Glazier v Australian Men's Health (No 2)

[2001] NSWSC 6

CITATION:	Glazier v Australian Men's Health (No.2) [2001] NSWSC 6
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 4905/97
HEARING DATE(S):	30 & 31 August, 5 September 2000
JUDGMENT DATE:	22 January 2001
PARTIES :	Glazier Holdings Pty Ltd (P) Australian Men's Health Pty Ltd (D1) Graham Meehan (D2) Anthony Murphy (D3) Arthur Kevin Brain (D4) Treykell Pty Ltd (D5)
JUDGMENT OF:	Austin J

COUNSEL :	P Dodson (P) M L Einfeld QC with F Gleeson (D2, D3 & D5))
SOLICITORS:	Henry Davis York (P) Paul Bard (D2, D3 & D5)
CATCHWORDS:	EQUITY - taking of accounts - distinction between accounting for administration and accounting for profit - accounts of administration in common form and on footing of wilful default - when accounts for wilful default appropriate - PRACTICE AND PROCEDURE - res judicata and issue estoppel - scope of estoppels arising out of consent orders
LEGISLATION CITED:	Supreme Court Rules Pt 40 r 9, Pt 42 r 12
CASES CITED:	Amalgamated Television Services v Marsden [1999] NSWCA 313 Barnes v Addy (1874) LR 9 Ch App 244 Bartlett v Barclays Trust Co (No 2) [1980] Ch 539 Bartlett v Barclays Trust Co Ltd [1980] 1 Ch 515 Blair v Curran (1939) 62 CLR 464 Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 Coope v Carter (1852) 2 De G McN & G 297 Gava v Grljusich [1999] WASC 13 Job v Job (1877) 6 Ch D 562 Knott v Cottee (1852) 16 Beav 77 Mayer v Murray (1878) 8 Ch D 424 Mitsubishi Motors Australia Ltd v Harbord (1997) 69 SASR 75 Partington v Reynolds (1858) 4 Drew 253 Pit v Cholmondeley (1754) 2 Ves 565 Pollnow v Armstrong [2000] NSWCA 245 Re Barclay [1899] 1Ch 674 Re Stevens [1898] 1 Ch 162 Re Symons (1882) 21 ChD 757 Re Tebbs [1976] 1 All ER 858 Re Wrightson [1908] 1 Ch 789 Re Youngs (1885) 30 Ch D 421 Russell v Russell (1891) 17 VLR 729 Sleight v Lawson (1857) 3 K & J 292 Taylor v Ansett Transport Industries Ltd (1987) 18 FCR 342 Warman International Ltd v Dwyer (1995) 182 CLR 544 Wilkinson v Feldworth Financial Services Pty Ltd (1998) 29 ACSR 642
DECISION:	Plaintiffs' applications for directions as to accounts on basis of wilful default, and for amendment of statement of claim, granted.

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

MONDAY 22 JANUARY 2001

4905/97 . GLAZIER HOLDINGS PTY LTD V AUSTRALIAN MEN’S HEALTH PTY LTD (NO.2)

JUDGMENT

HIS HONOUR:

Introduction

1   This is an application by the plaintiff in the proceedings for orders for the taking of accounts by the second, third and fourth defendants. The plaintiff's notice of motion sets out draft directions with respect to the taking of accounts. The only substantive issue in contention between the parties (apart from costs) is whether the accounts should be taken on the footing of wilful default. The plaintiff also invites the Court to amend an order for the taking of accounts made by Young J on 18 March 1998, and applies to amend the prayers for relief in the statement of claim in the proceedings to seek an order for the taking of accounts on the footing of wilful default. The plaintiff has made the second application in order to protect itself in the event that the Court decides that it cannot order the taking of accounts on the footing of wilful default in the absence of an amendment to the pleadings.

2   The first defendant is a company now in liquidation. At an earlier stage in the proceedings, when it was in administration, the first defendant claimed an entitlement to an indemnity, supported by a lien, in respect of costs incurred while it was trustee. I dealt with that claim in a written judgment delivered on 14 December 1998, in which I found that at the time, the evidence did not establish any basis for the first defendant's claim, but I left open the possibility that sufficiently specific evidence might be adduced that the claim might be pursued in future. In an application with respect to costs considered by me on 31 August 2000, evidence was adduced which persuaded me that the first defendant no longer had any interest in pursuing such a claim, nor any funds to participate in further litigation. The first defendant is aware of the current application, but it has not sought to appear, and no order is sought against it.

3   Mr Madden, the receiver and trustee appointed by the Court in 1998, who made the application for judicial advice dealt with in my reasons for judgment delivered on 3 April 2000, is also aware of the present application but has not appeared, and no order is sought against him.

4   The fourth defendant has not appeared. Consequently the application has proceeded as a contest between the plaintiff and the second, third and fifth defendants.

5   In support of the applications, the plaintiff tendered specified affidavit material in the proceedings before Young J, and specified portions of the transcript of the hearing before his Honour, as well as the report by Mr Madden which I shall describe below, and other documents including an Outline of Issues handed up by senior counsel for the plaintiff to Young J. The second, third and fifth defendants objected to the tender of this evidence, but agreed to my admitting it provisionally, since the objection was based on substantial issues as to the nature of the proceedings which would be addressed in submissions. Having considered the submissions of counsel for both sides and having reached a view on the substance of issues, I have decided that the evidence relied upon by the plaintiff was properly admitted. It goes to show what was ‘pleaded’ in the proceedings before Young J, one of the relevant issues which I shall address in these reasons for judgment. The plaintiff also relied on the evidence to prove certain estoppels against the defendants, but in my view the plaintiff has failed in that respect and so the material relied upon by the plaintiff would not be admissible if that were the only ground for receiving it. Of course, as the affidavits and contentions by the plaintiff before Young J were contested, that part of the evidence in the present application has not been admitted as evidence to prove the truth of those contentions. The Madden report is in a somewhat different category. For reasons I shall explain, I take the view that it is open to me now to make findings as to the issue of ‘wilful default’ on the basis of the Madden report, the findings in which were vigorously contested by the second, third and fifth defendants in an earlier hearing before me.

6   The matters presently before me are just the most recent chapter in a very long saga, which I endeavoured to describe in detail in my reasons for judgment delivered on 3 April 2000. Before dealing with the specific issues raised by the application, I shall give a summary account of the history of the proceedings to date.

The proceedings


7   The plaintiff, Glazier, took these proceedings by statement of claim seeking relief as a beneficiary of a trust. The defendants were the trustee (‘AMH’), Messrs Meehan, Murphy and Brain (the directors of the trustee) and Treykell (a company associated with Mr Meehan, which is the other beneficiary of the trust). The principal orders sought were for the removal and replacement of the trustee and an account of the trustee's dealings.

8   The statement of claim alleged breaches of the terms of the trust instrument and an associated unitholders' deed, more fully particularised in affidavit evidence. The breaches were said to include failure to apply and distribute the net income of the trust to the beneficiaries in proportion to the unitholdings, failure to keep proper accounts, and failure to ensure that income to which the plaintiff had become entitled was held in a separate fund. It was alleged that the breaches were committed by AMH ‘by its servants and agents’ including Messrs Meehan, Murphy and Brain. It was alleged that Treykell refused to consent to the removal of AMH as trustee and the appointment of a fit and proper person as the new trustee. Presumably one, and possibly the only, basis for an order for accounting against the defendants other than AMH is that they were third parties implicated in the breaches of trust under the doctrine in Barnes v Addy (1874) LR 9 Ch App 244. I shall return to the pleadings later.

9 The case was set down for a five-day hearing beginning on 16 March 1998. On the third day of the hearing, 18 March 1998, evidence was given by Mr Hyde (who was a director of AMH at the relevant time) on the subject of income distributions from the trust to the unitholders. He was cross-examined about a memorandum dated 15 September 1997, signed by him and Mr Brain as co-directors, purporting to record a resolution of the directors that no further interim drawings be made. Questions were put to Mr Hyde to suggest that the memorandum had not been signed by him until after December 1997. During the course of these questions Young J thought it appropriate to give the witness a warning as to self-incrimination in terms of s 128 of the Evidence Act 1995 (NSW).

The consent orders of 18 March 1998

10   After the conclusion of Mr Hyde's evidence there was an adjournment, and after the adjournment counsel for the defendants consented to orders against all five defendants with respect to the following matters, whereupon Young J made orders accordingly:


(a) the removal of AMH as trustee;

(b) the appointment of Martin Madden (an insolvency practitioner) as trustee;

(c) the vesting of the assets of the trust in the new trustee;

(d) an account to be taken of the dealings and transactions of AMH as trustee and that the defendants be ordered to pay to the new trustee the amount found to be due on the taking of accounts, plus interest; and

(e) costs on an indemnity basis.

11   It does not appear from the transcript of evidence that the consent of the defendants was expressed to be without admissions.

Mr Madden's receivership


12   As new trustee, Mr Madden was responsible for the conduct of the trust's business, namely the business of operating clinics to provide medical services and pharmaceutical products for the treatment of sexual dysfunction in men. As a practical matter, it was necessary for him to deal with three service companies associated with Messrs Meehan and Murphy, which provided head office administration, patient booking services and clinic services for the business. The service companies refused to continue to provide services on the previous basis unless Mr Madden gave a personal indemnity, not limited to the assets of the trust. Mr Madden was not prepared to do so.

13   Mr Madden formed the view that the trust was insolvent, and approached the Court for judicial advice that as trustee he would be justified in ceasing to operate the business of the trust. On 25 March 1998 the Court gave advice in those terms, and also made an order appointing Mr Madden as receiver of the trust, with powers to investigate and get in the assets of the trust and pay them into court. In his judgment Cohen J said it was Mr Madden's duty as receiver and trustee to have a proper investigation as to any claims, if the evidence suggested that he should investigate.

14   Mr Madden negotiated the sale of the business to persons associated with Treykell, after giving Glazier the opportunity to bid. He then applied to the Court for advice that he would be justified in entering into an agreement for sale of the business as proposed. Young J declined to give that advice, leaving it to Mr Madden to decide whether to go ahead. He went ahead with the sale.

Mr Madden's report


15   In November 1998 Mr Madden prepared a substantial report of financial investigations into the trust. He reviewed receipts of and payments by the trust during the period from 14 April 1997 (when AMH became trustee) to 25 March 1998 when he became receiver. He endeavoured to test the information provided to him by the trustee and service companies against vouchers and other financial records.

16   He concluded that AMH had failed to maintain adequate books and records of the trust which would enable true and fair accounts to be produced. He found that there were inadequate controls surrounding related party transactions, and that trust funds, third party funds and other funds were intermingled without adequate control. He found that the requirement of the unitholders' deed that monthly management accounts be prepared, had not been observed, and that AMH would not have been able to prepare monthly accounts giving a true and fair view of the trust's financial position from the inadequate books and records that were maintained.

17   Mr Madden reported that he was unable to complete various tasks because of lack of information. Nevertheless, in addition to his general conclusion he found a large number of specific deficiencies in the materials that he reviewed, and his report listed them in detail. Many of the specific deficiencies concerned related party transactions.

Mr Madden's application for judicial advice after the report


18   Mr Madden applied to the Court for advice as to whether he would be entitled to pay the net proceeds of sale into court and take no further steps as trustee and receiver until further order of the Court. That application, and some other matters relating to proceedings brought by the present plaintiff against the administrator of AMH, were the subject of a contested hearing before me, at which Mr Madden's findings in his report were vigorously challenged by Messrs Meehan and Murphy, who cross-examined him, and by the administrator of AMH.

19 I decided that it was appropriate to give judicial advice to Mr Madden that he would be justified in taking no further steps as trustee and receiver, until further order of the Court. In the course of my lengthy reasons for this decision delivered on 3 April 2000 ([2000] NSWSC 253), I examined Mr Madden's report in detail and considered the criticisms of it advanced by Messrs Meehan and Murphy and the administrator of AMH.

20   I accepted the report, as amended by a subsequent affidavit by Mr Madden, as a balanced and accurate review of the information and materials presented to him, and I rejected the criticisms made on behalf of Messrs Meehan and Murphy and the administrator (at para 62 of my judgment). This finding implies that I accepted the general conclusions reached by Mr Madden, which I had summarised at paragraphs 56-59 of my judgment. I should emphasise that those general conclusions included Mr Madden's finding that AMH had failed to maintain adequate books and records which would enable true and fair accounts to be produced, and had failed to comply with the requirement of the unitholders' deed that monthly management accounts be prepared, and that financial records be maintained for that purpose. Mr Madden's general conclusions on these matters imply that AMH was in breach of its duties as trustee.

21   I then reviewed the specific findings in Mr Madden's report. Having considered his findings about the way income from consultations and the sale of medication was accounted for, I rejected the contention that the trust deed and the unitholders' deed authorised the intermingling of funds that had occurred. I said that while it would not be appropriate for me to make any firm finding of breach of trust on such a specific matter in an application for judicial advice such as was before me, there were at least reasonable grounds for apprehension that the intermingling of trust money with other money as recorded by Mr Madden was in breach of trust (at para 69).

22   I then considered Mr Madden's findings with respect to transactions between the trust and the service companies. Mr Madden had made it clear that he was hampered by a significant inadequacy of information. I found that Mr Madden's conclusions raised serious doubts as to whether breaches of trust may have occurred with respect to the service companies, and it would be reasonable to expect the parties who were in a position to remove those doubts (namely, Messrs Meehan and Murphy) to undertake the burden of doing so (para 75).

23   I then dealt with various other findings by Mr Madden which, in my view, raised serious concerns as to whether there had been breaches of trust. I reached the overall conclusion that the specific facts presented by Mr Madden provided reasonable grounds for concern that there had been breaches of trust and duty, but that there may be explanations which would overcome those concerns (para 141).

24   For present purposes, two things are significant about the conclusions that I reached in my judgment 3 April 2000. First, I found that in his report, Mr Madden had time and again identified serious grounds for concern about breaches of trust by AMH in which Messrs Meehan and Murphy may have been implicated. I thought it inappropriate to go beyond that finding by deciding that there had been breaches of trust with respect to specific matters, given the nature of the application before me. Secondly, I accepted Mr Madden's general conclusion about the inadequacy of the trust's accounting records. In that respect, I accepted that there was evidence of a breach of trust.

25   Glazier submitted that, in view of the report's findings, the Court should advise Mr Madden to take some appropriate further steps with respect to the suspected breaches of trust. My findings about the report implied that there were good grounds for further investigations with respect to the administration of the trust, and that it would be reasonable in light of the report to adopt a procedure that would cast on Messrs Meehan and Murphy the onus of demonstrating due administration. I decided, in effect, that:

· the immediate commencement of proceedings for breach of trust against AMH or Messrs Meehan and Murphy would not be warranted, because of deficiencies in evidence;

· an order for general administration of the trust would involve substantial cost and may achieve very little;

· to appoint Mr Madden as liquidator of AMH would enhance his powers of investigation but his further investigations would be costly and may not put him in a position to act effectively;

· it would be open to Mr Madden to seek to examine Messrs Meehan and Murphy under Part 5.9 of the Corporations Law, but I was not persuaded that the cost of conducting examinations would be warranted by the likely outcome;

· Mr Madden could seek the advice of senior counsel on the appropriate course of action in light of the report, but given the inadequacy of the information supplied to Mr Madden, it was difficult to see how counsel could provide the kind of firm advice that would warrant the commencement of proceedings.

26   I indicated a preference for a course of action that would be taken by the plaintiffs, who are the real protagonists, rather than by Mr Madden. I noted that Young J's orders of 18 March 1998 included an order against all five defendants for the taking of accounts, and that nothing had happened to give effect to that order pending the completion of Mr Madden's report and his application for judicial advice. I expressed the view (at para 159) that the taking of accounts would be a satisfactory procedure for determining whether the concerns arising out of Mr Madden's report were valid. I drew attention to the distinction between the taking of common accounts and the taking of accounts upon the footing of wilful default. I observed (at para 156) that an issue which may have to be clarified was whether the taking of accounts in the present case should be on the footing of wilful default. If it were, the procedure would require Messrs Meehan and Murphy to fill in the gaps in AMH's accounting for the dealings and transactions of the trust. I regarded that outcome as desirable.

27   The present application is a direct consequence of the views that I expressed in my judgment of 3 April 2000. In order to deal with the application, I shall consider:

(a) whether I am entitled to rely on my findings of 3 April 2000 in dealing with the present application;

(b) the distinction between an order for the taking of accounts of administration and an order for an account of profits, and the further distinction between an order for the taking of accounts of administration in common form and on the basis of wilful default;

(c) whether Young J's order was an order for the taking of accounts of administration and if so, whether it was an order in common form or on the basis of wilful default;

(d) whether Young J's consent orders established grounds for the taking of accounts on the footing of wilful default as a matter of res judicata or issue estoppel;

(e) whether it is necessary for an applicant for accounts on the basis of wilful default to establish at least one act of wilful default, and if so, whether an act of wilful default has been established in the present case;

(f) whether accounts can be ordered on the basis of wilful default when that relief is not sought in the pleadings;

(g) whether it is open to, and necessary for, the Court now to amend consent order No 4 made by Young J on 18 March 1998, to provide expressly that accounts are to be taken on the footing of wilful default.

The status, in the present application, of my findings of 3 April 2000


28   As will be seen, one of the questions for determination on the present application is whether one or more instances of wilful default have been proven. After hearing the present application, I raised with the parties the question whether it was open to me to rely on the findings of fact which I had previously made in my judgment of 3 April 2000. The second, third and fifth defendants, as well as the plaintiff and the administrator of the first defendant, appeared on Mr Madden's application and contested it vigorously. In particular, senior counsel for the second, third and fifth defendants cross-examined Mr Madden extensively.

29   I subsequently heard supplementary argument as to whether it was appropriate for me to rely on my findings of fact in that earlier judgment. The defendants contended that I should not do so. (I shall use the term ‘defendants’ to refer to the second, third and fifth defendants, who were the only defendants who resisted the plaintiff’s applications at the hearing.) They said that Mr Madden's application for judicial advice did not bear upon the proceedings before and orders made by Young J in 1998. I disagree. The case partly heard by Young J related to allegations of improper conduct and defaults by the trustee and its directors. Mr Madden's report was directed towards preparing an account of the dealings and transactions of the trustee in accordance with Young J's orders, although in fact the report was not a taking of accounts in the legal sense. In the course of preparing his report, it was necessary for Mr Madden to review the financial records and transactions of the trust having regard to the trust instrument. Questions of improper conduct and default necessarily arose.

30   Secondly, the defendants say that the plaintiff relied on Mr Madden's evidence for the purpose of the application, but it did not rely upon the judgment of 3 April 2000 as evidence in the present applications. In fact, however, my reasons for judgment of 3 April 2000 were extensively relied upon by the plaintiff in submissions, evidently on the assumption that it was unnecessary to tender the reasons for judgment in order to take advantage of the findings that it contained.

31   Thirdly, the defendants say that no issue estoppel between the plaintiffs and the defendants could arise from the resolution of Mr Madden's application, because there was no identity of parties, and there was no issue in Mr Madden's application as to whether a breach of trust, if any, constituted a wilful default, and the trustee’s application was an interlocutory application that did not lead to final orders.

32   It is true that the second, third and fifth defendants were strictly not parties to Mr Madden's application, but they were parties to the proceedings and they appeared on the application and participated in the hearing, very extensively. They and the plaintiffs were the protagonists with respect to the issue whether Mr Madden’s report identified wrongdoing that would justify further action by the trustee. In those circumstances, the fact that the parties to the trustee’s application and the present applications are not the same does not prevent an issue estoppel from arising now: Taylor v Ansett Transport Industries Ltd (1987) 18 FCR 342, 358. While the question whether there was any wilful default for the purpose of ordering accounts to be taken on that basis was not an issue that arose in Mr Madden's application, the application was argued (particularly by the second, third and fifth defendants) in such a manner that it was necessary for me to reach conclusions as to whether Mr Madden's report had identified any wrongdoing by the defendants or any grounds for concern that wrongdoing may have occurred. To the extent that the report related to wrongdoing falling within the category of ‘wilful default’, there was an issue on that application which is relevant to the present applications.

33   However, in my opinion it is not necessary for me to decide that my reasons for judgment of 3 April 2000 give rise to an issue estoppel in the present application, in order to justify my referring to those reasons for judgment now. The relevance of my earlier reasons for judgment is that they may assist me to determine now, for the purposes of the present applications, whether the plaintiff has proven at least one instance of wilful default so that an order can be made for the taking of accounts on that basis. The question is whether the evidence that has been adduced in the present applications (including Mr Madden’s report) satisfies me that there has been at least one instance of wilful default in circumstances raising a reasonable prima facie inference that there may have been other defaults. My reasons for judgment of 3 April 2000 are highly relevant to that question, because they set out the conclusions that I was able to draw upon Mr Madden’s report after it had been vigorously challenged by the defendants, and I see no justifiable reason for not referring to them and taking them into account in the present application.

34   On the same reasoning, it is unnecessary for me to decide whether my reasons for judgment of 3 April 2000 led to ‘interlocutory orders of a substantive nature’ and if they did, whether an issue estoppel can arise notwithstanding their interlocutory nature: cf Amalgamated Television Services v Marsden [1999] NSWCA 313, paras 34 and 38.

35   Whether, having regard to my reasons for judgment of 3 April 2000 and the evidence admitted on the application, the plaintiff has established an entitlement to an order for the taking of accounts on the basis of wilful default, is the issue to which I now turn.

Accounting for administration in common form and for wilful default, and accounting for profit or replenishing loss

36   In equity an order for the taking of accounts may be made in a wide variety of circumstances. In the present context it is important to distinguish between two kinds of orders. One kind (which I shall call an order for an account of administration) is made where the overall administration of a business enterprise or fund or other property is to be established or accounted for. Another kind (which I shall call an order for an account of profits) is made to provide a remedy for specific equitable wrongdoing.

Order for an account of administration

37   An order for an account of administration is made for the taking of accounts of money received and disbursed by the person who is responsible for the administration of a business enterprise or fund or other property, and for payment of any amount found to be due by that person upon the taking of the accounts. For example, the Court routinely orders the taking of accounts of the administration of an estate by an executor, or upon the dissolution of a partnership, or of the administration of property by a mortgagee in possession, or of a trust fund such as a solicitor's trust account. In such a case the making of the order need not imply any wrongdoing by the defendant.

Order for an account of administration in common form

38   The usual form of order, referred to as an order in common form or for common accounts, requires the defendant to account only for what he or she has actually received, and his or her disbursement and distribution of it. The defendant prepares accounts and it is open to the other parties to surcharge or falsify items in those accounts. A surcharge is the showing of an omission for which credit ought to have been given, while a falsification is the showing of a charge which has been wrongly inserted, the falsifying party alleging that money shown in the account as paid was either not paid or improperly paid: Parker's Practice in Equity (New South Wales) (2nd ed by GP Stuckey and CD Irwin, 1949), p 269. Part 48 Rule 6 of the Supreme Court Rules preserves these procedures for challenging the account, while abandoning the arcane terminology of the chancery practice.

Order for an account of administration on basis of wilful default


39   Sometimes the Court orders that accounts be taken on the basis of wilful default (or in the earlier cases, wilful neglect or default). The order is ‘entirely grounded on misconduct’, the defendant being required to account not only for what he or she has received, but also for what he or she might have received had it not been for the default: Partington v Reynolds (1858) 4 Drew 253, 255-6; 62 ER 98, 98-9. To obtain an order for the taking of accounts in common form against an executor, for example, the plaintiff need only show that the defendant is the executor, and need not show anything about the defendant's dealings with the estate; whereas to obtain an order on the basis of wilful default the plaintiff must allege and prove ‘that there is some part of the deceased's personal estate which ought to have been and might have been received by the defendant, and which he has omitted to receive by his own wilful neglect or default’: Partington v Reynolds , at 256 (ER at 99).

40   It appears that in the present context, the concept of ‘wilful default’ is confined to cases where there has been ‘a loss of assets received, or assets which might have been received’: Re Stevens [1898] 1 Ch 162, 171. In that case the failure of executors to cause the proceeds of an insurance policy to be paid to the policy's mortgagee for nearly seven years, during which time interest accrued to the mortgagee, was held not to amount to wilful default for the purposes of an application for an accounting on that basis. However, the concept is evidently not confined to cases of conscious wrongdoing: Bartlett v Barclays Trust Co Ltd [1980] 1 Ch 515, 546. Obviously the concept here is not necessarily the same as the concept of ‘wilful default’ used in other parts of the law: see, for example, Wilkinson v Feldworth Financial Services Pty Ltd (1998) 29 ACSR 642, 696-700.

41   As will be seen, the court may make an order that general accounts be taken on the footing of wilful default if at least one instance of wilful default has been proved. However the court has a discretion whether to make such an order. The test is this: ‘is the past conduct of the trustees such as to give rise to a reasonable prima facie inference that other breaches of trust not yet known to the plaintiff or the court have occurred?’ ( Re Tebbs [1976] 1 All ER 858, 863; see also Russell v Russell (1891) 17 VLR 729).

42   An order for accounts based on wilful default has the effect of casting a much more substantial burden of proof on the accounting party than applies in the case of common accounts. On a falsification, the onus is on the accounting party to justify the account, unless the account is a settled account (not relevant in the present case): Parker , p 269; Daniell's Practice of the High Court of Chancery (5th ed, 1871), p 1120ff, p 575ff; Seton's Forms of Judgment and Orders (6th ed, 1901), Vol II, p 1356ff, p 1382ff; and note the forms of falsification and surcharge in Miller and Horsell's Equity Forms and Precedents (1934), p 195-196; and as to settled accounts, see Pit v Cholmondeley (1754) 2 Ves 565, 28 ER 360. An accounting on the footing of wilful default leads to an order requiring the defendant to replenish funds wrongfully depleted by him or her and in that sense to make restitution for the benefit of the plaintiff.

Order for account of profits for specific equitable wrongdoing

43   An order for an account of profits is made where specific wrongdoing such as breach of trust or fiduciary duty has been found or is suspected. It is usually ancillary to the grant of an injunction: Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25, 34. An order for an account of profits typically requires the wrongdoer to account to the plaintiff for profits made in consequence of the wrongdoing, although the court has a discretion to fashion the order to suit the circumstances of the case, and (for example) will not order the defendant to account for the entire profits of a business established in breach of fiduciary duty, where it would be inequitable to do so: Warman International Ltd v Dwyer (1995) 182 CLR 544. The accounting relates to specified gains rather than the general administration of a fund. Since the order is premised upon a finding of specific wrongdoing, the distinction between an order in common form and an order on the basis of wilful default is irrelevant.

Comparison of order for account of profits with orders for account of administration in common form and on basis of wilful default


44   The contrast between an order for an account of profits and an order for an account of administration in common form is obvious. The former provides a remedy for specific wrongdoing, while the latter ‘supposes no misconduct’ ( Partington v Reynolds at 256 (ER at 99)). The difference between an order for an account of profits and an order for an account of administration on the basis of wilful default is much less sharp. This is especially so when one bears in mind that an order on the footing of wilful default can be limited to an account of part only of the administration, and even to that part of the administration in respect of which wilful default has been proved (as in Re Tebbs) . Confusion has arisen because in both cases, it is necessary to establish at least one instance of wrongdoing, and yet in one case the order is directed only to the specific wrongdoing that has been proved, while in the other case proof of an instance of wrongdoing leads to a process which ‘assumes the probability that other improper transactions may have occurred’ ( Re Tebbs, at 864) throughout the administration or some specified part of it.

45   There is an another source of confusion between cases where it is appropriate to order the taking of accounts on the basis of wilful default, and cases where relief is sought because of a specific breach of trust or duty. In action for breach of trust or duty, an order for an account of profits is one of the many equitable remedies available if the plaintiff makes out an appropriate case. Another remedy is an order that the defendant replenish the fund that he or she has wrongfully depleted (in an administration action, this may take the form of an order charging the executor with the asset). Confusion can arise because an order of that kind is similar in effect to, though more specific than, an order for the taking of accounts on the basis of wilful default, since the latter order includes a provision requiring that the defendant replenish the fund by the amount certified to be due when accounts have been taken.

Active and passive misconduct


46   In a case where an account of administration on the basis of wilful default is appropriate, emphasis is placed on whether the defendant has failed to discharge his or her duty, rather than whether the plaintiff has established active conduct in breach of duty. This could lead one to infer that the difference between accounting on the basis of wilful default and accounting for profit is that in the first case the wrongdoing is passive whereas in the second case there is active wrongdoing. In my view that would be an oversimplification.

47   In Re Wrightson [1908] 1 Ch 789 the plaintiffs in an administration action alleged, in their statement of claim, that a specific breach of trust had occurred when the defendant trustees used funds of the estate to pay out a mortgage without taking a transfer of the security. The defendants by their defence stated that they had made the breach of trust good. The plaintiffs consented to an order for an account of administration in common form, but subsequently took out a summons for orders that the defendants be removed as trustees and that additional accounts be taken, on the basis of further breaches of trust alleged to have been committed before the commencement of proceedings. Warrington J held that it was not permissible for the plaintiffs, after judgment, to charge the trustees with breaches of trust not alleged in the pleadings or proved at the trial.

48   The plaintiffs relied on a line of authorities (including Jessel MR's judgments in Job v Job and Mayer v Murray , discussed below), which allow an application for an order for the taking of accounts on the basis of wilful default to be made at any stage, if properly pleaded and proved. Warrington J distinguished those cases on the ground that wilful default is ‘quite distinct from active breach of trust’ (at 799), and ‘in cases of breach of trust relief is given in respect of those specific breaches of trust which are proved, and in respect of those only’ (at 799-800).

49   In Bartlett v Barclays Trust Co (No 2) [1980] Ch 539 Brightman J found that the defendant was liable to replenish a trust fund depleted by unauthorised speculative investment, because it had failed to exercise its skill and expertise to investigate the investment proposal and intervene to safeguard the interests of the trust, and thereby prevent the investment from occurring. After he delivered his reasons for judgment, there was further argument relating to the terms of the orders. The plaintiffs sought a declaration that the defendant was liable to make good the loss suffered in consequence of the defendant allowing certain directors of the investment company to enjoy residential accommodation at less than the full market value. The relevant facts were not pleaded in the statement of claim and did not emerge until cross-examination at the hearing. The defendant submitted, relying on Re Wrightson , that the plaintiffs were not entitled to this relief because it was not pleaded. The plaintiffs replied that they were entitled to an account on the footing of wilful default, and were merely seeking such an account in a restricted form (relying on Re Tebbs, in which an account on the basis of wilful default was ordered, but was restricted to the wilful default that had been established).

50   Brightman LJ (as his Lordship had become since the hearing) said (at 546):
‘Wilful default by trustee in this context means a passive breach of trust, an omission by a trustee to do something which, as a prudent trustee, he ought to have done - as distinct from an active breach of trust, that is to say, doing something which the trustee ought not to have done. If an instance of such wilful default is pleaded and proved, as are a number of such instances in the present case, the court is entitled to order an account on the footing of wilful default. It is otherwise if the plaintiff has merely alleged and proved one or more active breaches of trust. That does not necessarily entitle a plaintiff to a roving commission, which would be afforded by an account on the footing of wilful default.’

Brightman LJ concluded that instances of wilful default had been pleaded and proved in the case before him, and so he granted the plaintiffs the relief claimed in respect of the residential accommodation.


51   His Lordship said, without elaborating, that the distinction between wilful default and active breach of trust could be seen by comparing the judgments in Re Stevens [1898] 1 Ch 162 and Re Wrightson. In Re Stevens the wrongdoing (held, in fact, not to amount to wilful default) was the executors' failure to obtain and produce probate to the insurer under a policy of insurance on the life of the testator. The policy had been mortgaged for more than its value, and for seven years the estate incurred interest on the amount owing under the mortgage. If the executors had acted promptly to secure payment of insurance proceeds to the mortgagee, interest would have been limited to the balance owing after that payment. In Re Wrightson , on the other hand, there were specific allegations that the trustees had made certain investments in breach of trust, and had been guilty of other misconduct not specified in the law report.

52   Brightman LJ's observations were taken up by Kennedy J in Gava v Grljusich [1999] WASC 13, at para 22ff. In that case two of the beneficiaries of a deceased's estate took proceedings for the removal of the trustees of the estate, on a number of grounds. They alleged that the trustees had failed to render an account, that they had dealt with the trust moneys in breach of trust, that they had failed to invest certain trust funds and to record interest on those funds in the trust accounts, that they had failed to keep trust funds separate from their own funds and had paid trust income into their own bank accounts, that one of them had enjoyed a trust property rent-free, that they had failed to act impartially for the benefit of all beneficiaries and to carry out the terms of the trust, that they had failed to file income tax returns for the estate, that their animosity towards the plaintiffs had interfered with the conduct of the trust, and that they were financially improvident and unfit to act as trustees. The plaintiffs claimed an order that the trustees account for their dealings with the estate, but the pleadings made no reference to wilful default.

53   The proceedings were heard by Kennedy J, who concluded that the trustees had committed serious breaches of trust and should be replaced, and made orders accordingly. He made an order which led to the taking of accounts, but a dispute arose before a Master and on appeal, as to whether the accounts should be taken on the basis of wilful default. The Full Court of the Supreme Court of Western Australia directed that any application for accounts to be taken on that basis should be made to Kennedy J (Ipp, Wallwork and Steytler JJ, unreported, 18 September 1997).

54   Kennedy J held that the plaintiffs' claim for an account on the footing of wilful default had proceeded on a misunderstanding as to the nature of such an order. Quoting passages from Re Wrightson and Bartlett v Barclays Trust Co Ltd (including the passages quoted above), he said (at paragraph 23):
‘A case of wilful default is distinct from one concerning an active breach of trust. Breaches of trust in relation to the misuse of funds were relied upon by the plaintiffs in their statement of claim to justify the removal of the defendants as trustees. They were not relied upon for the purpose of an account.’

55   Kennedy J noted that counsel for the defendants had briefly raised the issue whether the case was really one of wilful default, but as the matter was not fully argued, he was reluctant to dispose of the plaintiffs' claim on the ground that the case was not one of wilful default. His decision was that leave should not be granted to the plaintiffs to amend their statement of claim, since it was far too late to do so and an inevitable consequence would be the re-opening of the hearing.

56   In my view, the distinction drawn in these cases is not the mere distinction between active and passive conduct. The circumstances that give rise to a breach of trust will commonly involve active and passive elements. For example, in Re Tebbs the wrongdoing was active conduct, involving the sale of land at an undervalue, but it was regarded as wilful default by Slade J and his characterisation of it was accepted by Kennedy J in Gava v Grljusich (at paragraph 31). In Bartlett v Barclays Trust Co Ltd the wrongdoing was found to be wilful default, although it involved the ‘active’ conduct of allowing directors to occupy residential premises at an undervalue as well as the ‘passive’ default of not intervening to prevent the unauthorised investment. In Re Symons (1882) 21 ChD 757, the plaintiffs' complaints related to conduct with active and passive elements but the case was treated as one of wilful default. Similarly, in the present case there is evidence that the trustee failed to keep proper accounting records. That involved omission to make accurate and complete entries recording the receipt and disbursement of trust money (passive breaches), and preparation and maintenance of accounting records that were not in proper form for a trust (active conduct). More importantly, it is hard to see why in principle there should be such a dramatic difference in consequences between cases where the breach is active and cases where it is passive. The true distinction identified by the quoted passages is the distinction between an order for administration, made in cases where the defendant is required to administer a fund for the benefit of others over time, and fails to do so properly (and is therefore guilty of ‘passive’ breaches by not doing what he or she ought to have done), and an order for an account of profits or replenishment of a fund, made in cases where the complaint is about specific instances of wrongdoing (‘active’ breaches, although they may be as much non-feasance as misfeasance).

The present case


57   Purporting to adopt the reasoning of Kennedy J in Gava v Grljusich , the respondents say that Glazier's claim for an account on the footing of wilful default is made under a misunderstanding as to the nature of an order of that kind. At the hearing of the proceedings before Young J, Glazier contended that there had been active breaches of trust by the first defendant, aided by the respondents. It sought, and obtained, an order for removal of the first defendant as trustee on the ground of breach of trust, as well as an order for the taking of accounts. The respondents submit that this is a case of alleged breaches of trust rather than wilful default, and that an order for the taking of accounts on the basis of wilful default is not appropriate where the case is simply one of breach of trust.

58   I disagree with this submission. In the first place, Gava v Grljusich is distinguishable. There was a full hearing before Kennedy J, who heard the evidence and submissions of the parties with respect to the plaintiffs' complaints. He was able to say that the plaintiff did not rely upon the breaches of trust which he found to exist for the purpose of taking accounts, but only for the purpose of removing the trustees. That cannot be said in the present case, since the orders were made by consent without a full hearing. Secondly, the issue whether the plaintiffs' complaints related to wilful default was not fully argued, and the decision was based on the unfairness of allowing a very late amendment to the statement of claim which would have necessitated a reopening of the hearing. Kennedy J's remarks about the distinction between active breach and wilful default were therefore obiter.

59   If, as I have said, the true distinction is between cases where the defendant is required to administer a fund over time and fails to do so properly, and cases where the defendant has engaged in specific acts of equitable wrongdoing (whether or not in the course of administering a fund), then the distinction must hold good even where numerous specific acts of wrongdoing are pleaded. However, if the specific acts of wrongdoing are so extensive and numerous that the plaintiff's case amounts to a challenge to the whole course of administration of the fund by the defendant, the case ought to be regarded as one in which an account of administration on the basis of wilful default is appropriate, provided that the case has been properly pleaded and one or more instances of wilful default have been proved. I have listed the complaints made about the trustees' conduct in Gava v Grljusich to show that numerous specific complaints were made. Nevertheless, it was open to Kennedy J to see the case as one about specific breaches, though numerous, rather than as a challenge to the whole course of administration of the trust.

60   The present case, in contrast, is one in which from the outset, the plaintiff has made numerous specific complaints which add up together to a challenge to the whole course of administration of the trust by the defendants. Mr Madden's report ranges over the whole course of administration of the trust and finds failures in the accounting area and substantial deficiencies of information, though not any specific breaches of trust except as regards the preparation of accounts and the maintenance of accounting records. The entire circumstances of the case signal that is a case about failure of the defendants properly to administer a fund over time, justifying an order for an account of administration rather than simply orders on the basis of specific breaches of trust, and warranting that the order be on the basis of wilful default if one or more such defaults have been properly pleaded and proved.

The correct characterisation of Young J's order for the taking of accounts


61   On 18 March 1998 Young J made orders in terms of paragraphs 1 to 5 in the prayers for relief in the statement of claim, with a minor variation to paragraph 2. Paragraph 4 was ‘that an account be taken of the dealings and transactions of the first defendant as trustee and that the defendants be ordered to pay to the new trustee the amount found to be due on the taking of such accounts together with interest’. The orders were made by consent. The transcript of the day does not indicate that anything relevant was said as to the meaning of Order 4.

62   In my view paragraph 4 of the prayers for relief in the statement of claim was ambiguous, in its context, as to whether the order sought was an order analogous to an order for an account of profits, based upon the wrongdoing that led to the removal of the trustee, or an order for an account of administration of the trust on the footing of the wilful default that led to removal of the trustee, or an order for an account of administration of the trust in common form.

63   Several considerations could be regarded pointing to the conclusion that the order sought was analogous to an order for an account of profits. Thus, paragraph 4 followed prayers for orders for the removal and replacement of the trustee, and referred to ‘dealings and transactions’ rather than ‘receipts and disbursements’, suggesting that the dealings and transactions which would lead to an order for removal of the trustee would also be the basis for an accounting. Additionally, the statement of claim made many specific allegations of breaches of trust with respect to distributions and accounting matters. The pleader's intention seems to have been that the order for an account would be a restitutionary consequence of the trustee's removal on the grounds of those breaches of trust. When counsel for the plaintiff opened his case before Young J, he handed up an outline of issues which particularised many allegations of specific breaches of trust, put forward as a basis for the relief sought by the plaintiff.

64   However, no particular dealings or transactions were specified in the proposed order, and the order would extend across the whole of the trustee's administration of the trust. It is therefore more likely, in my view, that an account of administration, rather than an account of profits in respect of particular transactions, was intended by the pleader. After all, reference is commonly made to ‘dealings and transactions’ when an order is made for an account of administration: see, for example, A G Nevill and A W Ashe, Equity Proceedings with Precedents (New South Wales) (1981), Precedent 3(4).

65   On the basis that an account of administration was intended by the pleader, rather than an account of profits arising out of specific transactions, there would be a further ambiguity as to whether the account was to be taken on the footing of wilful default, the default being the wrongdoing that led to the removal of the trustee. The absence of any specification that the account be on the footing of wilful default suggests an account in common form, but the juxtaposition of the order for an account with orders for the removal and replacement of the trustee suggests that the basis of wilful default may have been intended.

66   When Young J made orders in terms of paragraph 1 to 5 of the statement of claim, the ambiguity of paragraph 4 may have been transferred into the Court's orders. On the one hand Order 4, when read literally and in isolation from the other orders, appears to be for an order for an account of administration in common form, since it does not mention wilful default or any specific transactions. On the other hand, Order 4 in its context could be regarded as ancillary to the order removing the trustee. If the orders of 18 March 1998 had been made after the conclusion of the hearing and the delivery of reasons for judgment, these ambiguities would almost certainly have been removed by recourse to the reasons for judgment. But the hearing was brought to a premature conclusion by the defendants consenting to the orders sought in the statement of claim. How should the consent orders be construed?

67   In my view, it would be unfair to treat the defendants as having consented to anything more than an order for an account of administration in common form. The relevant prayer for relief in the statement of claim was ambiguous in the ways indicated above. The Court should not assume that the defendants intended to resolve the ambiguity against their interest. Moreover, as no declaratory order concerning any breach of trust was sought or made, their consent to removal of the first defendant as trustee cannot have implied admission of any of the numerous grounds for removal pleaded against them, nor ( a fortiori ), any admission of wilful default.

68   In summary, my conclusion is that Order 4 should be construed, in the circumstances in which it was made, as an order for an account of administration of the trust in common form.

Did the defendants' consent to Young J's orders establish wilful default grounds by res judicata or issue estoppel?


69   It is well settled that consent orders give rise to estoppels: Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502, 508. The plaintiff submits that the two relevant types of estoppel in the present case are estoppel by res judicata and issue estoppel (in the sense described in Blair v Curran (1939) 62 CLR 464, esp at 532; see also Mitsubishi Motors Australia Ltd v Harbord (1997) 69 SASR 75; Pollnow v Armstrong [2000] NSWCA 245).

70   As to res judicata, the plaintiff pleaded and contended for many breaches of trust which could not be regarded as innocent. The plaintiff submits that the question of unfitness of the trustee because of non-innocent breaches of trust is res judicata between the parties because the defendants consented to orders for the removal of the trustee in the proceedings brought by the plaintiff.

71   I disagree with these submissions. As Meagher JA observed in Pollnow v Armstrong [2000] NSWCA 245, paragraph 9, the doctrine of res judicata is concerned with results not reasons. There the subject matter of re judicata was the decision that the alleged trust did not exist, rather than the reasons for that decision. However, as Meagher JA noted at paragraph 12 of that case, there is some authority for the view that in identifying the subject matter of a decision for the purposes of res judicata, the Court may go beyond the formal judgment or order so as to ascertain ‘the realities, and not mere technicalities’. That may permit the Court to have regard to the pleadings. Even so, when the order of the Court is a consent order one cannot, by recourse to the pleadings, infer that a party has consented to an allegation of the other side simply by virtue of consenting to the order that the other side has sought.

72   As to issue estoppel, the plaintiff submits that the Court's record provides a basis for what has been determined, and consequently the consent orders must be taken, in the absence of further evidence by the defendants, to constitute an admission of each form of misconduct set out in the pleadings or contended for in the written summary handed up at the opening of the hearing. The pleadings contain particulars by reference to allegations in affidavits, and the allegations set out in the affidavits should be taken to be admitted. In any case, the plaintiffs say that affidavits and testimony relied on by the defendants contained admissions of breaches of trust. In the circumstances, therefore, the plaintiff submits that the defendants cannot deny that there is at least one instance of wilful default in the conduct of the affairs of the trust.

73   I also disagree with these submissions. Identification of the relevant issue estoppel is to be found in the terms of the orders made by Young J. As Doyle CJ observed in the Mitsubishi case (at 91), it is necessary to examine the record of proceedings, including any terms of settlement, to ascertain whether consent orders have given rise to any issue estoppel. But in the present case the record only shows that the defendants consented to the orders, and there is nothing to indicate that they consented to any aspect of the plaintiff's case. It is not appropriate to look behind the orders and construct a chain of implied consents to various parts of the plaintiff's evidence and submissions. In any event it is significant that the order for the taking of accounts was, as I have found, an order for accounts in common form rather than on the basis of wilful default, and therefore consenting to it cannot imply any acquiescence in the proposition that wilful default has occurred.

Must at least one act of wilful default be established, and if so, is that requirement satisfied here?


74   By the time of Lord Eldon, Chancery had developed the rule that in order to obtain an inquiry, or the taking of accounts, on the basis of wilful neglect and default against an executor or trustee, it was necessary for the plaintiff to allege and prove at least one act of wilful neglect or default. It was for the plaintiff to fix upon any item he may choose, but having done so, it was then up to him to adduce proper evidence to show that but for the wilful neglect or default of the defendant, that item might have been received: Sleight v Lawson (1857) 3 K & J 292, 298, 69 ER 1119, 1121-2. In Coope v Carter (1852) 2 De G McN & G 297; 42 ER 884 the rule was relaxed to the extent that, if wilful neglect or default was alleged in the plaintiff's bill but the facts only raised a case of suspicion in the mind of the Court without proving any instance of such default, the Court could direct a preliminary inquiry to clarify the particular facts alleged. If that preliminary inquiry established one or more instances of wilful neglect or default, the Court might then order the remainder of the inquiry to proceed on the basis of wealth neglect or default.

75   In Sleight v Lawson the executors of the will of a deceased person prepared an inventory shortly after his death, showing that the deceased had assets with a value of 28,665 pounds. When a bill was filed for accounts, the executors said that 20,800 pounds was expended in paying charges on the testator's estates but that they could not answer for the rest. The plaintiff contended, relying on Coope v Carter, that there should be an inquiry as to wilful neglect and default with respect to the items shown by the accounts not to have been realised. Page Wood V-C disagreed, holding that the plaintiff should have fixed upon an item shown not to have been realised, and should have adduced evidence to show that, but for wilful neglect or default by the defendant, that item might have been received. If a conflict of evidence emerged with respect to that item, sufficient to make out a case of suspicion in the mind of the Court that wilful neglect or default may have been committed, the Court could then direct an inquiry. But Lord Eldon's rule prevented the plaintiff from having an inquiry as to wilful neglect or default simply on the ground that the executors had admitted to assets of the estate that had not been realised.

76   In my view Sleight v Lawson still represents the law on this point. In Gava v Grljusich Kennedy J cited it is authority for ‘the well-established rule’ that ‘a plaintiff, in order to be entitled to an account on the basis of wilful default must ... prove at least one example of wilful default on the part of the defendant’ (at paragraph 27).

77   In Lord Eldon's time the item of wilful default had to be proved at that the hearing, because an inquiry as to wilful default could not be added afterwards. By the time the Court of Appeal decided Re Youngs (1885) 30 Ch D 421, however, proof of an item of wilful default could be made after the hearing, in consequence of the prosecution of inquiries under an ordinary decree for the taking accounts (per Cotton LJ at 431-2). But there was no weakening of the requirement that at least one item of wilful default had to be proved.

78   In my opinion the plaintiff has satisfied the requirement to prove at least one instance of wilful default in the present case. I do not agree with the plaintiff that the consent orders imply any such finding. However, the Madden report is in evidence. After hearing evidence about that report including the cross-examination of Mr Madden, I reviewed the report extensively in my reasons for judgment of 3 April 2000. I accept the findings in the Madden report, for the reasons given earlier in this judgment and more fully set out in my previous judgment. Mr Madden's general conclusions included his finding that AMH had failed to maintain adequate books and records which would enable true and fair accounts to be produced, and had failed to comply with the requirement of the unitholders' deed that monthly management accounts be prepared, and that financial records be maintained for that purpose. My acceptance of these conclusions now constitutes a finding of wilful default, for the purpose of making an order for the taking of accounts on that basis.

79   My view that the Madden report disclosed numerous occasions giving rise to real concern as to breach of trust is more than enough to satisfy the requirement that the past conduct of the trustees must be such as to give rise to a reasonable prima facie inference that other breaches of trust have occurred: cf Re Tebbs at 863.

Must relief on the basis of wilful default be sought in the pleadings, and if so, is that requirement satisfied here?


80   As I have mentioned, the statement of claim alleges numerous specific breaches of trust, especially with respect to distributions, the keeping of accounts and related party transactions. The prayers for relief include an order for removal of the trustee, no doubt because of the breaches of trust previously pleaded. When the case was opened on behalf of the plaintiff, an outline of issues was handed up which specified alleged breaches of trust by reference to the affidavits and documentary evidence. But I have found that the order actually made should be treated as an order for an account of administration in common form. The question before me now is not whether it would have been open to Young J on 18 March 1998 to make an order for an account of administration on the footing of wilful default, but whether it is open to me to do so now.

81   There have been significant developments since 18 March 1998. Most importantly, the administration of the trust by the defendants has been the subject of an extensive report by Mr Madden, vigorously challenged by the defendants in Mr Madden's interlocutory application to me for judicial advice, leading to my findings of 3 April 2000. Can the Court make a new order for the taking of accounts on the footing of wilful default in light of these developments? It appears to me that there are two potential obstacles to such an order. The first is that an order in that form was not specifically sought in the statement of claim. The second is that the order in fact made in consequence of the final hearing of the proceedings was for an account in common form (as I have held) and there has been no appeal against that order. I shall deal with these potential obstacles together.

82   In my opinion, under the modern law these potential obstacles are in fact no barrier to the Court making a new order for an account of administration on the footing of wilful default. Nineteenth century Chancery practice was different. In order to obtain a decree for accounts on the basis of wilful default, it was necessary for the plaintiff to allege the misconduct in the bill and prove it at the hearing, and if the plaintiff only obtained the usual decree in common form, misconduct could not be noticed in the taking of accounts under the decree, nor on the hearing of the cause for further directions. If the plaintiff obtained the usual decree and in the course of the taking of accounts under the decree, or in a hearing for further directions, a ground for charging the defendant on the basis of wilful default emerged, the decree could not be varied to encompass wilful default but the plaintiff could file a supplemental bill which would operate as a bill of review: Partington v Reynolds , at 258 (ER at 99). In that case it was held that the introduction, by legislation in 1852, of the new proceeding by summons in chambers did not alter these principles. The case recognised an exception to the general rule, however, where the question was whether an executor ought to be made liable for interest on funds improperly retained uninvested in his hands: see also Knott v Cottee (1852) 16 Beav 77; 51 ER 705; Re Barclay [1899] 1Ch 674.

83   The old chancery practice changed late in the nineteenth century. In Job v Job (1877) 6 Ch D 562 Jessel MR said (at 564):
‘a further rule is that though he is liable in equity in case of wilful default, he cannot be charged with it unless an account is ordered against him on that footing: you cannot charge him with wilful default without making out a case; and therefore, under the old practice, unless wilful default was charged in the bill, you could not so charge him in the accounts. I think, however, that under the new practice an order charging him with wilful default may be made at any time on a proper case being made.’

84   It is puzzling that his Lordship made observations about the taking of accounts on the basis of wilful default at all, given the facts of the case. An administration decree of the testator's estate had been made, but no charge of wilful default was made against the executor by the decree. During the taking of accounts one of the residuary legatees sought to charge the executor with an amount representing the value of chattels which had come into the executor's possession but had been lost. The complaint was therefore one of a specific breach of duty which might ground a separate action for relief (the relief in this case being an order charging the executor with the assets so as to replenish the estate, rather than for an account of profits, as the chattels had been lost). Perhaps the fact that the question arose during the course of administration proceedings, upon further consideration after the making of the administration decree, led his Lordship to refer to the taking of accounts on the basis of wilful default. But, with respect, it is hard to see how a general order of that kind could have been justified, given the limited question that had been raised. His Lordship found that an executor is in the position of a gratuitous bailee, who could not be charged with the loss of assets of the estate without ‘wilful default’, and there was no wilful default in the present case. It seems unlikely that, had the conclusion been the other way, the court would have regarded that single instance of breach of trust as sufficient to justify a general order for the taking of accounts on the basis of another kind of ‘wilful default’.

85   Shortly afterwards, Jessel MR clarified the passage from Job v Job quoted above. In Mayer v Murray (1878) 8 Ch D 424 he said (at 426-7):
‘I there said that in an administration action an order charging an executor with wilful default may be made at any time during the progress of the action. Now an order charging an executor with wilful default could not be made unless he was so charged in the pleadings: therefore the charge, unless originally pleaded, must be introduced by amendment - that is, of course by amendment at any stage of the action at which amendments may be made, that is, before judgment. The general rule is that in every case an order charging wilful default must be based upon a charge of wilful default in the pleadings.’

86   As with Job v Job , one wonders whether the facts of Mayer v Murray provided an occasion for the making of these observations. The case was an action for account by a mortgagor against a mortgagee in possession who had sold the property. There was a question whether the order for the taking of accounts was on the basis of wilful default. The judgment turned on special rules applicable to an order for an account against a mortgagee in possession. The mortgagee's position is obviously distinguishable from the position of an executor, and the law recognises the difference.

87   In Barber v Mackrell (1879) 12 Ch D 534 Fry J applied Jessel MR's observations in those two cases, by analogy, in a case where an administration decree was made and subsequently affidavits were filed showing that there had been serious defalcations on the part of the deceased towards his partners, leading one of the partners to apply for an order for the taking of an additional account. Referring to Jessel MR's remarks, he noted that accounts could be ordered on the footing of wilful default after the hearing of an action as long as a case for doing so was made on the pleadings. In the present case there were no pleadings but the affidavits raised a case of fraud, and in Fry J's view the affidavits should be taken to have been in the nature of pleadings. He found, therefore, that he was not precluded from ordering an account on the footing of wilful default in the present case, because a case for doing so was made out on the ‘pleadings’.

88   The Court of Appeal upheld Fry J's decision that he had jurisdiction to make the additional order for accounts as sought, but they rejected the analogy with Jessel MR's two cases because the present case was not about wilful neglect or default on the part of the executor, but was a claim by the deceased's partner against the estate: at 541 per James LJ, at 548 per Cotton LJ. In terms of the distinction made above between an order for an account of administration and an order for an account of profits, the facts of Barber v Mackrell raised only an issue of accounting for profit, arising out of a breach of duty by the deceased. The additional account which was sought was not an account of administration in any sense, and therefore the question whether the order should be made in common form or on the basis of wilful default simply did not arise. Consequently Fry J's view, that affidavits alleging wilful default are sufficient to satisfy the requirement that wilful default must be pleaded, so as to permit an account of administration to be ordered on the basis of wilful default, survives the Court of Appeal's decision, but only as the barest dictum.

89   In Re Symons (1882) 21Ch D 757 the residuary beneficiary took proceedings against the executors and trustees of an estate alleging that the defendants, in breach of trust, had failed to get in parts of the estate and had accepted interest on outstanding purchase money at a lower rate than they were entitled to charge. As Kennedy J noted in Gava v Grljusich (at paragraph 30) Re Symons was a case where the plaintiff pleaded in effect, though not in form, both wilful default and breach of trust. In addition to claims for the ‘ordinary accounts and inquiries’ (at 757-8), the plaintiff claimed an order that the defendants make good to him the difference between the amount of interest actually received on the purchase money and the amount which should properly have been received. The plaintiff obtained judgment for administration upon admissions of fact contained in the statement of defence, and the court directed the ordinary accounts and inquiries to be taken and made. In terms of the distinction made above, the order was for the taking of accounts of administration, rather than for an account of profits for breach of trust, although the plaintiff had asserted various specific breaches of trust. No order was made on the footing of wilful default and the claims of breach of trust and breach of duty were not dismissed.

90   During the taking of accounts the plaintiff brought in a surcharge, seeking to charge the defendants with additional interest on the purchase money. The Chief Clerk decided that, the surcharge being in the nature of a charge of wilful default, the court's order did not permit him to proceed on that basis. When the matter came before Fry J for further consideration, two years after the initial order for accounts and inquiries, evidence of wilful default was adduced. The defendant argued that, as there had already been a judgment for the taking of accounts in common form and the accounts had been taken and a certificate had been issued, thereafter it was too late to add a direction for an account on the footing of wilful default.

91   Fry J disagreed, and directed accounts and inquiries on the footing of wilful default. He said (at 761) that ‘if wilful default is charged in the pleadings, and evidence of it is adduced, accounts and inquiries on that footing may be directed at any stage of the proceedings’. He found that there was a charge of wilful default against the defendants in the statement of claim, because it alleged breaches of duty and breaches of trust in failing to get in the estate and to charge adequate interest on purchase money. Though the claim was not, in terms, for relief on the footing of wilful default, it was in his view a sufficient claim for relief on that footing (at 760). He noted the convenience of the Court being able to direct an account on the footing of wilful default after judgment, ‘because in many cases the evidence of wilful default comes out naturally in the course of taking the accounts’ (at 761).

92   In Gava v Grljusich (at paragraph 30) Kennedy J observed that the reference by Fry J to ‘any stage of the proceedings’ was intended to mean any stage of the proceedings before judgment, as he expressly adopted the passage in the judgment of Jessel MR in Mayer v Murray . I respectfully agree that the words ‘any stage of the proceedings’ should be limited by reference to Jessel MR's remarks, but in my opinion the limitation only applies if wilful default was not initially pleaded and must be introduced by amendment, and moreover, the correct limitation is that an order on the basis of wilful default cannot be made except at a stage of the action at which the pleadings may be amended to claim relief in that form. Amendments could only be made before judgment at the time when Jessel MR spoke, but today much depends on the nature of the judgment and the proceedings in question. I shall return to this point.

93   In my opinion, Fry J's judgment in Re Symons is a correct statement of the modern law with respect to the ‘pleading’ requirement for an order for an account of administration. Even though Fry J relies on cases ( Job v Job , Mayer v Murray and Barber v Mackrell ) in which accounting for administration on the basis of wilful default did not strictly arise, his statements of principle were accepted by Stirling J in Re Barclay , [1899] 1 Ch at 681 (although, as Kennedy J pointed out in Gava v Grljusich (at paragraph 34) that case did not concern a claim for wilful default). There is some support for Fry J’s approach, in a different but analogous context, in Wilkinson v Feldworth at 696-7.

94   In the present case, applying the reasoning of Fry J, I regard it as sufficient that the statement of claim alleges numerous specific breaches of trust, some of an inherently serious character, ranging over the whole administration of the trust by AMH and its directors, which would undoubtedly amount to wilful defaults if proved. This is true even though the statement of claim does not assert in respect of any of them that the breach amounts to ‘wilful default’. The plaintiff's affidavits depose to numerous breaches of trust of the same character. It is not necessary for the prayers for relief to contain an explicit request for accounts on the footing of wilful default. In Re Symons there was no such request.

95   Fry J took the view that accounts on the basis of wilful default could be ordered at any stage in the pleadings, provided that wilful default was adequately charged in the pleadings and there was evidence of it. It would be just as unsatisfactory if the Court was precluded from responding to evidence of wilful default, vigorously contested, simply because the evidence has emerged from a process of receivership after the final hearing, as it would be if the Court were prevented from doing so because the evidence of wilful default arose during the taking of accounts after judgment.

96   Given these conclusions, it is strictly unnecessary for the plaintiff to seek to amend the statement of claim to seek an accounting on the basis of wilful default. However such an amendment may assist to clarify the position and so on balance, I am prepared to make the order sought by the plaintiff for leave to amend.

Can the Court now amend Young J's order?


97   As previously mentioned, in Job v Job and Mayer v Murray Jessel MR stated that an order for accounts on the basis of wilful default could not be made unless pleaded, but the pleading could be introduced by amendment at any stage of the action at which amendments may be made. In Re Youngs (885) 30 Ch D 421 Cotton LJ said (at 431-2) that ‘if, in the prosecution of inquiries under an ordinary decree, facts come out which, if proved at the hearing, would have enabled the plaintiff to obtain an inquiry as to wilful default, that inquiry will be added’. This suggests a willingness to permit amendments to the pleadings where facts emerged which justify an account on the basis of wilful default. There is ample power to permit the statement of claim to be amended under Part 20 Rule 1 of the Supreme Court Rules.

98 Amendment of Young J’s order may be more difficult. The defendants submit that since the consent orders have been entered, it is not permissible under Part 40 Rule 9 of the Supreme Court Rules to amend the order. Sub-rule 9(4) permits the Court to amend except so far as the order determines any claim for relief or any question arising on any claim for relief. Counsel for both parties made submissions as to the status of Young J’s order number 4, referring to whether Young J’s order was a final or interlocutory order (see Derrawee Pastoral Co Pty Ltd v McConochie (Court of Appeal of New South Wales, 24 February 1995, unreported); Amalgamated Television Services v Marsden [1999] NSWCA 313) and whether this is a case of ‘further consideration’ permitting a review of the earlier order (see Rosser v Maritime Services Board (No 2) (Supreme Court of New South Wales, Young J, 17 September 1996, unreported)). It seems to me unnecessary to resolve the difficulties raised by these submissions and the cases cited, and I would prefer not to do so. I would rather rely on Part 42 Rule 12.

99 The defendants submit that the Court's power under Part 42 Rule 12 to stay execution of the judgment, or make some other order, on the ground of matters occurring after the judgment, is irrelevant in the present case. The defendants say that the matters upon which the plaintiff relies are not matters arising after judgment, except for the Madden report, and they submit that the Madden report does not constitute evidence of any proven breach of trust.

100 It seems to me that the Madden report is evidence of breaches of trust, and grounds for concern that others may have occurred, as I explained in my reasons for judgment of 3 April 2000 and earlier in the present judgment. That being so, the Court has ample power under Part 42 Rule 12 to make an order to take into account the new development constituted by the Madden report: see Adam P Brown Male Fashions Pty Ltd v Phillip Morris Incorporated (1981) 148 CLR 170.

Conclusion

101   In my view the plaintiff has made out its case for an order for the taking of accounts on the basis of wilful default, and for leave to amend its statement of claim to plead and seek relief on that basis. There being no other issue raised by the defendants as to the form of orders sought in the plaintiff's two notices of motion, I propose to make the orders and directions in both of them. I shall hear the parties at a convenient time on the question of costs of the applications.
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Last Modified: 02/08/2001