whom I shall call the respondents, as a result of a payment to
them of that amount from the funds of a trust.  The trust is
an operating business trust of which the four brothers are the
only named beneficiaries.  It is a discretionary trust as to
income and the first respondent, which was unrepresented
before me today, is the corporate trustee of the trust.

The money, the $30,000, was paid to the two respondents
pursuant to a resolution of directors of the trustee company.
The applicants were given notice of the relevant meeting of
directors and chose not to attend.  No point is taken on
behalf of the applicants that there was any procedural
deficiency in the calling of the meeting such as to invalidate
the meeting as such.

The relevant resolution which was passed at the meeting was
that Michael Eustace is authorised to draw a cheque in the sum
of $30,000 upon the bank account of the trustee made payable
to Peter Eustace on behalf of the second and third respondents
for the payment of legal expenses associated with Supreme
Court matter 5124 of 2010.  The submissions on behalf of the
applicants rely on the line of cases that establish
impropriety on the part of directors in applying corporate funds to the private purposes of shareholders or directors, including payment of their lawyers.

Whether or not it is open to a corporation properly to resolve
to pay a director's legal fees was raised but I do not think I
need to resolve that question.  In my judgment the line of
cases relied on by the applicants has nothing relevant to do
with the situation which is before the Court now.

The relevant trust deed authorises a distribution of funds by
the trustee to the four beneficiaries out of income.  In fact,
there was another resolution authorising an equal distribution
to the applicants.  They have refused to accept the
distribution to them.  They seek to prevent the monies paid to the respondents being used and I infer they seek to do it in order to deprive the respondents of legal representation.  There is nothing in the trust deed which empowers the trustee to inquire as to the purposes which a beneficiary to whom a distribution is made intends to put distributed funds and I see no reason to think that a trustee would have an inherent right to control or inquire about that matter.

It is true that the words of the resolution refer to the
purpose of the funds.  In my judgment that is not enough
to show that the payment was effective to create a new trust for a purpose with the respondents being the trustees.  It is my judgment that the payments were plainly properly to be treated as distributions albeit that the wording of the resolution is not adequate.  I reject the applicants’ submission on this point.

That leaves aside the question of distributions only being
permitted from income.  Neither side is in a position to
definitively establish what the accumulated income of the
trust was at the time of the payment.  The accounts are
considerably behind and the evidence does not establish
whether there is unappropriated income in the hands of the
trustee.

The respondents urge that I should infer from the size of the
bank account and other factors, that there is such income.  I
do not regard that evidence as sufficient to draw that
inference.  However, the onus is on the applicants to show a
good arguable case and in the absence of any evidence to show
that the payments were not properly made, I see no reason to
draw a conclusion that they were improperly made.
That is particularly so given the fairly informal way in which
the accounts of the trust seemed to have been managed.

I have therefore come to the conclusion that the applicants do
not demonstrate an arguable case.  If I be wrong in that
regard, in any event I am not satisfied that the balance of
convenience favours the granting of an injunction.

The $30,000 has been paid into the solicitor's trust account.
The counsel for the applicants invited his opponents to inform
me from the bar table of the provisions of the solicitors’
retainer and that has been done.  The solicitors are entitled
under the retainer to demand money in advance to be paid into
trust and to terminate the retainer if that money is not paid.
That clause, therefore, puts the respondents at risk that the
solicitors will terminate their retainer and although they
have not indicated what their intention would be in that
regard, it is, I think, an important factor in weighing the
balance of convenience to take into account the risk of
termination.

There is another aspect to it.  That is, that the amount of
the $30,000 held in trust is alleged by the applicants to have
been, in effect, misappropriated even if they do not allege
there has been any skulduggery.  I would not expect that if
the solicitors do draw upon that money that the applicants would be unable to recover it should they be right.  One would expect that if the applicants are ultimately found to be correct in the assertion that the money should not have
been paid to the solicitors, that the solicitors will
voluntarily return it, given the notice they have of the claim
already made.

In all the circumstances therefore, I do not think this is a
case for an injunction.  The application is dismissed.

...

The successful respondents ask for an order for costs on the indemnity basis.  I have taken into account the three factors which Mr Amerena urged in support of that submission.  Two of those three I do not think point specifically towards indemnity costs.  The third, that is the motivation of the applicants seems to have been to deprive the respondents of legal representation may point in that direction to some extent but is not, in my judgment, sufficient to warrant indemnity costs.

The applicants resist any order for costs.  In my judgment
this is an appropriate case to make an order for costs.  The
application has been unsuccessful.  It has resulted in
significant expense.  It is not a case where a judge in the
future will be any better placed than I am today to make an
assessment of the appropriateness of a costs order and,
indeed, I suspect any judge in the future will be in a worse
position than I am presently to make such an order.

The order will, therefore, be that the applicants pay the
respondents' costs of the application to be assessed.

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